Special Corporations

Special Corporations
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 corporation”.

A. Domestic Corporations
1) Exempt Domestic Corporations
a. Exempt non-profit corporations under the NIRC
b. Government agencies and instrumentalities
c. Certain government-owned and controlled corporations
d. Cooperatives
Classification Rule
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 subject to regular income tax.
Example:
Bahay Kalinga, a social welfare charitable non-profit corporation,
reported the following statement of income and expenses:
Related Activities Unrelated Activities
Gross income P800,000 P400,000
Expenses 400,000 150,000
Requisites for exemption of non-stock,
non-profit corporations
Organized and operated exclusively for religious, charitable, scientific, athletic,
or cultural purposes, or for the rehabilitation of veterans.

It should meet the following tests:

Organizational test – its purpose/s is/are for CRRAS

Operational test – regular activities must be exclusively devoted for the

accomplishment of the purpose
Exemption to the Classification Rule:
Non-profit Educational Institutions
All revenues and assets of non-stock non-profit educational
institutions used actually, directly, and exclusively for educational
purposes shall be exempt from taxes and duties.
Example:
Southland University, a non-profit educational institution, collected
P4,000,000 school fees and assessments from its students. It also
earned P200,000 from the rent of its properties and realized P400,000
in the sale of its properties.

Southland University utilized the P200,000 rentals to fund an

undergraduate scholarship program and invested the P400,000 for the
retirement benefits of the directors.
A. Domestic Corporations
2) Special Domestic Corporations
a. Proprietary educational institutions and non-profit hospitals
(Subject to 10% tax on world taxable income subject to pre-dominance test)
b. Foreign currency deposit units (FCDUs) and Expanded FCDUs
c. PEZA or BOI-registered enterprises
Pre-dominance Test
If the gross income from unrelated trade, business or other activity
exceeds fifty percent (50%) of the total gross income derived by such
educational institutions or hospitals from all sources, the 30% regular
corporate income tax applies.
Example:
A private educational institution reported the following during the year:
Related Activities Unrelated Activities
Gross income P700,000 P500,000
Deductions 400,000 100,000
Owner Educational Institutions Hospitals

Private/ 10% of taxable income 30% of taxable income

Proprietary

Non-profit Exempt 10% of taxable income

Government Exempt Exempt

*Subject to Pre-dominance Test

*Exempted to the Classification rule
B. Resident Foreign Corporations
1) Offshore banking units and Expanded FCDUs
2) Regional Area Headquarters and Regional Operating Headquarters
of Multinational Companies
3) International Carrier
4) PEZA-registered foreign corporations
International Carriers
Entities that transport passengers, mails, and excess cargoes or
baggage from the Philippines to any destination abroad and vice versa.
(International air carrier and sea/shipping carrier)

Income tax rate:

General rule – 2 ½ % of Gross Philippine Billings
Exception rule – Preferential or exemption on the basis of reciprocity
applicable tax treaty or reciprocity
Example:
Green Air, a resident foreign air carrier, reported the following
summarized results of its Philippine operations during a quarter:
Inbound Flights Outbound Flights Total
Gross receipts P9,000,000 P8,000,000 P17,000,000
Direct expenses 5,000,000 4,000,000 9,000,000
Other common expenses 2,000,000
 Rule on transshipments or interrupted
flights or voyages
Only the aliquot portion of the cost of the ticket
corresponding to the leg flown from the Philippines to the
point of transshipment shall form part of the Gross Philippine
Billings.
Example:
Viet Airways, an international air carrier, had the following gross receipts on outgoing
flights for the first quarter:

Destination Computation Amount

Hongkong P1,500*10,000 passengers P15,000,000
Thailand 2,000*500 passengers 1,000,000
UAE 4,000*300 passengers 1,200,000
China 2,500*400 passengers 1,000,000
The flight to Thailand was transshipped in Vietnam to another plane of Viet Airways. The
flight to UAE is endorsed to another air carrier which airlifted them in the Philippines. The
flight to China was transshipped to another carrier which airlifted them in Hongkong.
48-hour Rule on Transient Passengers
Flight commencing from foreign countries which will be interconnected
in the Philippines for continuance of the flight or voyage to a foreign
country by the same international carrier will not be considered
originating from the Philippines if the actual departure is within 48
hours from embarkation in the country, except only when delayed by
force majeure.

If continuation will be made by different carrier , the cost of outgoing

flight will be part of the Gross Philippine Billings regardless of the time
of stay in the Philippines.
Example:
Fair Airways, an international carrier, had the following summary of flights during a quarter:
Direct outgoing flight
To Guam (P2,400*5,000 passengers)
To USA (P6,000*4,000 passengers)
Interconnecting flight:
Flights Nos. of PassengersStatus
Korea for Guam 600 passengers continued after 96hrs as scheduled
China for Guam 400 passengers delayed for 52hrs; due to storm
Taiwan for USA 500 passengers continued after 40hrs as scheduled
Guam for USA 300 passengers delayed 52hrs; due to storm*
Korea for USA 200 passengers continued after 24hrs*
*endorsed to Fresh Airlines, another international carrier, which airlifted the passengers to their final destination
C. Non-resident Foreign Corporation
1) Non-resident cinematographic film owner, lessor, or distributor
(25% final tax on their gross income from all sources within the Philippines)

2) Non-resident lessor of vessels chartered by Philippine Nationals

(4 ½ % final tax on gross rentals, lease, or charter fees from leases or charters to Filipino residents
or corporations)

3) Non-resident owner or lessor of aircraft, machineries and other

equipment
(7 ½ % final tax on rentals, charters, and other fees)
 Lease or Charter of:
Lessor Cinema films Vessels Aircraft Other
Equipment

Domestic 30% WTI 30% WTI 30% WTI 30% WTI

Resident 30%PTI 2.5% GPB 2.5% GPB 30% PTI

foreign

Non-resident 25% PGI 4.5% PGI 7.5% PGI 7.5% PGI