CORPORATE INCOME

TAXATION
What is a Corporation?
• It is a legal entity that is separate and distinct from its owners. Under the law, corporations
possess many of the same rights and responsibilities as individuals.

• It is a business entity that is owned by its shareholder/s, who elect a board of directors to oversee
the organization's activities.

• It is a legal entity created by individuals, stockholders, or shareholders, with the purpose of

operating for profit.

• It includes partnerships, joint-stock companies, joint accounts, associations, mutual funds,

investment management or insurance companies.
General Classification of Corporations

Domestic Corporations – 20% or 25% regular tax on ALL taxable income

earned within and outside the Philippines

Resident Foreign Corporations – 25% regular tax on taxable income

within Philippines only

Non-resident Foreign Corporations – 25% final tax on gross income

within Philippines only
 SPECIAL CORPORATIONS
1. Domestic Corporations
-Exempt corporations (GOCCs, exempt non-profit organizations, etc.)
-Preferential-rate/Special corporations (Educational institutions, non-profit
hospitals, FCDUs, PEZA and BOI-registered companies)

2. Resident Foreign Corporations

-Offshore banking units, RAHs, ROHQs, international carriers

3. Non-resident foreign corporations

-Non-resident lessor/distributors, lessors of vessels, aircrafts or other
equipment
Tax Classification Rule
Example: GOCCs Exempt Corporations
Income derived from related activities – EXEMPT from income tax
Income derived from unrelated activities – subject to REGULAR income tax

Pre-dominance test
Example: Private Educational Institutions and Hospitals
If income derived from related activities is >50% – ALL INCOME subject 10% preferential tax rate
If income derived from unrelated activities >50% – ALL INCOME subject to REGULAR income tax
Taxation Rules on Educational Institutions and Hospitals
Type of Entity Educational Institutions Hospitals
Private 10% of taxable income 25% of taxable income
Non-profit EXEMPT 10% of taxable income
Government EXEMPT EXEMPT
 Taxation Rules on FCDUs/EFCDUs/OBUs

FROM RESIDENT FROM OTHER FROM

INCOME OF (E)FCDUs/OBUs
(E)FCDUs/OBUs RESIDENTS NON-RESIDENTS

1. Income from foreign exchange

transactions
Interest income:
-forex loans and receivables Exempt 10% Final tax Exempt
-forex deposits Exempt - Exempt

Other income Exempt RCIT Exempt

2. Income from non-foreign exchange

RCIT RCIT RCIT
transactions