May 2022

INCOME TAX ON CORPORATIONS

Atty. C. Llamado

An Overview of Corporate Taxes

A corporation may be liable for at most five (5) types of income taxes, namely:

Net Income Tax (on Ordinary Income)

Standard Income Tax Final Withholding Tax (on Passive Income)

Capital Gains Tax (on “Capital Gains”)

Minimum Corporate Income Tax (“MCIT”)1

Penalty Income Tax

Special Income Tax

Branch Profits Remittance Tax (“BPRT”)2

Definition

Under Section 22(B) of the NIRC, the term “corporation” shall include:
New
a) One-person corporations;
b) partnerships, no matter how created or organized;
c) joint stock companies;
d) joint accounts (cuentas en participacion);
e) associations; or
f) insurance companies.

However, the term does not include:

a) General professional partnerships (GPPs)

AND

b) joint venture or consortium formed for the purpose of (1) undertaking

construction projects3 or (2) engaging in energy operations pursuant to an
1
The Improperly Accumulated Earnings Tax was repealed by R.A. No. 11534 effective April 11,
2021.
2
The Gross Income Tax was repealed by R.A. No. 11534 effective April 11, 2021.
3
To be exempt, the joint venture/consortium itself and all the co-venturers/consortium members
must be licensed as general contractors by the Philippine Contractors Accreditation Board
(PCAB) of the DTI.

JVs involving foreign contractors may also be exempt if (a) the foreign contractor is covered by
a special license as a contractor by the PCAB; and (b) project is certified by the appropriate
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May 2022

operating or consortium agreement under a service contract with the

Government.

Classification of Corporations

(1) Domestic corporations.

(a) In general
(b) GOCCs EXC: SSS, GSIS, HDMF (Pag-Ibig), PHIC, LWDs
(c) Taxable partnerships
(d) Proprietary educational institutions/Non-profit hospitals;
(e) FCDUs of domestic banks
(f) Service contractors/subcontractors engaged in petroleum operations
(g) Ecozone enterprises and Enterprises qualified for the 5% SCIT
(h) Microfinance NGOs
(i) Philippine-Based Offshore Gaming Licensees

(2) Resident Foreign corporations.

(a) In general
(b) Resident international carriers
(c) OBUs
(d) ROHQs/RHQs of MNCs
(e) Service contractors/subcontractors engaged in petroleum operations
(f) Ecozone enterprises / Enterprises qualified for the 5% SCIT
(g) Foreign-Based Offshore Gaming Licensees

(3) Non-resident foreign corporation

(a) In general
(b) Non-resident owners/lessors of vessels chartered by Philippine
nationals;
(c) Non-resident owners/lessors of aircraft, machineries, and other
equipment;
(d) Non-resident cinematographic film owner, lessor, or distributor;

(4) Exempt Corporations

Types of Income Subject to Tax

(a) Ordinary Income/Net Income – refer to “Ordinary Income” table

(b) Passive Income – refer to “Passive Income” and “Intercorporate

Dividend” tables
(c) “Capital Gains”

government office that the construction project is a foreign-financed or internationally-funded

project in which international bidding is allowed.

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 May 2022

Ordinary Income (in ITR)

Source of
Corporate Taxable Tax Base Tax Rates
Taxpayer Income

Within and Net Income

25%/20% (beg.
1. Domestic without the
July 1, 2020) (b)
Philippines (a)

Within the 25% (beg. July 1,

2. RFC Net Income
Philippines only 2020)

Gross Income Final withholding

Within the
3. NRFC enumerated by tax of 25% (beg.
Philippines only
law Jan. 1, 2021)

(a) Format in the ITR:

Sales, Revenues, Receipts, net xxxxx

Less: COGS/COS (xxxx)
Gross Income from Operations xxxxx
Add: Other taxable income not subject
to final taxes xxxxx
Total Gross Income xxxxx
Less: Itemized Deductions or OSD (xxxx)
Net Taxable Income xxxxx
x Tax Rate x 25%/20%
Regular Corporate Income Tax (RCIT) xxxxx

New (b) Effective July 1, 2020, a domestic corporation shall be subject to a regular
corporate income tax rate of 25% on income included in its income tax
return (“ITR”).

However, a domestic corporation shall be subject to a reduced corporate

income tax rate of 20% when the following conditions concur:4

(1) Net taxable income during the taxable year of not more than Five
Million Pesos (₱5,000,000); and
(2) Total net assets5 (excluding the land on which the entity’s office, plant,
and equipment are situated) during the taxable year of not more than
One Hundred Million Pesos (₱100,000,000).

Total Net Assets Net Taxable Income Tax Rate

₱100 Million and below ₱5.0 Million and below 20%
ALL OTHER DOMESTIC CORPORATIONS 25%

4
Sec. 27(A), NIRC as amended by R.A. No. 11534.
5
Assets, net of depreciation and allowance for bad debts, if any (RMC No. 62-2021).

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 May 2022

PASSIVE INCOME

DOMESTIC
Passive Income and RFC NRFC

Interest on currency bank 20% 25%

deposit

Yield or any other monetary

benefit from:
(1) Deposit substitutes 20% 25%
(2) Trust funds, and 20% 25%
similar arrangements

Royalties 20% 25%

Interest from a depositary

bank under the expanded 15%6 Exempt
foreign currency deposit
system

Prizes ITR 25%

Intercorporate Dividend
Payor Recipient Tax
1. Domestic corporation DC Not taxable
2. Domestic corporation RFC Not taxable
3. Domestic corporation NRF 15% FWT7

100% of dividend is taxable and

included in the ITR of the recipient
4. Foreign corporation DC EXC: Such dividends shall be exempt
when all the requirements under Sec.
27(D)(4) are met.8

6
Before April 11, 2021, the final tax rate for RFCs was 7.5%.
7
The 15% FWT is imposed if the country in which the NRFC is domiciled allows a tax credit
against the corporation’s tax due equivalent to 10% which is the difference between the regular
rate of 25% and the 15% tax rate on dividends. If the foreign country does not allow such
credit in favor of the NRFC, then the tax rate on such dividends shall be 25%.
8
Requirements for income tax exemption of foreign-sourced dividends received by a DC:
New (1) Such dividends are reinvested in the business operations of the DC in the Philippines
within the next taxable year from receipt thereof;
(2) The use thereof shall be limited to funding the working capital requirements, capital
expenditures, dividend payments, investment in domestic subsidiaries, and infrastructure
projects, of the DC recipient; and
(3) The DC directly holds at least 20% in value of the outstanding shares of the foreign
corporation, and has held the same uninterruptedly for a minimum of 2 years (or for the
entire existence of the foreign corporation if the foreign corporation has been in existence
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May 2022

GR: Not taxable

5. Foreign corporation
6. Foreign corporation
EXC: If part of the dividend is sourced
RFC within the Philippines, such part shall
be taxable and shall be included in the
ITR of the recipient
GR: Not taxable
EXC: If part of the dividend is sourced
NRFC within the Philippines, such part shall
be taxable and shall be subject to a
25% FT.

BIR Forms filed by the Payor of the Passive Income:9

Monthly Remittance (Form 0619F) Filed not later than the 10th day of the
month following the month when
withholding was made. Filed for the
first two (2) months of each calendar
quarter.
Quarterly Remittance (Form 1601- Filed not later than the last day of the
FQ) month following the close of the quarter
during which withholding was made.

Attachment: Quarterly Alphabetical

List of Payees (QAP) reflecting the
name of the payees, their TIN, amount
of income paid to each, and FT withheld
from each.

