CHAPTER 3:

Taxation of
Corporation
 Chapter
1
Outline
2 3 4
Classification of Sources of Income Categories of Taxable Income,
Income Taxpayers Income Tax Rates Allowable
(Other than Deductions and
Individuals) Income Tax Due
 Chapter
5
Outline
6 7
OSD, Corporations Taxation for Declaration of
Exempt from Income Cooperatives Quaterly Corporate
Tax Income Tax
 1 Classification of Income
Taxpayers (Other than
Individuals)
G e e al P ofessio al
Co po atio s E states a d T u sts
P a t e s ip (G P P )
Artificial being created by
To be discussed in Chapter 6. To be discussed in Chapter 5.
operation of law, having the right
of succession and the powers,
attributes and properties
expressly authorized by law or
incident to its existence.

• Domestic

• Foreign
 Definition of Terms
Those created or organized under and by virtue of Philippine laws.
D o estic

O e P e so A corporation with a single stockholder, who may be a natural person,

a trust or an estate.
Co po atio

F o eig Those organized in accordance with laws of their respective countries.

R eside t F o eig
A foreign corporation engaged in trade or business within the Philippines.
Co po atio
 Definition of Terms
A foreign corporation not engaged in trade or business within the
N o -R eside t F o eig
Philippines.
Co po atio
Partnerships formed by persons for the sole purpose of exercising
G e e al P ofessio al their common profession, no part of the income of which is derived
P a t e s ip from engaging in any trade or business.
All corporations, agencies or instrumentalities owned or controlled by
G O CCs, A ge cies,
the Government.
I st u e talities
F o eig Sou ced Dividends received from non-resident foreign corporations.
D i ide ds
 2 Sources of
Income Sou ces of I co e
Co po atio Within the Phil. Without the Phil.
• Domestic. ✔️ ✔️
• Foreign ✔️
 3 Categories of
Income and
Tax Rates
1. B u si ess I co e

Y ea T ax R ates

1997 35%
1998 34%
1999 33%
2000 - Oct. 2005 32%
Nov. 2005 - 2009 35%
2009 30%
2020 (effective July 1) 25%
2. P assi e I co e
 Domestic and Resident
Foreign Corporation, In
General
Pro-forma computation of the normal income tax of do estic a d eside t
fo eig co po atio s follows:

Gross Income XXX

Less: Allowable Deductions XXX
Net Income XXX
Multiply by: Tax rate (effective July 1, 2020) 25%
Tax Due XXX

Domestic corporations classified as M SM E with net taxable income ot

exceedi g P 5 illio a d total assets ot exceedi g P 100 illio , excluding
the land on which the particluar business entity’s office, plant and equipment are
situated, shall be taxed at 20% effective July 1, 2020.
 Your Turn !!
Dynasty Corporation just completed its third year of operations. It has the following financial
information for the taxable year 2021, its third year:

Philippines Singapore
Gross Income P1,250,000 P800,000
Deductions 945,000 540,000

• Assuming that the taxpayer is a domestic corporation, what is the taxable income?
• What is the tax due?
• Assuming that the taxpayer is a resident foreign corporation, what is the taxable income?
• What is the tax due?
 Answers:
2021 2021 2021
Phils. Singapore Total
Gross Income P1,250,000 P800,000 P2,050,000
Deductions 945,000 540,000 1,485,000
Taxable Income 305,000 Q 3 260,000 565,000
Q1
Tax Rate 25% 25%
25%__
Tax Due 76,250 Q 4 65,000 141,250.
Q2
 Domestic Corporation,
In Particular
• R eal E state I est e t T u st (R E IT )
- A stock corporation established in accordance with the Corporation Code
of
the Philippines and the rules and regulations promulgated by the SEC,
principally for the pu pose of o i g i co e-ge e ati g eal estate
assets.

- Taxable on all income derived from sources within and without the Phils.
at the applicable income tax rate of 30% o its taxable et i co e.
2. P op ieta E du catio al I stitu tio s a d H ospitals W ic
A e N o -P ofit
- P op ieta E du catio al I stitu tio s refer to any p i ate sc ools,
maintained and administered by private individuals or groups.

- H ospitals ic a e N o -P ofit refer to any p i ate ospitals, which

are o -p ofit, maintained and administered by private individuals or
groups.

- N o -Stoc , N o -P ofit (N SN P ) E du catio al I stitu tio s whose

revenues and assets that are u sed actu all , di ectl a d exclu si el
fo
edu catio al pu poses shall be exe pt f o taxes a d du ties.

