TAX 103: Special Topics (Tax Filing & Repor:ng)

Thursday: 6-9PM: Room 208

Topic 4: Income Tax – Corporation

Sec%on 2 of RA 11232 or the Revised Corpora%on Code of the Philippines provides that a
Corpora&on is “an ar%ficial being created by opera%on of law, having the right of succession and
the powers, aBributes, and proper%es expressly authorized by law or incident to its existence”

Sec%on 22 of RA 8424 (the Tax Code) as amended by RA 11534 or the Corporate Recovery and
Tax Incen%ves for Enterprises (CREATE)

The term Corpora%ons shall include:

1. One Person Corpora%ons (OPCs)
2. Partnership, no maBer how created or organized
3. Joint stock companies
4. Joint accounts
5. Associa%ons
6. Insurance companies

The term Corpora%on does not include:

1. General Professional Partnership (GPP)
2. Joint Venture or Consor%um

Joint Venture or Consor%um in general is taxable exempt:

1. Formed for the purpose of undertaking construc%on projects pursuant to Presiden%al
Decree (PD) No. 929
2. Engaging in petroleum, coal, geothermal and other energy opera%ons pursuant to an
opera%ng consor%um agreement under a service contract with the government

The members to a Joint Venture not taxable as corpora%on shall each be responsible in repor%ng
and paying the appropriate income taxes on their respec%ve share to the joint ventures profit.

Types of Corpora,ons
1. Domes%c
2. Resident Foreign Corpora%on
3. Non-resident Foreign Corpora%on
INCOME TAXES OF CORPORATIONS

1. Regular Corporate Income Tax

Ordinary or regular income – refers to income derived from the regular conduct of trade
or business income, including incidental income Other than income subject to final tax and capital
gains tax.

2. Final Withholding Tax

Passive income – derived from sources within the Philippines that are subject to Final
Withholding Tax. Interest income, royal%es and dividends.

3. Capital Gains Tax

Capital gains – income derived from sale of capital assets.

Corporate Income Tax Rates on Regular Income (Based on RA 11534 – CREATE ACT)

Domes,c Corp. Resident Foreign Corp. Non-Resident Foreign Corp.

RCIT 25% / 20% Net Income 25% NI within only 25% GI within only
MCIT 7/1/2020 1% GI 1% GI within only NA
– 6/30/2023
MCIT beg. 2% GI 2% GI within only N/A
7/1/2023

• Generally, RCIT rate for Domes%c Corpora%ons (DC) under CREATE Act shall be 25%.
However, if the DC is classified as MSME (Micro Small and Medium Enterprises), the RCIT
rate to be applied shall be 20% of net income. MSME are domes%c corpora%ons with:
a. Net taxable income of NOT more than 5,000,000.00; AND
b. Assets of NOT more than 100,000,000.00, excluding the land on which the par%cular
business en%ty’s office, plant and equipment are situated during the taxable year
which the tax is imposed.
• The 20% income tax rate for MSME is not applicable to foreign corpora%ons (resident or
nonresident)
• MCIT – minimum corporate income tax. Shall be computed beginning on the 4th year of
opera%ons immediately following the taxable year on which such corpora%on
commenced its business (RR 2-98 as amended by RR 12-2007, RR 5-2021). The amount of
MCIT shall be compared with the RCIT. The tax due shall be the HIGHER between the RCIT
and MCIT. (Gross Income Defined. - For purposes of applying the minimum corporate income tax provided
under Subsec@on (E) hereof, 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 loca@on and use.)
RELIEF FROM MCIT

1. Losses on account of prolonged labor disputes (substan%al losses arising from a strike
staged by the employees that lasted for more than 6 months)
2. Force majeure
3. Legi%mate business reverses

CORPORATIONS EXEMPT FROM MCIT

1. Domes,c Corpora,ons
a. Proprietary Educa%onal Ins%tu%ons
b. Non-profit hospitals
c. Domes%c corpora%ons engaged in depository banks under the expanded foreign
currency transac%ons with local commercial banks and other depository banks under
the foreign currency deposit system

2. Resident Foreign Corpora,ons

a. Interna%onal carriers
b. Regional Opera%ng Headquarters (ROHQs)

3. Corpora,ons registered under Philippine Economic Zone Authority (PEZA) and Bases
Conversion Development Authority (BCDA)

Special Corpora,on Tax Rate

a. Domes%c Corpora%ons
Proprietary educa%onal ins%tu%ons, Non- TRAIN: 10% before July 1, 2020
Stock, Non-Profit Educa%onal Ins%tu%ons and CREATE: 1% July 1, 2020 – June 30, 2023
Non-profit Hospitals 10% Beginning July 1, 2023
b.Resident Foreign Corpora%ons
Interna%onal Carriers (sea or air) 2.5% Gross Philippine Billings
10% up to December 31, 2021 only
Regional Opera%ng Headquarters Beginning Jan. 1, 2022, ROHQs are no longer
considered special corpora%ons and shall be
taxable at 25% of net income just like an
ordinary RFC
c.Nonresident Foreign Corpora%ons
• Non-resident Cinematographic Film 25% of Gross Income
Owner, Lessor or Distributor
• Non-resident owner or lessor of 4.5% of Gross Income
Vessels chartered by Philippine
Na%onals
 • Non-resident owner or lessor of 7.5% of Gross Income
Aircral, Machineries and Other
Equipment