Quarterly Remittance of FTs
Withheld on Interest paid on
Deposits/Deposit
Substitutes/Trusts/Etc (Form
1602Q)
Annual Information Return of
FWTs (Form 1604-F)
Filed not later than the last day of the
month following the close of the
quarter.
Filed on or before January 31 of the
year following the calendar year in
which the income payments subject to
FWTs were paid or accrued.

Annual alphalist of payees, income

payments, and FWTs shall be reflected
in the Schedules of Form 1604-F.

for less than 2 years) at the time of the dividend distribution (Sec. 27(D)(4), NIRC as
amended by RA No. 11534 which took effect April 11, 2021; Rev. Reg. No. 5-2021).
9
These are also used to pay other final taxes that may be imposed on income payments received
by juridical entities.

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May 2022

Capital Gains Tax on Capital Gains

1. Sale, exchange, or other disposition of domestic shares of stock:

(a) Not traded at the stock exchange:

Net capital gain 15%10

BIR Forms to be filed:

Form 1707 Filed within thirty (30) days after each transaction
Form 1707-A Filed on or before the 15th day of the 4th month
(Final following the close of the preceding taxable year.
Consolidated
Return)

(b) Shares listed and traded at the stock exchange:

6
/10 of 1% based on the gross selling price.11

BIR Form to be filed by the Stockbroker who effected the sale:

Form No. Filed within five (5) banking days from the date of
2552 collection

Notes:

(1) Final tax on capital gains on the sale of shares of stock applies to all
corporate taxpayers.

(2) The exceptions for individual taxpayers also apply for corporate
taxpayers.

2. Sale of Real Property Classified as Capital Asset –

(a) Transaction subject – the sale, exchange, or other disposition of

lands and buildings which are not actually used in the business of
the corporation and treated as “capital assets”.

10
Before April 11, 2021, the net capital gain of foreign corporations was taxed as follows: 5%
on the first ₱100,000 plus 10% on the excess over ₱100,000.
11
Before January 1, 2018, the rate was ½ of 1% of the gross selling price.

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May 2022

(b) Tax rate and base –

(1) Seller is domestic corporation – Final tax of 6% based on the

gross selling price or FMV, whichever is higher. The FMV is
the higher between the Commissioner’s value and the
Assessor’s value.

BIR Form to be Filed:

Form 1706 Filed within thirty (30) days following each

sale, exchange, or disposition of real property.

(2) Seller is RFC – Gain on sale is returnable, and subject to

normal tax rate (25%).

(3) Seller is NRFC – Final tax of 25% on the capital gain realized
on the sale.12

(c) Exemptions from the CGT –

(1) Sale of raw lands to be used for “socialized housing” projects, or

sold under the Community Mortgage Program under R.A. No.
7279 (Urban Development and Housing Act of 1992).
(2) Land transfers under the Comprehensive Agrarian Reform Law
of 1988.

12
BIR Forms filed by the payor: Monthly Remittance Form (BIR Form 0619F), Quarterly
Remittance Form (BIR Form 1601FQ); Annual Information Return (BIR Form 1604-F).
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May 2022

DOMESTIC COMPANIES SUBJECT TO SPECIAL TAX RATES

(1) Proprietary educational institutions

Proprietary educational institutions are subject to a special tax rate of 10%

of taxable net income within and without the Philippines. Provided,
New
beginning July 1, 2020 until June 30, 2023, the tax rate to be imposed
shall be 1%.

(2) Hospitals which are non-profit

Hospitals which are non-profit are also subject to a special tax rate of 10%
of taxable net income within and without the Philippines. Provided,
beginning July 1, 2020 until June 30, 2023, the tax rate to be imposed New
shall be 1%.

Provided – the gross income from unrelated trade, business, or other activity
does not exceed 50% of the total gross income derived from all sources.
However, if it exceeds 50%, the normal tax rate will be applied on the entire
taxable income (i.e. 25%/20%).

(3) Final tax on income of a Foreign Currency Deposit Unit (“FCDU”)

of a local bank under the Expanded Foreign Currency Deposit
System (“FCDS”)

a) Income from foreign currency loans granted to Philippine residents,

(other than OBUs or other depository banks) – 10% final tax

b) Interest income from foreign currency interbank deposits – 10% final

tax

c) Income from foreign currency transactions with non-residents, OBUs,

local commercial banks, and branches of foreign banks authorized
to transact business under the FCDS - Exempt

Note: “Income from foreign currency transactions” shall include interest

income from lending operations, including bank charges, commissions,
service fees, and net foreign exchange transaction gains.

(4) Service Contractors/Subcontractors Engaged in Petroleum

Operations

- Liable to an eight percent (8%) final tax on gross income derived

from such contract in petroleum operations.

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May 2022

Provided, however, that any income received from all other sources
within and without the Philippines in the case of domestic
contractors/subcontractors, shall be subject to the regular income tax
under the Tax Code.

(5) Ecozone Enterprises

All business enterprises registered with the Philippine Economic Zone

Authority (“PEZA”), SBMA, or CDA and operating within the Special
Economic Zones (“ECOZONE”) availing the 5% GIT incentive shall be
taxed 5% of gross income on registered activities. Three percent (3%)
shall be paid to the National Government; Two percent (2%) to the city
or municipality where the enterprise is located.

Notes:

(a) The exemption from all other taxes under the ITH and 5% GIT
regimes does not include the following:

1) Withholding taxes at source (expanded withholding tax

(“EWT”) and Final Withholding Tax (“FWT”)) on income
payments by PEZA-registered entities;
2) Withholding tax on compensation income of employees of
PEZA-registered entities; and
3) Fringe Benefits Tax (“FBT”) on fringe benefits given to
managerial or supervisory employees of PEZA-registered
entities.

These taxes are not the taxes of a PEZA-registered entity. Instead,

these are taxes of a PEZA-registered entity’s payees which are
withheld and remitted by the PEZA-registered enterprise.

(b) On the other hand, the BIR has ruled that all income payments
received from its customers related to its registered activities,
by a PEZA-registered enterprise, whether availing the ITH or 5%
GIT incentive, are exempt from the withholding tax.

(c) Income derived by an entity registered with the PEZA from its
registered activities shall be subject to such treatment as may be
specified in its terms of registration, i.e. (a) the ITH where such
income shall be exempt from the regular income tax; or (b) the 5%
preferential GIT, if the same has been approved.

However, the following shall be subject to the regular internal

revenue taxes (i.e., regular corporate income taxes; final taxes on
bank deposits, capital gains taxes, etc.):

(1) Income realized by registered entities from activities which

are not registered;

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 May 2022

(2) Income of entities/individuals which are not registered (i.e.

income payments to entities in the Customs Territory, to
shareholders, and to non-registered creditors, etc.)
(3) Income of Service Enterprises or providers (e.g. those
providing customs brokerage, transportation, parcel, janitorial,
restaurant, banking, insurance services, etc.) which are
required by locator enterprises but which need not be
physically based inside the ECOZONE.

(6) Tourism Enterprises registered with the Tourism Infrastructure

and Enterprise Zone Authority (“TIEZA”)

As an alternative to the Income Tax Holiday (“ITH”) a new Registered

Tourism Enterprise (RTE) within a Tourism Enterprise Zone may, in lieu
of all national and local taxes except real estate taxes and fees as may
be imposed by the TIEZA, pay a tax of five percent (5%) on its gross
income earned from its registered activities.

The 5% gross income tax shall be remitted as follows:

(a) One-third to be proportionally allocated among affected cities or

municipalities based on the area of the RTE;
(b) One-third to the National Government; and
(c) One-third to the TIEZA.

New (7) Corporations subject to the Special Corporate Income Tax

(“SCIT”) under Section 294 of the Tax Code

Effective July 1, 2020, domestic corporations which qualify for the SCIT
shall pay an income tax equivalent to 5% of gross income, in lieu of all
national and local taxes.