- The 10% tax o taxable i co e except those passive income subject to

final tax. Provided, that begi i g Ju l 1, 2020 u til Ju e 30, 2023,
the tax rate shall be 1% .

- If the gross income from “unrelated trade, business or other activity”

exceeds 50% of the total gross income derived from all sources, the 25%
shall be imposed on the entire taxable income.
3. G o e e t-O ed o Co t olled Co po atio s, A ge cies o
I st u e talities
- shall pay such rate of tax upon their taxable income as are imposed by
the
Code upon corporations or associations engaged in a similar business,
industry or activity.

- the following are exe pt:

a. Government Service Insurance System (GSIS)
b. Social Security System (SSS)
c. Philippine Health and Insurance Corporation (PHIC)
d. Home Development Mutual Fund (HDMF) (effective Apr. 1, 2021)
e. Local Water Districts (LWD)

4. P ilippi e C a it S eepsta es O ffice (P CSO )

- no longer exempt from income tax under TRAIN.

5. P ilippi e A u se e t a d G a i g Co po atio
(1) income from its gaming operations - 5% f a c ise tax
(2) income from other related services - subject to the corporate income
6. E lect o ic Sabo g o Coc fig t (E -Sabo g)
- Gaming income is subject to 5% f a c ise tax.

7. P o e Secto A ssets a d L iabilities M a age e t Co po atio

(P SA L M )
-income to be derived by PSALM from the operation of the generation
facilities is subject to income tax and withholding tax.

8. M u tu al L ife I su a ce Co pa ies
-subject to the regular corporate income tax rates.

9. H o eo e s‘A ssociatio
- ot subject to income and withholding tax.

10. R ec eatio al Clu bs

-are subject to income tax.

11. O ffs o e G a i g L ice sees (O G L s)

• Gaming Operations - 5% of t e G oss G a i g R eceipts or 5% of t e
ag eed p edete i ed i i u o t l e e u e from gaming
operations, ic e e is ig e .
 • Non-Gaming Operations
a.) Income from non-gaming operations of P ilippi e-based O G L s shall be
subject to an income tax equivalent to 25% of t e taxable i co e from
sources it i a d it ou t t e P ilippi es.
b.) Income from non-gaming operations of F o eig -based O G L s shall be
subject to an income tax equivalent to 25% of t e taxable i co e from
sources it i t e P ilippi es.

• Income Taxation of Accredited Service Providers

a.) Accredited Service Providers organized within the Philippines shall pay
an
income tax rate of 25% i posed u po t e taxable i co e from
sources
it i a d it ou t t e P ilippi es.
b.) Accredited Service Providers organized within the Philippines shall pay
an income tax rate of 25% i posed u po t e taxable i co e from
sources it i a d it ou t t e P ilippi es.

• Income Taxation of Alien Individuals Employed by POGO Entities

- Foreign nationals or non-Filipino citizens shall have Taxpayer
Identification Number (TIN) and pay a final withholding tax of 25% o
 Resident Foreign Corporations, In
Particular
I te atio al Ca ie O ffs o e B a i g U its (O B U s)

• shall pay a tax 2.50% o its G oss P ilippi e • shall now be taxed at 25% as a eside t
B illi gs (G P B ) fo eig co po atio effective Apr. 11, 2021.

R egio al O pe ati g H ead u a te s

B a c P ofit R e itta ces
(R O H Q s)
• shall be subject to a tax of 15% ic s all be • ROHQs shall be taxed at 25% of t ei taxable
based o t e total p ofits applied o i co e.
ea a ed fo e itta ce without deduction
for the tax component thereof.
Non-Resident Foreign
Corporation, in General
G oss I co e it i G oss I co e ou tside
t e P ilippi es t e P ilippi es
Gross Income XXX
Multiply by: Tax rate 25% • Income from services performed by a non-
Tax Due XXX resident foreign corporation entirely outside
the Philippines is exe pt from Philippine
• Gross Income includes interests, dividends,
income tax.
rents, royalties, salaries, premiums (except
reinsurance premiums), annuities,
emoluments or other fixed or determinable
annual, periodic or casual gains, profits and
 Non-Resident Foreign
Corporation, in
Particular
N o -R eside t Ci e atog ap ic N o -R eside t O e o L esso of N o -R eside t O e o L esso of
F il O e , L esso o V essels C a te ed b P ilippi e A i c aft, M ac i e a d O t e
D ist ibu to N atio als E u ip e t

• Taxed at 25% of gross • Taxed at 4.50% of gross • Taxed at 7.5% of gross

income. rentals, lease or charter fees rentals, charters and other
from leases or charters to fees.
Filipino citizens or
corporations.
Passive Income of
Non-Resident
Foreign
• Interest on foreign loans contracted on or after Aug. 1, 1986 are
taxed
at 20% .