TAX EXEMPT CORPORATIONS

Under Sec%on 30 of the Tax Code, the following organiza%ons shall not be taxed in respect to
income received by them as such:

a. Labor, agricultural or hor%cultural organiza%ons not organized principally for profits.

b. Mutual savings bank not having a capital stock represented by shares, and coopera%ve
bank without capital stock, organized and operated for mutual purposes and without
profit.
c. A beneficiary, society, order or associa%on, opera%ng for the exclusive benefit of the
members
d. Cemetery company owned and operated exclusively for the benefit of its members
e. Non-stock corpora%on or associa%on organized and operated exclusively for religious,
charitable, scien%fic, athle%c, or cultural purposes, or rehabilita%on of veterans
f. Business league, chamber of commerce, or board of trade, not organized for profit
g. Civic league or organiza%on not organized for profit but operated exclusively for the
promo%on of social welfare.
h. A non-stock nonprofit educa%onal ins%tu%on.
i. Government educa%onal ins%tu%on
j. Farmers or other mutual typhoon or fire insurance company, mutual ditch or irriga%on
company, mutual or coopera%ve telephone company
k. Farmers, fruit growers or like associa%on organized and operated as a sales agent for the
purpose of marke%ng the products of its members

Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and
character of the foregoing organiza%ons from any of their proper%es, real or personal or from any
of their ac%vi%es conducted for profit, regardless of the disposi%on made of such income, shall
be subject to tax imposed under the Tax Code.

TAXATION IF ORGANIZATIONS AND CORPORATIONS UNDER SEC. 30 OF THE NIRC OF 1997 (TAX
CODE) as amended RMO 38-2019

The requirements for the grant of tax exemp%on are specified by the law gran%ng it and such
grant is strictly construed against the taxpayer because an exemp%on restricts the collec%on of
taxes necessary for the existence of the government. Thus, a corpora%on claiming tax exemp%on
must be able to show clearly that it is organized and operated for the purposes under Sec%on 30
of the NIRC, and that its income is derived pursuant thereto.
 1. Income Tax Exemp%on, Not Absolute
2. Obliga%ons as withholding agent for the Government
3. Liability for VAT (gross receipts exceed 3M or to Percentage Tax)

GOCCs – Government Owned and Controlled Corpora,ons

Tax-exempt GOCCs as provided by law:

• Government Service Insurance System (GSIS)
• Social Security System (SSS)
• Philippine Health Insurance Corpora%on (PHIC)
• Local Water Districts under RA10026
• Home Development Mutual Fund (HDMF)

Sec%on 3 of RR 2-2020 dated January 15, 2020 provides that, the Bangko Sentral ng Pilipinas (BSP)
shall be exempt from all na%onal internal revenue taxes on income derived from its governmental
func,ons.

Income of a government agency arising from governmental func%ons – EXEMPT

Income of a government agency arising from proprietary func%ons – TAXABLE

FILING OF INCOME TAX RETURNS

Manner of Filing

• Manual filing
• EFPS – Electronic Filing and Payment System
• eBIR forms

Due Dates

• Quarterly return – On or before the 60th day following the close of the taxable quarter

• Annual return – On or before the 15th day of the 4th month following the end if the
taxable year

Place of Filing Income Tax Return

Within the proper Revenue District Office’s
1. AAB – Authorized Agent Banks
2. RCO – Revenue CollecKon Officer
3. Or duly authorized Treasurer of the municipality
BIR Forms:

Illustra,on: Income Tax – Corpora,on

Mega Construc%on Corpora%on, a domes%c corpora%on, has the following data for 2021 taxable
year:

Gross income, PH P100,000,000.00

Gross income, USA P50,000,000.00
Gross income, Japan P50,000,000.00
Expenses, PH P30,000,000.00
Expenses, USA P20,000,000.00
Expenses, Japan P10,000,000.00
Other Income: Dividend from San Miguel Corp., a domes%c corp. P7,000,000.00
Dividend from Ford Motors (RFC; within income) P12,000,000.00
Gain on sale of shares of a domes%c corp. sold directly to buyers P15,000,000.00
Royalty Income, PH P5,000,000.00
Royalty Income, USA P10,000,000.00
Interest income on peso bank deposit P8,000,000.00
Interest income on FCDS deposit P3,000,000.00
Interest from receivables in the Philippines P6,000,000.00
Rent Income, land in USA P25,000,000.00
Rent Income, Building in the Philippines P10,000,000.00

Required:
1. Compute for the income tax due for the year 2021