Corporations

📌 Corporation is an artificial being created by operation of law, having the right of succession and the
powers, attributes and properties expressly authorized by law or incident to its existence.

The term Corporations shall include:

1. One Person Corporations

2. Partnerships, no matter how created or organized
3. Joint stock companies
4. Joint accounts
5. Associations
6. Insurance companies

The term Corporation does not include:

1. General Professional Partnership

2. Joint venture and consortium

Tax Exempt Corporations

1. Labor, agricultural or horticultural organizations not organized principally for profits.

2. Mutual savings bank not having a capital stock represented by share, and cooperative bank
without capital stock, organized and operated for mutual purpose without profit.
3. 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 nonstock corporation organized by employees for the payment of life, sickness,
accident, or other benefits exclusively to the members of such society, order, association, or
nonstick corporation or their dependents.
4. Cemetery company owned and operated exclusively for the benefit of its members.
5. Non-stock corporations of association organized and operated exclusively for religious,
charitable, scientific, athletic, or cultural purposes, or rehabilitation of veterans, no part of its
net income or asset shall belong or inure to the benefit of any member, organizer, officer or any
specific person.
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 nonprofit 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 organizations of a purely local character, the
income of which consists solely or assessments, dues, and fees collected from members for the
sole purpose of meeting its expenses
11. 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 them the proceeds of
sales, less the necessary selling on the basis of the quantity of produce finished by them.

Tax exempt GOCCs

 1. Government Service and Insurance System (GSIS)
2. Social Security System (SSS)
3. Home Development Mutual Fund (HDMF) / PAG-IBIG
4. Philippine Health Insurance Corporation (Philhealth)
5. Local water districts

Types of Corporations

1. Domestic corporations
2. Resident foreign corporations
3. Nonresident foreign corporations

Domestic Corporations

are corporations created or incorporated in the Philippines or under its laws

Foreign Corporations

are organized or incorporated by a foreign law

 Resident Foreign Corporations - secures from the Securities and Exchange Commission (SEC)
a license to operate in the Philippines.

Types of Income

Ordinary income

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

Regular Corporate Income Tax (RCIT)

is also referred to as the normal corporate tax or basic income tax.

Domestic (DC) Resident Non-resident

Regular Corporate Income Tax (RCIT)
Rate 25% 25% 25% FWT
Base Taxable income Taxable income Gross income
Effectivity date July 1, 2020 July 1, 2020 January 1, 2021

Micro Small Medium Enterprises (MSMEs)

If the domestic corporation is classified as Micro Small and Medium Enterprise (MSME), the RCIT rate
to be applied shall be twenty percent (20%) of net income.

A domestic corporation shall be classified as MSME if both the following conditions are met:

1. Net taxable income is NOT more than PHP 5,000,000

 2. Assets is NOT more than PHP 100,000,000 excluding the land on which the particular business
entity’s office, plant, and equipment are situated during the taxable year for which the tax is
imposed.

Exception: DCs with Net Taxable Income of P5M and below AND Total
20% N/A N/A
Assets (excluding land) of P100M and below
Taxable
Base
income

Minimum Corporate Income Tax (MCIT)

The MCIT shall be imposed whenever:

 The corporation has zero taxable income

 The corporation has negative taxable income
 Whenever the amount of MCIT is greater than the regular corporate income tax (RCIT) due from
such corporation. Hence, MCIT is always computed and compare to RCIT starting on the fourth
year of operations.

Minimum Corporate Income Tax

(MCIT)
from July 1, 2020 to June 30,
Rate 1% 1% N/A
2023
Gross Gross (back to 2% starting July 1,
Base
income income 2023)

Excess MCIT or MCIT Carry over

Any excess of the minimum corporate income tax over the regular corporate income tax shall be carried
forward and credited against the regular income tax for the three (3) succeeding taxable years, provided,
that the regular tax should be higher than the minimum corporate tax in the year to which the excess
MCIT is forwarded.