Corporation
2. Dividends received by a NRFC from a Domestic Corporation is
subject
to 25% FWT.

3. Capital gains from sale of shares of stock not traded in the stock
exchange is subject to 15% FT.

4. Income derived by a bank from FCDUs/EFCDUs or OBUs with

respect to foreign currency transactions with non-residents, OBUs
in
the Philippines, and local commercial banks, including branches of
foreign banks authorized to transact business with
 4 Taxable Income and Tax Due

N et I co e G oss I co e

• The income arrived at after subtracting from the

gross income the deductions of the taxpayer. • The entire or gross income from business without
any deductions for either optional standard deduction
• Used for domestic and resident foreign or itemized deduction.
corporations.
• Used for domestic and foreign corporations subject to
Sales/Revenues/Receipt/Fees. XXX
the MCIT; and non-resident foreign corporations not
Less: Cost of Sales/Services XXX
Gross Income from Operation XXX subject to the normal income tax rate.
Add: Non-Operating and Taxable XXX
Other Income
Gross Income. XXX
Total Gross Income XXX Multiply by: Tax Rate. X%
Less: Deductions XXX Tax Due XXX
Taxable Income XXX
 5 Allowable Deductions
Ite ized D edu ctio s O SD

• To be discussed in Chapter 10. • An optional standard deduction in an amount ot

exceedi g 40% of its g oss i co e.

• N o - eside t fo eig co po atio s are ot

allo ed dedu ctio s from gross income.

Gross Sales XXX

Less: Cost of Sales XXX
Gross Income XXX
Less:OSD (not exceeding 40%) XXX
Taxable Income XXX
Multiply by: Tax Rate X%
 Corporations Exempt from Income Tax

• Labor, agricultural or horticultural organization not organized principally for profit;

2.Mutual savings bank not having a capital stock represented by shares, and cooperative bank without
capital stock organized and operated for mutual purposes and without profit;

3.A beneficiary society, order or association, operating for the exclusive benefit of the members such as
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;

4.Cemetery company owned and operated exclusively for the benefit of its members;

5.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
 Corporations Exempt from
Income Tax
6.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;

7.Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare

8.A non-stock and non-profit educational institution;

9.Government educational institution;

10.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

11.Farmers', fruit growers', or like association organized and operated as a sales agent for the purpose of
 Corporations Exempt from Income Tax

12.Per Sec. 5 of R.A. 10072, the Philippine National Red Cross, to be known as the Philippine Red Cross, shall be
exempt from payment of all direct and indirect taxes, all provisions of law to the contrary notwithstanding,
including value-added tax, fees and other charges of all kinds on all income from its operations, including the
use, lease or sale of its real property, and provision of services.

13.Per Rule 24 of the IRR of R.A. 10165, any child-caring or child-placing institution licensed and accredited by the
DSWD to implement the Foster Care Program shall be exempt from income tax on income derived by it as such
organization pursuant to Section 30 of the NIRC as implemented by Revenue Regulation 13-98.

14.The Bangko Sentral ng Pilipinas (BSP) shall be exempt from all national internal revenue taxes on income
derived from its governmental functions.

15.Sale of Gold. Income derived from the following sale of gold are excluded in the gross income and shall be
exempt from income tax, and consequently from withholding taxes:
a.) The sale of gold to the BSP by registered SSMs and accredited traders; and
Declaration of Quarterly
Corporate Income Tax
• Every corporation shall file in du plicate a u a te l su a decla atio of
its gross income and deductions on a cumulative basis for the preceding quarter
or quarters upon which the income tax shall be levied, collected and paid.

• The income tax shall be paid and the tax return files ot late t a sixt (60)
da s f o t e close of eac of t e fi st t ee (3) u a te s of the taxable
year, whether calendar or fiscal.

• Every taxable corporation is likewise required to file a final adjustment return

which is required to be filed and paid o o befo e A p il 15, or o o befo e
t e 15t da of t e 4t o t follo i g t e close of t e fiscal ea , as the
case may be.
Illustration: