DE LA SALLE LIPA

College of Business, Economics, Accountancy, and Management

Accountancy and Accounting Information Systems Area

PHILIPPINE INCOME TAXATION

Income Taxation for Corporations, Partnerships, and Joint Ventures (Part 4)

Special Corporations

DOMESTIC CORPORATIONS
Proprietary Non-profit Educational Institutions and Hospitals
The rules applicable to ordinary corporations will also apply to proprietary educational institutions and
hospitals which are nonprofit except the following:
1. In computing basic income tax, the rate is 1%. However, if income not related to its primary
purpose or function is more than 50% of its total gross income, the rate applicable is 25%/20%.

Unrelated trade, business, or other activity – is an activity which is not substantially related to the
exercise or performance of the school or hospital’s primary purpose or function such as but not
limited to rental income from available school spaces or facilities

Examples of related income (RMC 4-2013)

• Income from tuition fees and miscellaneous school fees
• Income from hospital where medical graduates are trained for residency
• Income from canteen situated within the school campus
• Income from bookstore situated within the school campus

Proprietary educational institution – is any private school maintained and administered by private
individuals or groups with an issued permit to operate from the Department of Education (DepEd),
or the Commission on Higher Education (CHED), or the Technical Education and Skills
Development Authority (TESDA), as the case may be, in accordance with existing law and
regulations.

2. It is not subject to MCIT

3. Expenditures for expansion of school facilities may not be capitalized but instead claimed as
outright expense. This rule shall not apply, however, to a non-profit hospital.

Applicable Income Tax of Educational Institutions in the Philippines

Educational Institution Ordinary Income Passive Income* Capital Gains**

Proprietary Educational Generally 1% of net income FWT CGT****
Institutions (PEIs)*** 25%/20% if unrelated income >
Ex. UB, LPU, FEU related income
Non-stock non-profit • Philippine Constitution, Art.XIV, FWT CGT****
educational institutions Sec. 4(3): ALL REVENUES and
(NSEIs) ASSETS of non-stock, non-profit
Ex. DLSL, OLCA, STC, educational institutions used
Canossa actually, directly, and exclusively
for educational purposes shall be
exempt from taxes and duties; and
• Exempt under Sec. 30, NIRC; The
following shall not be taxed in
respect to income received by
them as such:
 (H) A non-stock non-profit
educational institution
Government • Exempt under Sec. 30, NIRC; The FWT CGT****
Educational Institutions following shall not be taxed in
(GEIs) respect to income received by
Ex. BatStateU, KLL them as such:
(I) Government educational
institution & as provided for in the
law or charter creating the GEI

* On certain passive income derived from Philippine sources.

**On sale of shares of stock of a non-listed domestic corporation and real properties located in the
Philippines classified as capital assets.
***Only PEIs are classified as special corporations unless its Unrelated Income is higher than Related
Income. Hence, the discussions regarding PEIs in the preceding pages shall not be applied to NSEIs
and GEIs (ex. Income from leasing of spaces > tuition fee revenue)
****Sec. 234 of the Local Government Code – the following are exempted from payment of the real
property tax: (b) Charitable institutions, churches, parsonages or covenants appurtenant thereto,
mosques, nonprofit or religious cemeteries and all lands, buildings, and improvements actually, directly,
and exclusively used for religious, charitable, or educational purposes.

Applicable Income Tax of Hospitals in the Philippines

Educational Institution Ordinary Income Passive Income* Capital Gains**

For Profit Hospital Higher of 25%/20% RCIT, 1% MCIT FWT CGT
Ex. Mary Mediatrix
Medical Center
Non-stock non-profit 1% of net income (RA11534), FWT CGT****
hospitals (Special however, 25%/20% if unrelated
Corp.)*** income > related income
Ex. St. Luke’s Medical
Center May also be exempt if all the
requirements for exemptions under
the law are complied as illustrated

* On certain passive income derived from Philippine sources.

**On sale of shares of stock of a non-listed domestic corporation and real properties located in the
Philippines classified as capital assets.
***Generally, non-stock non-profit hospitals are classified as special corporations. Therefore, generally
taxable at 1% unless its Unrelated Income is higher than Related Income.
****Sec. 234 of the Local Government Code – the following are exempted from payment of the real
property tax: (b) Charitable institutions, churches, parsonages or covenants appurtenant thereto,
mosques, nonprofit or religious cemeteries and all lands, buildings, and improvements actually, directly,
and exclusively used for religious, charitable, or educational purposes.

RESIDENT FOREIGN CORPORATIONS:

International Carriers
Gross Philippine Billings PXXX
Rate x2.5%**
Income Tax PXXX

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**International carriers may avail of a lower tax rate (preferential rate) or exemption under RA 10378 on
the basis of:
a. Tax Treaty
b. International agreement
c. Reciprocity – an international carrier, whose home country grants income tax exemption to
Philippine carriers, shall likewise be exempt from income tax.

Gross Philippine Billings (GPB):

a. International Air Carrier – refers to the amount of gross revenue derived from carriage of persons,
excess baggage, cargo, and mail:
- Originating from the Philippines;
- In a continuous and uninterrupted flight;
- Irrespective of the place of sale or issue and the place of payment of the ticket or passage of
document/

NOTE:
1. Tickets revalidated, exchanged and/or indorsed to another international airline form part of the
GPB if a passenger boards a plane in a port or point in the Philippines.
2. Flight which originates from the Philippines, but transshipment of passenger takes place at
any port outside the Philippines on another airline, only the aliquot portion of the cost of the
ticket corresponding to the leg flown from the Philippines to the point of transshipment shall
form part of the GPB.

b. International Shipping – means gross revenue whether for passenger, cargo, or mail originating
from the Philippines up to final destination, regardless of the place of sale or payments of the
passage or freight documents.