Passive income

certain types of income derived from sources within the Philippines that are subject to Final Withholding
Taxes (FWT).

1. Interest income
2. Royalties
3. Dividends

Interest on Philippine currency bank deposit, yield or other monetary benefit

20% 20% 25%
from deposit substitute, trust fund and similar arrangement
Interest on foreign currency deposit under the expanded foreign currency deposit
15% 15% Exempt
system (FCDS)
Royalties from sources within the Philippines 20% 20% 25%
Dividends

FROM RC NRC RA NRA-ETB NRA-NETB

DC 10% 10% 10% 20% 25%
RFC tax table tax table* tax table* tax table* 25%*
NRFC tax table N/A** N/A** N/A** N/A**

*assuming it passed the predominance test (earned inside the Philippines)

If the ratio of Philippine gross income over the world gross income in the 3-year period preceding the
year of declaration is:

1. At least 50%, the entire dividend corresponding to the Philippine gross income ratio is
earned INSIDE the Philippines; hence, taxable in the Philippines
2. Less than 50%, the entire dividend received is earned OUTSIDE the Philippines; hence not
taxable in the Philippines

**assuming it did not pass the predominance test (earned outside the Philippines)

*** requisites for exemption:

1. Funds from such dividends actually received or remitted into the Philippines are reinvested in the
business operations of the domestic corporation in the Philippines.
2. Reinvestment should be made within the next taxable year from the time foreign-sourced
dividends where received.
3. Reinvestment is limited to funding the working capital requirements, capital expenditures,
dividend payments, investment in domestic subsidiaries and infrastructure project.
4. The DC holds directly at least 20% of the outstanding shares of the foreign corporation.
5. It has held the shareholdings for a minimum of 2 years at the time of dividend distribution.

****15% if with tax sparing; 25% if without tax sparing

Capital Gains Tax (CGT)

On sale of shares of stock of a domestic corporation not listed and traded, held as
15% 15% 15%
capital asset (net capital gains)
On sale of real property in the Philippines held as capital asset (higher of SP or FMV) 6% N/A N/A

Special Corporations

Proprietary educational institutions and non-

profit hospitals, on net income if gross income from July 1, 2020 to June 30,
from unrelated trade, business, and other activities 1% Domestic 2023 (back to 10% starting July
does not exceed 50% of the total gross income from 1, 2023)
all sources.
Non-stock, non-profit educational institutions (all Exempt Domestic Update: as per RR No. 3-2022,
assets and revenues used actually, directly, non-stock, non-profit
and exclusively for educational purposes) and other educational institutions shall be
 subject to the same rate as
proprietary educational
non-profit organizations.
institution (1% from July 1,
2020 to
June 30, 2023 and then back to
10% starting July 1, 2023).
Follow this for the October
2023 LECPA.
Income of international carriers on their gross
2.5% RFC
Philippine billings
Nonresident cinematographic film owner, lessor or
25% NRFC
distributor on gross income
Rentals, charters, and other fees derived by non-
resident lessors of aircraft, machinery, and other 7.5% NRFC
equipment
Rentals and charter fees payable to non-resident
4.5% NRFC
owners of vessels chartered by Philippine nationals
subject to 25% RCIT starting
Regional operating headquarters (ROHQs) earning
10% RFC January 1, 2022 (taxable as
income from the Philippines
regular RFC)
Regional or area headquarters of multinational
corporations that do not earn or derive income from
the Philippines, and that act as supervisory, Exempt RFC
communications, and coordinating centres for their
affiliates, subsidiaries, or branches
now subject to 25% RCIT and
Income of OBUs and foreign currency deposit
RFC 1% MCIT (taxable as regular
units (FCDUs) of depository banks
RFC)
Branch Profit Remittances on total profits applied
or earmarked for remittance without any deduction 15% RFC
for the tax component