For the purpose of the 5% tax on gross income earned, local taxes shall
not include fees and charges as defined under Section 131(l) and (g),
respectively, of the Local Government Code of 1991.13

Note: To qualify for the SCIT, a domestic corporation must comply with
the requirements of Section 304 of the Tax Code.14

13
Fee means a charge fixed by law or ordinance for the regulation or inspection of a business
or activity (Sec. 131(l), LGC).

Charges refer to pecuniary liability, as rents or fees against persons or property (Sec. 131(g),
LGC).
14
A registered business enterprise must:
(a) Be engaged in a project or activity included in the Strategic Investment Priority Plan;
(b) Meet the target performance metrics after the agreed time period;
(c) Install an adequate accounting system that shall identify the investments, revenues, costs,
and profits or losses of each registered project or activity; or establish a separate
corporation for each registered project or activity;
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 May 2022

Moreover, only those considered export enterprises15 may avail of

the SCIT.

(8) Microfinance NGO

A duly registered and accredited Microfinance NGO shall pay a two

percent (2%) tax based on its gross receipts from microfinance
operations in lieu of all national taxes. However, the non-microfinance
activities of Microfinance NGOs shall be subject to all applicable regular
taxes.

New (9) Philippine-Based Offshore Gaming Licensee16

An Offshore gaming licensee is an offshore gaming operator, duly

licensed and authorized to conduct offshore gaming operations, including
the acceptance of bets from offshore customers.17

The income of an offshore gaming licensee organized in the Philippines

shall be taxed as follows:

(a) Gaming Revenue. The entire gross gaming revenue or receipts, or

the agreed pre-determined minimum monthly gaming revenue or receipts,
whichever is higher, shall be subject to a gaming tax equivalent to five
percent (5%). Such 5% gaming tax shall be in lieu of all other direct and
indirect internal revenue taxes and local taxes.18

Gross gaming revenue or receipts shall mean gross wagers less payouts.19

(d) Comply with the e-receipting and e-sales requirements of Section 237 of the Tax Code;
and
(e) Submit annual reports of beneficial ownership of the organization and related parties (Sec.
304, NIRC).
15
Export enterprise is one which results in:
(1) Direct exportation; and/or
(2) Sale of its manufactured, assembled, or processed product or information
technology/business process outsourcing services to another registered export enterprise
that will form part of the final export product or export service of the latter,

of at least 70% of its total production or output.

16
Secs. 27(F) and 125-A, NIRC as inserted by R.A. No. 11590.
17
Sec. 22(II), NIRC.
18
However, PAGCOR or any special economic zone, tourism zone, or freeport authority may
impose regulatory fees which shall not cumulatively exceed 2% of the gross gaming revenue
or receipts of all offshore gaming licensees, or a pre-determined minimum guaranteed fee,
whichever is higher (Sec. 125-A, NIRC).
19
PAGCOR or any special economic zone, tourism zone, or freeport authority shall engage the
services of a third-party audit platform that would determine the gross gaming revenues or
receipts of offshore gaming licensees (Sec. 125-A, NIRC).

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May 2022

(b) Non-gaming revenue. The non-gaming revenues of duly-licensed

Philippine-based offshore gaming licensees shall be subject to an income
tax equivalent to twenty-five percent (25%) of the taxable income derived
from all sources within and without the Philippines.

Notes:

(1) The 5% gaming tax is actually an OPT imposed under Section 125-
A of the Tax Code.20 This shall be directly remitted to the BIR not
later than the 20th day following the end of each month.

(2) Accredited service providers21 to offshore gaming licensees shall not

be subject to the 5% gaming tax. Instead, it shall pay such rate of
tax imposed under Title II of the Tax Code.

Furthermore, it shall be subject to all other applicable local and

national taxes.22

20
OPT or other percentage tax is not an income tax, but a business tax which is imposed on the
sales transaction.
21
An accredited service provider to an offshore gaming licensee shall be a natural person,
regardless of citizenship or residence) or a juridical person, wherever duly organized, which
provides ancillary services to an offshore gaming licensee or to any gaming licensee or
operator with licenses from other jurisdictions. Such ancillary services include but shall not
be limited to customer and technical relations and support, information technology, gaming
software, data provision, payment solutions, and live and streaming services (Sec. 27(G),
NIRC).
22
Sec. 27(G), NIRC as inserted by R.A. No. 11590.
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May 2022

RESIDENT FOREIGN CORPORATIONS SUBJECT TO SPECIAL TAX RATES

(1) International carriers doing business in the Philippines shall pay a
tax of two and one-half percent (2 ½ %) of Gross Philippine Billings
(“GPB”)

GPB – 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 document;

Rules:

(1)Tickets revalidated, exchanged and/or indorsed to another international

airline form part of the Gross Philippine Billings if the passenger
boards a plane in a port or point in the Philippines;

(2) Provided, that for a flight or voyage which originates from the
Philippines, but transhipment of passenger takes place at any port
outside the Philippines on another carrier, only the aliquot portion of
the cost of the ticket corresponding to the leg flown from the
Philippines to the point of transhipment shall form part of the Gross
Philippine Billings.

(3) Where a passenger, his excess baggage, cargo, and/or mail originally
commencing his flight or voyage from a foreign port alights or is
discharged in any Philippine port, and thereafter boards or is loaded on
another airplane/vessel owned by the same international carrier, the
flight or voyage from the Philippines to any foreign port shall be
considered “originating from the Philippines” if the time intervening
between arrival to and departure from the Philippines exceeds forty-
eight (48) hours.

(a) If the failure to depart within 48 hours is due to reasons beyond the
control of the passenger such as when the next available flight or
voyage leaves beyond 48 hours, or such failure is due to force
majeure, the flight or voyage from the Philippines shall not be
considered “originating from the Philippines”;

(b) If the second aircraft/vessel belongs to a different international

carrier, the flight/voyage from the Philippines shall be considered
originating from the Philippines regardless of the length of the
intervening period between arrival to and departure from the
Philippines.

Preferential Rates

Under R.A. No. 10378, an international carrier or shipper is subject to the

Gross Philippine Billings Tax of 2½ %, unless it is subject to a
preferential rate or exemption on the basis of an applicable tax treaty or
international agreement to which the Philippines is a signatory or on the
basis of reciprocity.

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 May 2022

Note: However, such carriers may earn compensation or commission

income from the sale of passage documents to cover off-line23
flights/voyages of its principal office, or on-line24 flights/voyages of
other carriers. Such income shall not be subject to the 2 ½% GPB tax,
but shall be subject to the regular rates of income tax.

(2) Offshore Banking Units

An offshore banking unit (“OBU”) shall mean a branch, subsidiary, or

affiliate of a foreign banking corporation which is duly authorized by the
BSP to transact offshore banking business in the Philippines.

a) Income from foreign currency loans granted to Philippine residents,

(other than OBUs or other depository banks) – 10% final tax
b) Interest income from foreign currency interbank deposits – 10% final
tax
c) Income from foreign currency transactions with non-residents, OBUs,
local commercial banks, and branches of foreign banks authorized
to transact business under the FCDS - Exempt

New Note: Effective April 11, 2021, OBUs shall no longer enjoy the
abovementioned 10% preferential income tax rates. Instead, they
shall be taxed as any other resident foreign corporation.25

(3) Regional or Area Headquarters, and Regional Operating

Headquarters of Multinationals

(a) Regional or area headquarters (“RHQ”) of multinationals shall not be

subject to income tax.

(b) Regional operating headquarters (“ROHQ”) shall pay a tax of ten

New percent (10%) of their taxable income (in the ITR). Provided,
effective January 1, 2022, ROHQs shall be subject to the regular
corporate income tax of 25%.

Note: Any income derived from Philippine sources by an ROHQ

when remitted to the parent company shall also be subject to
the tax on branch profit remittances.

23
Off-line carriers refer to international carriers having no transportation operations to and from
the Philippines.
24
On-line carriers refer to international carriers having or maintaining transportation operations
to and from the Philippines.
25
Sec. 28(A), NIRC as amended by R.A. No. 11534.

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 May 2022

(4) Service Contractors/Subcontractors Engaged in Petroleum

Operations

- Liable to an eight percent (8%) final tax on gross income derived from
such contract in petroleum operations

Note: Any income received from all other sources within the Philippines in
the case of foreign subcontractors shall be subject to the regular
income tax under the Tax Code.

(5) Ecozone Enterprises and TIEZA-registered enterprises

- Such enterprises availing the preferential 5% GIT shall be taxed at 5% of

gross income from registered activities in lieu of all taxes, national or
local (see pages 8 and 9).

(6) Corporations subject to the Special Corporate Income Tax (“SCIT”)

New under Section 294 of the Tax Code

Effective July 1, 2020, any corporation which qualifies for the SCIT shall
pay an income tax equivalent to 5% of gross income, in lieu of all national
and local taxes.26

Note: To qualify for the SCIT, the corporation must comply with the
requirements of Section 304 of the Tax Code.27

Moreover, only those considered export enterprises28 may avail of

the SCIT.
26
For the purpose of the 5% tax on gross income earned, local taxes shall not include fees and
charges as defined under Section 131(l) and (g), respectively, of the Local Government Code
of 1991

Fee means a charge fixed by law or ordinance for the regulation or inspection of a business or
activity (Sec. 131(l), LGC).

Charges refer to pecuniary liability, as rents or fees against persons or property (Sec. 131(g),
LGC).
27
A registered business enterprise must:
(a) Be engaged in a project or activity included in the Strategic Investment Priority Plan;
(b) Meet the target performance metrics after the agreed time period;
(c) Install an adequate accounting system that shall identify the investments, revenues, costs,
and profits or losses of each registered project or activity; or establish a separate
corporation for each registered project or activity;
(d) Comply with the e-receipting and e-sales requirements of Section 237 of the Tax Code;
and
(e) Submit annual reports of beneficial ownership of the organization and related parties (Sec.
304, NIRC).
28
Export enterprise is one which results in:
(1) Direct exportation; and/or
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 May 2022

New (7) Foreign-Based Offshore Gaming Licensee29

An offshore gaming licensee is an offshore gaming operator, duly licensed

and authorized to conduct offshore gaming operations, including the
acceptance of bets from offshore customers.30, 31

The income of a foreign-based (i.e. organized outside the Philippines)

offshore gaming licensee shall be taxed as follows:

(a) Gaming Revenue. The entire gross gaming revenue or receipts, or the
agreed pre-determined minimum monthly gaming revenue or receipts,
whichever is higher, shall be subject to a gaming tax equivalent to five
percent (5%). Such 5% gaming tax shall be in lieu of all other direct and
indirect internal revenue taxes and local taxes.32

Gross gaming revenue or receipts shall mean gross wagers less payouts.33

(b) Non-gaming revenue. The non-gaming revenues derived within the

Philippines of a duly-licensed foreign-based offshore gaming licensee shall
be subject to an income tax equivalent to twenty-five percent (25%) of
taxable income.

Notes:

(1) The 5% gaming tax is actually an OPT imposed under Section 125-
A of the Tax Code.34 This shall be directly remitted to the BIR not
later than the 20th day following the end of each month.

(2) Sale of its manufactured, assembled, or processed product or information

technology/business process outsourcing services to another registered export enterprise
that will form part of the final export product or export service of the latter,

of at least 70% of its total production or output.

29
Secs. 28(A)(7) and 125-A, NIRC as inserted by R.A. No. 11590.
30
Sec. 22(II), NIRC.
31
The taking of wagers made in the Philippines shall result in the revocation of the license of
the offshore gaming licensee (Sec. 125-A, NIRC).
32
However, PAGCOR or any special economic zone, tourism zone, or freeport authority may
impose regulatory fees which shall not cumulatively exceed 2% of the gross gaming revenue
or receipts of all offshore gaming licensees, or a pre-determined minimum guaranteed fee,
whichever is higher (Sec. 125-A, NIRC).
33
PAGCOR or any special economic zone, tourism zone, or freeport authority shall engage the
services of a third-party audit platform that would determine the gross gaming revenues or
receipts of offshore gaming licensees (Sec. 125-A, NIRC).
34
OPT or other percentage tax is not an income tax, but a business tax which is imposed on the
sales transaction.

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May 2022

(2) Accredited service providers35 to offshore gaming licensees shall not

be subject to the 5% gaming tax. Instead, it shall pay such rate of
tax imposed on domestic corporations or on resident foreign
corporations under Section 27(A) or Section 28(A) of the Tax Code
respectively, whichever is applicable.

Furthermore, it shall be subject to all other applicable local and

national taxes.36

35
An accredited service provider to an offshore gaming licensee shall be a natural person,
regardless of citizenship or residence) or a juridical person, wherever duly organized, which
provides ancillary services to an offshore gaming licensee or to any gaming licensee or
operator with licenses from other jurisdictions. Such ancillary services include but shall not
be limited to customer and technical relations and support, information technology, gaming
software, data provision, payment solutions, and live and streaming services (Sec. 27(G),
NIRC).
36
Sec. 27(G), NIRC as inserted by R.A. No. 11590.
17
May 2022

NON- RESIDENT FOREIGN CORPORATIONS SUBJECT TO SPECIAL TAX

RATES

In general, a non-resident foreign corporation is subject to a final withholding

tax of 25% (beginning January 1, 2021) based on enumerated gross income
from all sources within the Philippines, except –

Rate and Base

(1) Non-resident cinematographic 25% FT on its gross income from

film owner, lessor, or distributor all sources within the
Philippines37

(2) Non-resident owner or lessor of 4 ½% FT on gross rentals or

vessels chartered by Philippine charter fees from leases or
nationals charters to Filipinos or
corporations, as approved by
the Maritime Industry Authority

(3) Non-resident owner or lessor of 7 ½% FT on gross rentals or fees

aircraft, machineries, and other
equipment

(4) Interest on foreign loans contracted 20% FT on the amount of interest

on or after August 1, 1986

(5) Income from transactions with Exempt

depository banks under the
expanded Foreign Currency Deposit
System

Note: Royalty is subject to the rate of 25% FT as it is not one of the items of
income subject to a special rate.

37
The final tax rate of 25% imposed on the income of a non-resident cinematographic film owner,
lessor, or distributor was not affected by the passage of the CREATE law.
18
May 2022

EXEMPT CORPORATIONS38

The following organizations shall not be subject to income tax in respect to

income received by them as such:

(A) Labor, agricultural, or horticultural organizations not organized

principally for profit;

(B) Mutual savings bank not having a capital stock represented by shares; and
cooperative banks without capital stock organized and operated for
mutual purposes and without profit;

(C) A beneficiary society, order, or association, operating for the exclusive

benefit of the members such as a fraternal organization operating under
the lodge system, or a mutual aid association or a non-stock corporation
organized by employees providing for the payment of life, sickness,
accident, or other benefits exclusively to the members of such society,
order, or association, or non-stock corporation or their dependents;

(D) Cemetery company owned and operated exclusively for the benefit of its
members;

(E) Non-stock corporation or association organized and operated exclusively

for religious, charitable, scientific, athletic, or cultural purposes, or for the
rehabilitation of veterans, no part of its net income or asset shall belong
to or inure to the benefit of any member, organizer, officer, or any specific
person;

(F) Business league, chamber of commerce, or board of trade, not organized

for profit and no part of the net income of which inures to the benefit of
any private stockholder or individual;

(G) Civic league or organization not organized for profit but operated
exclusively for the promotion of social welfare;

(H) A non-stock and non-profit educational institution;

(I) Government educational institutions;

(J) Farmers’ or other mutual typhoon or fire insurance company, mutual

ditch or irrigation company, mutual or cooperative telephone company,
or like organization of a purely local character, the income of which
consists solely of assessments, dues, and fees collected from members for
the sole purpose of meeting its expenses; and

(K) Farmers’, fruit growers’, or like association organized and operated as a

sales agent for the purpose of marketing the products of its members and
turning back to them the proceeds of sales, less the necessary selling
expenses on the basis of the quantity of produce finished by them.