Regional Operating Headquarters (ROHQs)

The rules applicable to ordinary corporations will also apply to Regional Operating Headquarters except
the following:
1. In computing basic income tax, the rate is 10% but effective January 1, 2022, it will be at 25%
2. It is not subject to MCIT.

NON-RESIDENT FOREIGN CORPORATION

TYPE TAX BASE RATE

Non-resident Cinematographic Film Owner, Lessor, or Gross Income 25%
Distributor
Non-resident Owner or Lessor of Vessels Chartered Gross Rentals, lease, or charter fees 4.5%
by Philippine Nationals
Non-resident Owner or Lessor of Aircraft, Gross rentals, charters, or other fees 7.5%
Machineries, and Other Equipment

Offshore Banking Units (OBU)

An OBU is a branch, subsidiary, or affiliate or a foreign banking corporation located in a/n
Offshore Financial Center (OFC) which is duly authorized by the Bangko Sentral ng Pilipinas (BSP) to
transact offshore banking business in the Philippines (PD 1034; BSP Circular No. 1389). OBUs are
allowed to provide all traditional banking services to non-residents in any currency other than Philippine
national currency. Offshore banking units are forbidden to make any transactions in Philippine Peso.
Banking transactions to residents are limited and restricted. Income derived by offshore banking units
(OBUs) from foreign currency transactions shall be taxed as follows:

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 COUNTERPARTY RATE
Nonresidents Exempt
Other OBUs Exempt
Local Commercial Banks Exempt
Branches of foreign banks Exempt
Other residents 10%

If an OBU earn income other than from foreign currency transactions, it will be subject to basic
income tax (RCIT vs. MCIT, whichever is higher). Hence, OBUs are not classified as special
corporations. Any income derived by nonresidents (individuals or corporations) from transactions with
OBUs shall not be subject to income tax.

Regional or Area Headquarters (RHQs)

RHQs shall not be subject to income tax. RHQs are not included in the definition of corporation for
income tax purposes. Hence, RHQs are not special corporations.

BRANCH PROFIT REMITTANCE TAX (BPRT) OF RFCs

Formula
Profit remittance PXXXX
Rate 15%
BPRT PXXX

PROFIT REMITTANCE
PROFIT REMITTED APPLICABLE TAX
Connected with the conduct of its trade or business in the Philippines Subject to 15% BPRT
Others (i.e. passive income) Not subject to BPRT

EXEMPT ENTITIES
Activities registered with the following shall be exempt from BPRT:
1. Philippine Economic Zone Authority (PEZA)
2. Subic Bay Metropolitan Authority (SBMA)
3. Clark Development Authority (CDA)

FILING REQUIREMENTS

Filing of Tax Returns may be made through:

• Manual filing
• Electronic Filing and Payment System (eFPS)
• eBIR Forms

Form 1702Q (Quarterly Income Tax Return for Corporations, Partnerships and Other Non-
Individual Taxpayers)
- Description
This return is filed quarterly by every corporation, partnership, joint stock companies, joint
accounts, associations (except foreign corporation not engaged in trade or business in the
Philippines and joint venture or consortium formed for the purpose of undertaking construction
projects or engaging in petroleum, coal, geothermal and other energy operations),
government-owned or controlled corporations, agencies and instrumentalities.

- Filing Date

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 The corporate quarterly income tax return shall be filed with or without payment within sixty
(60) days following the close of each of the first three (3) quarters of the taxable year whether
calendar or fiscal year.

Form 1702-EX (Annual Income Tax Return For Corporation, Partnership and Other Non-Individual
Taxpayers EXEMPT Under the Tax Code, as Amended, {Sec. 30 and those exempted in Sec.
27(C)} and Other Special Laws, with NO Other Taxable Income)
- Description
This return shall be filed by a Corporation, Partnership and Other Non-Individual Taxpayer
EXEMPT under the Tax Code, as amended [Sec. 30 and those exempted in Sec. 27(C)] and
other Special Laws WITH NO OTHER TAXABLE INCOME such as but not limited to
foundations, cooperatives, charitable institutions, non-stock and non-profit educational
institutions, General Professional Partnership (GPP) etc.

- Filing Date
This return is filed on or before the 15th day of the 4th month following the close of the
taxpayer's taxable year.

Form 1702-MX (Annual Income Tax Return for Corporation, Partnership and Other Non-Individual
with MIXED Income Subject to Multiple Income Tax Rates or with Income Subject to
SPECIAL/PREFERENTIAL RATE)
- Description
This return shall be filed by every Corporation, Partnership and Other Non-Individual
Taxpayer with MIXED Income subject to MULTIPLE INCOME TAX RATES or with income
subject to SPECIAL/PREFERENTIAL RATE.

- Filing Date
This return is filed, with or without payment, on or before the 15th day of the 4th month
following the close of the taxpayer's taxable year.

Form 1702-RT (Annual Income Tax Return for Corporation, Partnership and Other Non-Individual
Taxpayer Subject Only to REGULAR Income Tax Rate)
- Description
This return shall be filed by Corporation, Partnership and other Non-Individual Taxpayer
Subject Only to REGULAR Income Tax Rate of 30%. Every corporation, partnership no
matter how created or organized, joint stock companies, joint accounts, associations (except
foreign corporation not engaged in trade or business in the Philippines and joint venture or
consortium formed for the purpose of undertaking construction projects or engaging in
petroleum, coal, geothermal and other energy operations), government-owned or controlled
corporations, agencies and instrumentalities shall render a true and accurate income tax
return in accordance with the provisions of the Tax Code.

- Filing Date
This return is filed, with or without payment, on or before the 15th day of the 4th month
following close of the taxpayer's taxable year.

-END-

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