CORPORATE INCOME

TAXATION

Special
Corporation
 Corporation

The term corporation shall include partnerships, no matter how created or organized, joint stock companies, joint accounts,
associations, or insurance companies.
The term corporation excludes general professional partnerships and a joint ventures or consortium formed for the purpose of
undertaking construction projects or engaging in petroleum, coal, geothermal, and other energy operations pursuant to an
operating consortium agreement under a service contract with the government.
Corporations are subject to final tax, capital gains tax, and the regular income tax. The regular income tax of corporation covers
any income not subject to the final tax or capital gains tax for corporations. This module focuses on the regular income tax of
special corporation taxpayers and provides integration of the three tax schemes. 2
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General Classification
Domestic Corporation
corporation that is organized in accordance with Philippine laws.
Subject to 30% regular tax on world taxable income.

Foreign Corporation
corporation organized under a foreign law.
Resident foreign corporation (RFC) – foreign corporation which operates and
conducts business in the Philippines through a permanent establishment (i.e. a
branch). Subject to 30% regular tax on Philippine taxable income.
Non-resident foreign corporation (NRFC) – foreign corporation which operates
and conducts business in the Philippines. Subject to 30% final tax on Philippine
gross income.
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ILLUSTRATION

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A non-resident foreign corporation is not subject to the regular corporate income tax
but to a 30% final tax based on gross income from all sources within. Resident payors of
the P1,800,000 gross income shall withhold P540,000, computed as P1,800,000 x 30%,
and remit the same to the BIR.
Special Corporations
Certain corporation are subject to a special tax treatments or preferential tax rates
lower than the 30% regular corporate income tax. These are generally referred to as
“special corporations”.
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Sub-classification of Corporate Income Taxpayers

A. Domestic Corporations

1. Exempt domestic Corporations

a. Exempt non-profit corp. under the NIRC
b. Government agencies and instrumentalities
c. Certain government-owned and controlled corporations
d. Cooperatives
2. Special resident foreign corporation
a. Proprietary education institutions and non-profit hospitals
b. Foreign currency deposit unit (FCDUs) and Expanded FCDUs
c. PEZA or BOI-registered enterprises
3. Regular Domestic Corporations

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Sub-classification of Corporate Income Taxpayers

B. Resident Foreign Corporations
1. Special resident foreign corporation
a. Offshore banking units (OBU) and Expanded FCDUs
b. Regional Area Headquarters and Regional Operating Headquarters of Multinational
Companies
c. International carrier
d. BOI or PEZA -registered enterprise
2. Regular Resident Foreign Corporation
C. Non-Resident Foreign Corporations

1. Special non-resident foreign corporations

a. Non-resident cinematographic film owner, lessor or distributor
b. Non-resident lessor of vessels, chartered by Philippine nationals
c. Non-resident owner or lessor of aircraft, machineries and other equipment
2. Regular non-resident foreign corporation
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Exempt Domestic Corporations

The following corporations are exempt from the regular corporate tax:
1. Exempt non-profit corporations under the NIRC
2. Government agencies and instrumentalities
3. Exempt government-owned and controlled corporations
4. Cooperatives

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Exempt Domestic Corporations

Income tax exemption relates only to income from related activities. Income from activities
unrelated to the purposes for which an exempt corporation is organized and income from
activities conducted for profit including income from properties are taxable regardless of the
disposition made of such income.

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Classification Rule
Since exemption applies only to income from related activities, the income of exempt
corporations are classified into income from related activities and income from unrelated
activities. The income from unrelated activities is subjected to regular income tax.

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Certificate of Tax Exemption Ruling

Non-profit corporation or association must secure a Tax Exemption Ruling from the BIR to enjoy the tax
exemption. The ruling shall be valid for a period of 3 years, unless sooner revoked or cancelled. The Tax
Exemption Ruling shall be deemed revoked on the date there are material changes in the character,
purpose, or method of operation of the corporation or association which are inconsistent with the basis of
the income tax exemption. In addition, it shall be revoked also on the basis of non-renewal of the tax
exemption ruling or non-revalidation of previously issued rulings. Failure to file an income tax return shall
also result in the loss of the tax exempt status.

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Government agencies and instrumentalities

Government agencies and instrumentalities such as departments and bureaus are
inherently non-profit because of their public service functions; hence, they are
exempt from income tax. However, the income of government agencies and
instrumentalities from unrelated activities or from their properties is subject to
income tax.

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Government-Owned and Controlled Corporations (GOCCs)

GOCCs are generally proprietary or commercial in nature and are subject to the
regular corporate income tax except the following exempt GOCCs: 1. Government
Service Insurance System (GSIS) 2. Social Security System (SSS) 3. Philippine Health
and Insurance Corporation (PHIC) 4. Local water districts -RA No. 10026 *PCSO was
removed from the NIRC list by the TRAIN law effective January 1, 2018.

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Cooperatives
A cooperative is an autonomous association of persons who voluntarily joined
together to achieve their social, economic and cultural needs and aspirations by
making equitable contributions to the capital required, patronizing their products
and services, and accepting a fair share of risks and benefits of the undertaking

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Classification of registered cooperatives for taxation purposes:

A. Cooperatives which transact business only with members
These cooperatives are not subject to any taxes and fees under the NIRC and other tax laws, such as the
following:
1. Income tax (on related regular income)
2. VAT and Percentage tax
3. Donor’s tax
4. Excise tax D
5. ocumentary stamp tax
6. Annual registration fee 2
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B. Cooperatives which transacts business with both members and non-members.

1. Those with not more than P10M accumulated reserve and undivided net savings are exempt from taxes,
similar to cooperatives transacting business only with members.
2. Those with more than P10M accumulated reserve and undivided net savings are subject to the following tax
at full rate:
a. Income tax on the full amount allocated for interest on capital
b. Value Added Tax (VAT) on transactions with non-members
c. Percentage Tax on all sales of goods or services rendered to non-members
d. All other internal revenue taxes unless otherwise provided by the law
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Illustration
A non-profit entity presented the following analysis of its net surplus

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Special Domestic Corporation

1. Private educational institutions
2. Non-profit hospitals
3. Foreign Currency Deposit Units or Expanded Foreign
Currency Deposit Units
4. PEZA or BOI-Registered Enterprises

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Private Educational Institution and Non-Profit Hospital

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Private Educational Institution and Non-Profit Hospital

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Private Educational Institution and Non-Profit Hospital

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Private Educational Institution and Non-Profit Hospital

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