38
Sec. 30, NIRC.
19
May 2022

OTHER EXEMPT CORPORATIONS

(L) Child-caring or child-placing institutions licensed and accredited by the

Department of Social Welfare and Development (“DSWD”) to
implement the Foster Care Program under R.A. No. 10165, otherwise
known as the “Foster Care Act of 2012.”

(M) Duly registered cooperative on income from transactions with members

and non-members as long as the income is related to its main business or
purpose. Provided, those with accumulated reserves and undivided net
savings exceeding ₱10 Million shall be exempt only on income from
transactions with members.

(N) Homeowners’ Associations (“HOAs”). Generally, fees, dues or

contributions made to HOAs are taxable. However, the same are exempt
when the LGU having jurisdiction over the HOA certifies the lack of
resources for the HOA to render its services.

(O) Non-stock Savings and Loan Associations (“S&Ls”). S&Ls accumulate

savings of its members to be used for long-term loans to members. These
are exempt final taxes on interest income from deposits.

(P) Building and loan associations whose accounts are guaranteed by the
Home Guaranty Corporation.

(Q) Other organizations exempt from income tax in accordance with special
laws (exs. Philippine Red Cross; PDIC; Sports Facilities under the
control of the Philippine Sports Commission; Veterans’ Federation of the
Philippines; National Commission for Culture and the Arts, etc.)

Income Subject to Tax of Exempt Organizations

The following income, of whatever kind and character, of the foregoing

organizations shall be subject to income tax:

1. From any of their properties, real or personal; or

2. From any of their activities conducted for profit.

The said income shall be taxable regardless of the disposition made of such
income.

Exceptions to Taxability of Income of Exempt Organizations

(a) The income of non-stock, non-profit educational institutions which

are proven to have been actually, directly, and exclusively used for
educational purposes is exempt from taxes.39

39
For example, the lease of a portion of a school building for commercial purposes removes the
asset from the property tax exemption. In such case, the asset is not actually, directly, and
exclusively used for educational purposes. However, if the school actually, directly, and
exclusively uses for educational purposes the revenues/income earned from the lease of its
20
May 2022

(b) The interest income from currency bank deposits and yield from
deposit substitute instruments of non-stock and non-profit
educational institutions, which income is used actually, directly, and
exclusively in pursuance of their purposes as an educational
institution, shall be exempt from the 20% final tax and from the 15%
tax on interest income under the expanded foreign currency deposit
system (“EFCDS”).40

(c) Duly registered cooperatives shall be exempt from all taxes on

transactions with insurance companies and banks, including but not
limited to the 20% final tax on interest deposits, and the 15% final tax
on interest income derived from a depository bank under the EFCDS.41

building, such revenues shall be exempt from taxes. The tax exemption of the
revenues/income does not hinge on the use of the asset, but on the actual, direct, and exclusive
use of the revenues/income for educational purposes (CIR vs. De La Salle University, Inc.,
Supreme Court G.R. No. 196596, November 9, 2016).
40
Sec. 3, DOF Order No. 137-87; RMC Nos. 76-2003, 24-2016 and 64-2016.
41
RMC No. 12-2010.
21
May 2022

For-Profit Corporations Enjoying Exemption from Tax

1) BOI-registered enterprise42 enjoying ITH.

(1) New registered pioneer firms – 6 years from commercial operations.

(2) New registered non-pioneer firms – 4 years from commercial
operations.
(3) Expanding firms – 3 years from commercial operations of the
expansion.

In exceptional cases, existing firms undertaking new activities distinct

from existing operations may qualify as new projects subject to the setting
up of separate books of account. In such cases, only sales of such
registered products shall be entitled to the ITH exemption.

Additional Period of Availment

For new registered firms, the ITH incentive may be extended for an
extra year for each of the following cases, but in no case to exceed the
total period of eight (8) years for pioneer registered enterprises.

(1) If the average cost of indigenous raw materials used in the

manufacture of the registered product is at least fifty percent (50%)
of the total cost of raw materials for the preceding years prior to the
extension unless the BOI prescribes a higher percentage; or
(2) If the annual or average net foreign exchange savings or earnings
(“NFEE”) amount to at least US$500,000.00 during the first three
(3) years of operations to be determined by the Board at the end of
such three-year period.

2) PEZA-registered and TIEZA-registered enterprises availing of the

ITH.

42
To qualify for BOI registration, the corporation, partnership, or association must be engaged
or is proposing to engage:

1) in an area of activity listed in the Investment Priorities Plan (“IPP”);

2) if its area of activity is not listed in the IPP, it is a domestic enterprise at least 60% owned by
Filipinos with at least 50% of its production for export;
3) a domestic enterprise less than 60% is owned by Filipinos but exporting at least 70% of its
production or exporting part of its production under such terms and conditions and/or limited
incentives as the Board may determine;
4) producing or manufacturing a product which is used as input to an export product;
5) export trading of export products bought by it from one or more export producers;
6) rendering service to domestic and foreign tourists if listed in the IPP;
7) in rendering technical, professional or other services as may be determined by the Board
which are paid for in foreign currency; or
8) in exporting television and motion pictures and musical recordings made or produced in the
Philippines, either directly or through an export trader (Rule I, Sec. 1(i), IRR of E.O. No.
226).

22
 May 2022

3) Corporations enjoying ITH under Sec. 294 of the Tax Code

New
ITH for 4 to 7 years depending on the location and industry priorities
specified in Section 296 of the Tax Code.

Note: To qualify for the ITH, the corporation must comply with the
requirements of Section 304 of the Tax Code.43

4) Enterprises registered as Barangay Micro Business Enterprise

(“BMBE”)

A Barangay Micro Business Enterprise or BMBE refers to any domestic

business entity or enterprise44 engaged in the production, processing, or
manufacturing of products or commodities, including agro-processing,
trading, and services45, which activities are barangay-based and micro-
business in nature, and whose total assets including those arising from
loans but exclusive of the land on which the particular business entity's
office, plant and equipment are situated, shall not be more than Three
Million Pesos (₱3,000,000.00).

Registration

The Department of Trade and Industry (“DTI”), through the Negosyo

Center in the city or municipality, shall have the sole power to issue the
Certificate of Authority for BMBEs to avail of the benefits under R.A. No.
9178.

Upon approval of registration of the BMBE, the Negosyo Center shall issue
the Certificate of Authority which shall be renewable every two (2) years.
The DTI, through the Negosyo Center, may charge a fee therefor which
shall not be more than One Thousand Pesos (₱1,000) to be remitted to the
National Government.

43
A registered business enterprise must:
(a) Be engaged in a project or activity included in the Strategic Investment Priority Plan;
(b) Meet the target performance metrics after the agreed time period;
(c) Install an adequate accounting system that shall identify the investments, revenues, costs,
and profits or losses of each registered project or activity; or establish a separate
corporation for each registered project or activity;
(d) Comply with the e-receipting and e-sales requirements of Section 237 of the Tax Code;
and
(e) Submit annual reports of beneficial ownership of the organization and related parties
(Sec. 304, NIRC).
44
Entity or organization incorporated or organized under Philippine laws, i.e. domestic entity.

45
The term “services” excludes services rendered by juridical persons such as partnerships or
corporations engaged in consultancy, advisory, and similar services where the performance of
such services are essentially carried out through licensed professionals (DOF D.O. 17-04).

23
May 2022

Tax Exemption

Income tax exemption from income arising from the operations of the
enterprise.

A duly registered BMBE shall be exempt from income tax on income

arising purely from its operations as such BMBE. Provided, the income
tax exemption shall not apply to (a) income subject to final taxes, (b)
capital gains subject to the capital gains tax, and (c) compensation income
(d) income from practice of a profession received directly from clients; and
(e) other income not effectively connected with the operations of the
BMBE.

The LGUs are encouraged either to reduce the amount of local taxes, fees
and charges imposed or to exempt the BMBEs from local taxes, fees and
charges (Sec. 7, R.A. No. 9178).

24
May 2022

PENALTY TAXES IMPOSED ON CORPORATIONS

I. Minimum Corporate Income Tax (“MCIT”)

1. Who are subject?

(a) Domestic corporations, and

(b) Resident foreign corporations.

2. Rate and Base – Two percent (2%) of gross income. The taxpayer shall
pay whichever is higher between the MCIT and the regular corporate
income tax (“RCIT”). Provided, that effective July 1, 2020 to June 30,
2023, the MCIT rate shall be one percent (1%). New

Gross income (sale of goods) – The term “gross income” shall mean
gross sales less sales returns, discounts and allowances, and cost of
goods sold. “Cost of goods sold” shall include all business expenses
directly incurred to produce the merchandise to bring them to their
present location and use.

Gross income (sale of services) – In the case of taxpayers engaged in

the sale of services, “gross income” means gross receipts less sales
returns, allowances, discounts, and cost of services. “Cost of services”
shall mean all direct costs and expenses necessarily incurred to provide
the services required by the customers and clients, including –

(a) Salaries and employee benefits of personnel, consultants, and

specialists directly rendering the service, and

(b) Cost of facilities directly utilized in providing the service such

as depreciation or rental of equipment used and cost of supplies.

Provided, that in the case of banks, “cost of services” shall include

interest expense.46

Note: However, according to the regulations, the term “gross income” will
also include all items of gross income enumerated under Section 32,
whether or not derived from the taxpayer’s core business, except:47

(a) Income exempt from income tax; and

(b) Income subject to final withholding tax.

3. Effectivity – The fourth (4th) taxable year immediately following the year
in which such corporation commenced its business.48

46
Sec. 27 (E) (4), NIRC.
47
RR 12-2007.
48
The taxable year in which business operations commence shall be the year in which the
corporation is registered with the BIR (Rev. Reg. No. 9-1998, RMC No. 62-2021).
25
May 2022

4. Carry forward of excess minimum tax – Any excess of the MCIT over the
regular corporate income tax (“RCIT”) in a particular year shall be
carried forward and credited against the regular income tax for the three (3)
immediately succeeding taxable years.

5. Domestic Corporations Not Subject to MCIT

The minimum corporate income tax (“MCIT”) shall apply only to domestic
corporations subject to the regular corporate income tax (25%/20%).49
Accordingly, the following shall not be subject to MCIT –

(a) Domestic corporations operating as proprietary educational institutions

which pass the predominance test;

(b) Domestic corporations engaged in hospital operations which are non-

profit and which pass the predominance test;

(c) Domestic corporations engaged in business as depository banks under

the expanded foreign currency deposit system, otherwise known as
Foreign Currency Deposit Units (“FCDUs”) on their –

(1) Income from foreign currency transactions with non-residents,

offshore banking units in the Philippines, local commercial banks,
including branches of foreign banks, and other depository banks,
and

(2) Interest income from foreign currency loans granted to residents of

the Philippines under the expanded foreign currency deposit system,
subject to final tax at ten percent (10%) of such income.

(d) Firms that are taxed under special income tax regimes such as the 5%
GIT incentive.

6. Resident Foreign Corporations Not Subject to MCIT –

The minimum corporate income tax shall apply only to resident foreign
corporations which are subject to the regular income tax (25%).
Accordingly, the MCIT shall not apply to the following –

(a) Resident foreign corporations engaged in business as “international

carrier” subject to tax at 2.5% of their “Gross Philippine Billings”;

(b) Resident foreign corporations engaged in business as regional

operating headquarters (ROHQs) subject to tax at ten percent (10%)
of their taxable income;

49
Except Real Estate Investment Trusts (REITs). REIT is the only domestic corporation which
is subject to the RCIT, but not subject to the MCIT.

26
May 2022

Note: Beginning January 1, 2022, ROHQs shall be subject to the

regular corporate income tax rate of 25%, and therefore shall
be also be subject to MCIT.

(c) Firms that are taxed under special income tax regimes such as the 5%
GIT incentive.

7. Relief From the Minimum Corporate Income Tax

The Secretary of Finance, upon the recommendation of the Commissioner,

may suspend imposition of the MCIT upon submission of proof that the
corporation sustained substantial losses on account of –

(a) A prolonged labor dispute;

(b) Because of “force majeure”;
(c) Because of legitimate business reverses.

Rules in Computation of MCIT

1) Excess MCIT, if any, for the year is computed annually, that is, in the 4th
quarterly (annual) return.

2) The quarterly tax shall be the higher of the RCIT or the MCIT.

3) IF the quarterly tax due is the MCIT, the excess MCIT from previous
taxable year(s) shall not be allowed to be credited. However, (1) creditable
withholding taxes, (2) quarterly income tax payments paid in the previous
quarter(s), and (3) excess tax credits of the prior year, are allowed as credits
against the quarterly MCIT due.

4) If the quarterly tax due is the RCIT, the (1) excess MCIT from previous
taxable year(s), (2) creditable taxes withheld, (3) quarterly income tax
payments paid in previous quarter(s), and (4) excess tax credits of the prior
year, are allowed as credits against the quarterly RCIT due.

27
 May 2022

II. IMPROPERLY ACCUMULATED EARNINGS TAX (Repealed by R.A. No.

11534 effective April 11, 2021)

The IAET shall no longer be imposed on corporations upon the effectivity

of R.A. No. 11534 onwards. This shall apply to the entire taxable year for
all fiscal/taxable years ending after the effectivity of R.A. No. 11534 (April
11, 2021)50

Nevertheless, the following discussion on the IAET has been retained by

the authors for students/professionals who may encounter problems or
issues involving corporations that may potentially be subject to the IAET
in taxable years ending prior to April 11, 2021.

Concept of the Tax

In order to compel corporations to distribute or pay dividends to stockholders,

the retention or accumulation of earnings or profits beyond the reasonable
needs of the business is made subject to tax.

The IAET is imposed upon corporations which are formed or availed of for the
purpose of avoiding the income tax with respect to its stockholders or the
stockholders of any other corporation by permitting earnings and profits to
accumulate instead of being divided or distributed.51

The IAET is an additional tax to the regular corporate income tax imposed on
corporations under Title II of the Tax Code.52

Corporations Subject to IAET

The tax is imposed on improperly accumulated taxable income earned starting

January 1, 1998 by domestic corporations (as defined under the Tax Code)
which are classified as closely-held corporations.53

Note: A branch of a foreign corporation is not liable for the IAET the same
being a resident foreign corporation.

Closely-held Corporations Defined.

These are corporations where at least fifty percent (50%) in value of the
outstanding capital stock or at least fifty percent (50%) of the total combined
voting power of all classes of stock entitled to vote is owned directly or
indirectly by or for not more than twenty (20) individuals.54

50
Sec. 6, Rev. Reg. No. 5-2021.
51
Sec. 29 (B) (1), NIRC).
52
Sec. 29 (A), NIRC).
53
Sec. 4, Rev. Regs. No. 2-2001.
54
Ibid.
28
May 2022

Corporations Not Subject to IAET

The IAET shall not apply to the following corporations:

(a) Banks and other non-bank financial intermediaries;

(b) Insurance companies;
(c) Publicly-held corporations;
(d) Taxable partnerships;
(e) General professional partnerships;
(f) Non-taxable joint ventures; and
(g) Enterprises duly registered with the TIEZA under R.A. 9593, the PEZA
under R.A. 7916, and enterprises registered pursuant to the Bases
Conversion and Development Act of 1992 under R.A. 7227, as well as
other enterprises duly registered under special economic zones declared
by law which enjoy payment of special tax rates on their registered
operations or activities in lieu of other taxes, national or local.55

Circumstances Indicative of Purpose to Avoid the Tax

(1) Dealings between the corporation and its shareholders, such as withdrawals
by the shareholders as personal loans;

(2) Expenditure of funds by the corporation for the personal benefit of the
shareholders;

(3) The investment by the corporation of undistributed earnings in assets

having no reasonable connection with the business;

(4) Advances in substantial sums made yearly to corporate officers who are at
the same time the stockholders;56

(5) Investment of substantial earnings and profits of the corporation in an

unrelated business or in the stock or securities of an unrelated business;

(6) Investment in bonds and other long-term securities;

(7) Accumulation of earnings in excess of 100% of paid-up capital, not

otherwise intended for the reasonable needs of the business.

Proper Accumulation of Profits

The following constitute accumulation of earnings for the reasonable needs of

the business:

(a) If retained for working capital needed by the business;

55
Ibid.
56
Basilan Estates vs. Commissioner, GRL-22492, September 5, 1967.
29
May 2022

(b) Allowance for the increase in the accumulation of earnings up to 100% of

the paid-up capital of the corporation as of the balance sheet date, inclusive
of accumulations taken from other years;

(c) Earnings reserved for definite corporate expansion projects or programs

requiring considerable capital expenditure as approved by the Board of
Directors or equivalent body;

(d) Earnings reserved for building, plants, or equipment acquisition as

approved by the Board of Directors or equivalent body;

(e) Earnings reserved for compliance with any loan covenant or pre-existing
obligation established under a legitimate business agreement;

(f) Earnings required by law or applicable regulations to be retained by the

corporation or in respect of which there is a legal prohibition against its
distribution;

(g) In the case of subsidiaries of foreign corporations in the Philippines, all

undistributed earnings intended or reserved for investments within the
Philippines as can be proven by corporate records and/or relevant
documentary evidence.57

Tax Base or Basis of the Tax

The rate of the IAET is 10%. It is based upon the improperly accumulated
taxable income for each taxable year.

Formula –

Current Year’s Taxable Income

Plus: 1) Income exempt from tax;

2) Income excluded from gross income;
3) Income subject to final tax;
4) Amount of NOLCO deducted.

Less: 1) Dividends actually or constructively paid from applicable year’s

taxable income;
2) Income taxes paid or payable for the taxable year (both income tax
in the ITR and final taxes); and
3) Amounts reserved for the reasonable needs of the business from the
applicable year’s taxable income or 100% of paid-up capital58,
whichever is higher.

Equals: Improperly Accumulated Earnings

57
Sec. 3, RR 2-2001.
58
Includes additional paid-in capital (Cebu Air, Inc. vs. CIR, CTA Case No. 9106, September
27, 2018).

30
May 2022

Notes:

1) Once the profit has been subjected to IAET, the same shall no longer be
subjected to IAET in later years even if not declared as dividend.

2) Notwithstanding the imposition of IAET, profits which have been

subjected to IAET, when finally declared as dividends, shall nevertheless
be subject to tax on dividends imposed under the Tax Code except in those
instances where the recipient is not subject thereto.

Period For Payment of Dividend/Payment of IAET

The dividends must be declared and paid or issued not later than one (1)
year following the close of the taxable year. Otherwise, the IAET, if any,
should be paid within fifteen (15) days thereafter.59

BIR Form 1704 (IAET Return) shall be filed within 15 days after the close
of the year immediately succeeding a taxpayer’s covered taxable year.

59
Sec. 6, RR 2-2001.
31
May 2022

SPECIAL INCOME TAXES

Prior to April 11, 2021, the Tax Code had two types of special income taxes,
namely the branch profits remittance tax, and the gross income tax.

I. BRANCH PROFITS REMITTANCE TAX (“BPRT”)

(a) Transaction subject – Any profit remitted by a branch of a foreign

corporation to its head office (Sec. 28 (A) (5), NIRC).

This includes any income derived from Philippine sources by the

Regional Operating Headquarters of a multinational corporation when
remitted to the parent company (R.A. No. 8756).

(b) Rate and Base – Fifteen percent (15%) final tax on the total profits
applied or earmarked for remittance (gross of the BPRT), except those
activities which are registered with the –

(1) Philippine Economic Zone Authority (“PEZA”);

(2) Subic Bay Metropolitan Authority (“SBMA”);
(3) Clark Development Authority (“CDA”); and
(4) Tourism Infrastructure and Enterprise Zone Authority
(“TIEZA”)

(c) Income not treated as branch profits – Income which are not connected
with the trade or business in the Philippines shall not be treated as
“branch profits.”
Ex. Dividends from marketable securities

(d) Tax treaties. The 15% rate may be reduced by international treaties to
which the Philippines is a signatory.

(e) Forms to be filed. The same forms filed for the monthly remittance of
final taxes (BIR Form 0619F), for the quarterly remittance of final taxes
(BIR Form 1601-FQ) and the annual information return for FWTs (BIR
Form 1604-F) shall be filed in paying the BPRT. See pages 4 and 5 for
the deadlines for filing such forms.

II. GROSS INCOME TAX (“GIT”) – repealed by R.A. No. 11534 effective April
11, 2021.

(a) Corporations given the option – Domestic and resident foreign

corporations.

(b) Requisite conditions – The option was available after the following
conditions were satisfied:

1) A tax ratio effort of twenty percent (20%) of Gross National

Product (“GNP”);

32
May 2022

2) A ratio of forty percent (40%) of income tax collection to total tax

revenues;

3) A VAT tax effort of four percent (4%) of GNP; and

4) A 0.9 percent (0.9%) ratio of the Consolidated Public Sector

Financial Position (“CPSFP”) to GNP.

(c) Additional requisite – The option was available only to firms whose ratio
of cost of sales to gross sales or receipts from all sources does not exceed
fifty-five percent (55%)

(d) Period of irrevocability – The election of the gross income tax option by
the corporation was irrevocable for three (3) consecutive taxable years
during which the corporation was qualified under the scheme.

(e) Rate and base – Fifteen percent (15%) of gross income where gross
income shall be equivalent to gross sales less sales returns, discounts, and
allowances, and cost of goods sold.

33
May 2022

Summary of Changes in the Corporate Income Tax Rates under R.A. No.
11534 (CREATE)

REGULAR TAX MCIT

RATES
Rate Effectivity Rate Effectivity
DCs:
DCs, in general 25% July 1, 2020 1% July 1, 2020 to
June 30, 2023

2% July 1, 2023

DCs with net taxable income 20% July 1, 2020 1% July 1, 2020 to
≤ ₱5 Million AND total assets June 30, 2023
≤ ₱100 Million (excluding
land on which the office, 2% July 1, 2023
plant, equipment are situated)

Proprietary educational 1% July 1, 2020 to

institutions and hospitals June 30, 2023 Not Applicable
which are non-profit
10% July 1, 2023

REGULAR TAX MCIT

RATES
Foreign Corporations: Rate Effectivity Rate Effectivity
RFC, in general 25% July 1, 2020 1% July 1, 2020 to
June 30, 2023

2% July 1, 2023

OBUs 25% Upon effectivity 1% April 11, 2021

of CREATE to June 30, 2023
(April 11, 2021)
2% July 1, 2023

ROHQs 25% January 1, 2022 1% January 1, 2022

to June 30, 2023

2% July 1, 2023

NRFCs 25% January 1, 2021 Not Applicable

34
 May 2022

Expanded Withholding Rates:

CORPORATE PAYEES EWT Rate

(1) Professionals (Lawyers, CPAs, Engineers, etc.)

- If gross income of payee for the current year did not exceed ₱720,000 10%
- If gross income of payee exceeds ₱720,000 15%
(2) Professional Entertainers such as, but not limited to actors, singers,
lyricists, composers, emcees
- If gross income of payee for the current year did not exceed ₱720,000 10%
- If gross income of payee exceeds ₱720,000 15%
(3) Professional Athletes including basketball players, pelotaris, and
jockeys
- If gross income of payee for the current year did not exceed ₱720,000 10%
- If gross income of payee exceeds ₱720,000 15%
(4) Directors and Producers involved in movies, stage, radio, television,
and musical productions
- If gross income of payee for the current year did not exceed ₱720,000 10%
- If gross income of payee exceeds ₱720,000 15%
(5) Management and Technical Consultants
- If gross income of payee for the current year did not exceed ₱720,000 10%
- If gross income of payee exceeds ₱720,000 15%
(6) Business and Bookkeeping Agents and Agencies
- If gross income of payee for the current year did not exceed ₱720,000 10%
- If gross income of payee exceeds ₱720,000 15%
(7) Insurance Agents and Insurance Adjusters
- If gross income of payee for the current year did not exceed ₱720,000 10%
- If gross income of payee exceeds ₱720,000 15%
(8) Other Recipients of Talent Fees
- If gross income of payee for the current year did not exceed ₱720,000 10%
- If gross income of payee exceeds ₱720,000 15%
(9) Rentals: On gross rental or lease for the continued use or possession of
personal property in excess of Ten Thousand Pesos (₱10,000) annually,
and real property used in business which the payor or obligor has not 5%
taken title or is not taking title to, or in which he has no equity; poles,
satellites, transmission facilities and billboards.
(10) Cinematographic film rentals, and other payments to resident 5%
corporate cinematographic film owners, lessors, or distributors.
(11) Income payments to certain contractors 2%
(12) Gross commissions or service fees of customs, insurance, stock,
immigration and commercial brokers; fees of agents of professional
entertainers and real estate service practitioners (RESPs) (i.e. real
estate consultants, real estate appraisers, and real estate brokers)
- If gross income of payee for the current year did not exceed ₱720,000 10%
- If gross income of payee exceeds ₱720,000 15%
(13) Professional fees paid to Medical Practitioners (includes doctors of
medicine, doctors of veterinary science, and dentists) by hospitals
and clinics or paid directly by Health Maintenance Organizations
(HMOs) and/or similar establishments
- If gross income of payee for the current year did not exceed ₱720,000 10%

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 May 2022

- If gross income of payee exceeds ₱720,000 15%

(14) Income Payments made by Credit Card Companies 0.5%
(15) Income Payments made by the Government and government-owned
and controlled corporations (GOCCs)
- To its local/resident suppliers of goods other than those covered by 1%
other rates of withholding tax
- To its local/resident suppliers of services other than those covered by 2%
other rates of withholding tax
(16) Income Payments made by Top Withholding Agents60, 61
- To their local/resident suppliers of goods other than those covered by 1%
other rates of withholding tax
- To their local/resident suppliers of services other than those covered by 2%
other rates of withholding tax
(17) Commissions, Rebates, Discounts and Other Similar Considerations
Paid/Granted to Independent and/or Exclusive Sales
Representatives and Marketing Agents and Sub-Agents of
Companies, including Multi-Level Marketing Companies
- If gross income of payee for the current year did not exceed ₱720,000 10%
- If gross income of payee exceeds ₱720,000 15%
(18) Payments by Pre-Need Companies to Funeral Parlors 1%
(19) Tolling Fees Paid to Refineries 5%
(20) Income Payments Made To Suppliers of Agricultural Products in 1%
Excess of Cumulative Amount of ₱300,000 Within the Same Taxable
Year
(21) Income Payments on Purchases of Minerals, Mineral Products, and 5%
Quarry Resources, such as but not limited to silver, gold, marble,
granite, gravel, sand, boulders, and other mineral products except
purchases by the Bangko Sentral ng Pilipinas
(22) Income Payments on Purchases of Minerals, Mineral Products, and 1%
Quarry Resources by the Bangko Sentral ng Pilipinas from Gold
Miners/Suppliers under P.D. No. 1899, as amended by R.A. No.
7076
(23) On Gross Amount of Refund Given by MERALCO to Customers 15%
with Active Contracts as Classified by MERALCO

60
Under RR No. 31-2020, top withholding agents shall refer to those taxpayers whose gross
sales/receipts or gross purchases during the preceding year taxable year shall fall under the
minimum thresholds determined according to the existing group classifications of Revenue
District Offices where they are duly registered, as follows:

Gross Sales/Receipts or Gross Purchases of

RDO Group Classification
At Least
Groups A and B Twelve Million Pesos (₱12,000,000)
Groups C, D, and E Five Million Pesos (₱5,000,000)
61
Top withholding agents (TWAs) are obligated to withhold 1% or 2% on (a) their purchases
of goods and services, respectively, from regular suppliers, and (b) casual purchases worth
₱10,000 and above.

Regular suppliers are defined as suppliers with whom the taxpayer-buyer has at least six (6)
transactions, regardless of amount, either in the previous year or current taxable year.
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 May 2022

(24) On Gross Amount of Interest on the Refund of Meter Deposit 10%

Whether Paid Directly to the Customers or Applied Against the
Customer's Billings of Residential and General Service Customers
Whose Monthly Electricity Consumption Exceeds 200 KWH as
Classified by MERALCO
(25) On Gross Amount of Interest on the Refund of Meter Deposit
Whether Paid Directly to the Customers or Applied Against the
Customer's Billings of Non-Residential Customers Whose Monthly 15%
Electricity Consumption Exceeds 200 KWH as Classified by
MERALCO
(26) On Gross Amount of Interest on the Refund of Meter Deposit
Whether Paid Directly to the Customers or Applied Against the
Customer's Billings of Residential and General Service Customers 10%
Whose Monthly Electricity Consumption Exceeds 200 KWH as
Classified by Other Electric Distribution Utilities (DUs)
(27) On Gross Amount of Interest on the Refund of Meter Deposit
Whether Paid Directly to the Customers or Applied Against the
Customer's Billings of Non-Residential Customers Whose Monthly 15%
Electricity Consumption Exceeds 200 KWH as Classified by Other
Electric Distribution Utilities (DUs)
(28) Income Payments Made by Political Parties and Candidates of 5%
Local and National Elections on all their Purchases of Goods and
Services Related to Campaign Expenditures, and Income Payments
made by Individuals or Juridical Persons for their Purchases of
Goods and Services Intended to be Given as Campaign
Contributions to Political Parties and Candidates

(29) Income Payments Received by Real Estate Investment Trusts 1%

(REITs)
(30) Interest Income Derived from any Debt Instrument Not Within the 15%
Coverage of Deposit Substitutes and Rev. Reg. No. 14-2012.
(31) Income Payments on Locally Produced Raw Sugar 1%

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