TAXATION OF

CORPORATIONS
CLASSIFICATION OF INCOME
TAXPAYERS
(OTHER THAN INDIVIDUALS)
1. Corporations
a. Domestic. Those created or organized under and by virtue of Philippine laws.
b. Foreign
- Resident
- Non-Resident

2. General Professional Partnership (Chapter 6)

3. Estates and Trusts (Chapter 5)
CORPORATIONS
Revised Corporation Code of the Philippines

A 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.

Section 10. Any person, partnership, association or corporation, singly or

jointly with others but not more than fifteen (15) in number, may organize a
corporation for any lawful purpose or purposes.
CORPORATIONS
For income tax purposes, a corporation as defined under section 22 of RA
8424 shall INCLUDE:

1. Partnerships, no matter how created or organized

2. Joint stock companies
3. Joint accounts (cuentas en participacion)
4. Associations; or
5. Insurance companies
CORPORATIONS
JOINT STOCK COMPANIES

Joint stock companies are constituted when a group of individuals, acting jointly establish and operate
business enterprise under an artificial name, with an invested capital divided into transferable shares, an
elected board of directors and other corporate characteristics, but operating without formal
government authority.

JOINT ACCOUNT COMPANIES

Joint account (cuentas en participacion) is constituted when one interests himself in the business of
another by contributing capital thereto, and sharing in the profits or losses in the proportion agreed
upon. They are not subject to any formality and may be privately contracted orally or in writing.
CORPORATIONS
But does NOT INCLUDE:

1. General professional partnerships; and

2. A joint venture or consortium formed for the purpose of undertaking:

a. Construction projects or

b. Engaging in petroleum, coal, geothermal and other energy operations pursuant to an

operating or consortium agreement under a service contract with the government.
CORPORATIONS
PARTNERSHIP
General Partnership General Professional Partnership
• Partnership in Trade • Professional partnership
• Commercial partnership • Non-taxable partnership
• Taxable partnership

Taxable as Corporation Tax Exempt

CORPORATIONS
JOINT VENTURE OR CONSORTIUM

Joint venture is a commercial undertaking by two or more persons, differing from a

partnership in that it relates to the disposition of a single lot of goods or the completion of a
single project.

IN GENERAL, a joint venture or consortium is taxable as corporation unless it refers to joint

ventures described above.
CORPORATIONS
REQUIREMENTS FOR JOINT VENTURES OR CONSORTIUM (TAX-EXEMPT)

1. A joint venture was formed for the purpose of undertaking construction projects is not considered as
corporation (RR 10-2012 effective June 2012) provided:

a. The joint venture was formed for the purpose of undertaking a construction project and

b. Should involve joining/pooling of resources by licensed local contractors; that is, licensed as
general contractor by the Philippine contractors accreditation board(PCAB) of the department of
trade and industry (DTI)

c. The local contractors are engaged in construction business; and

d. The joint venture itself must likewise be duly licensed as such by the Philippine contractors
accreditation board (PCAB) of the department of trade and industry (DTI)
CORPORATIONS
FOREIGN CONTRACTORS

Joint ventures involving foreign contractors may also be treated as a non-taxable corporation provided:

a. The member foreign contractor is covered by a special license as contractor by the PCAB

b. The construction project Is certified by the appropriate tendering Agency (government office) that
the project is a foreign financed/internationally -funded project and that international bidding is
allowed under the bilateral agreement entered into by and between the Philippine government and
the foreign/international financing institution pursuant to the implementing rules and regulations of
republic ACT NO. 4556 otherwise known as contractors license law.
CORPORATIONS
2. A joint venture or consortium for engaging in petroleum, coal, geothermal
and other energy operations pursuant to an operating consortium
agreement under a service contract with the government.
CLASSIFICATION OF
CORPORATE TAXPAYERS
1. Domestic corporation (DC)- Is a corporation created or organized in the Philippines or
under its laws.

2. Resident foreign corporation (RFC)- Is a corporation created or organized in a foreign

country or under the laws of a foreign country and engaged in business in the Philippines.

3. Nonresident foreign corporation (NRFC)- Is a corporation created or organized in a

foreign country or under the laws of a foreign country but not engaged in business in the
Philippines.
CLASSIFICATION OF
CORPORATE TAXPAYERS
1. Ordinary corporation- corporations subject to the regular corporate
income tax (RCIT) rate of 30%

2. Special corporation- corporations subject to income tax rate which is

lower than the regular corporate income tax (RCIT) rate of 30%
CLASSIFICATION OF
CORPORATE TAXPAYERS
The special corporations under the tax code, as amended, are as follows:

1. Domestic corporations

-proprietary educational institutions

-non-profit hospitals

2. Resident foreign corporations

-international carriers

-regional operating headquarters (ROHQs)

CLASSIFICATION OF
CORPORATE TAXPAYERS
3. Non-resident foreign corporations

- non-resident cinematographic film owner, lessor or distributor

- non-resident owner or lessor of vessels chartered by Philippine nationals

- non-resident owner or lessor of aircraft, machineries and other equipment

TAX-EXEMPT
ORGANIZATIONS
TAX-EXEMPT
ORGANIZATIONS
The requirements for the grant of exemption are specified by the law granting
it and such grant is strictly construed against the taxpayer because an
exemption restricts the collection of taxes necessary for the existence of the
government.

A corporation claiming tax exemption must be able to show that it is

organized and operated for the purposes under Section 30 of the NIRC, and
that its income is pursuant thereto.
TAX-EXEMPT
ORGANIZATIONS
RMO 38-2019

• Organizational test

• Operational test
TAX-EXEMPT
ORGANIZATIONS
Non-Profit

It means that “no net income or asset accrues to or benefits any

member or specific person, with all the net income or asset devoted
to the institution’s purposes and all its activities conducted not for
profit”.
TAX-EXEMPT
ORGANIZATIONS
• Income Tax Exemption, Not Absolute

Income tax exemption covers only the income derived by the corporation in
furtherance of the purposes for which it was organized under Section 30 of the
NIRC.

• Liability for VAT

TAX-EXEMPT
ORGANIZATIONS
The following organizations shall not be subject to income tax:
(Section 30, RA 8424; National Internal Revenue Code)

1. Labor, agricultural or horticultural organization not organized principally for the 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 a
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;
TAX-EXEMPT
ORGANIZATIONS
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 belong to 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 inure 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;
TAX-EXEMPT
ORGANIZATIONS
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 a 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
marketing the products of its members and turning back to them the proceeds of sales, less the
necessary selling expenses on the basis of quantity of produce finished by them.

 
REGULAR CORPORATE
INCOME TAX
INCOME TAX OF CORPORATE
TAXPAYERS
The applicable income tax of a corporation depends on
the type of the corporation and the income subject to tax.
INCOME TAX OF CORPORATE
TAXPAYERS
REGULAR
INCOME
RCIT/MCIT/
GIT
PASSIVE
INCOME FWT

CAPITAL
GAINS CGT
REGULAR INCOME
within without basis RATE
RCIT- 30%

DC NET MCIT- 2%
UNLESS Special corp.; or under
INCOME special tax regime
REGULAR INCOME
within without basis RATE

RCIT- 30%
MCIT- 2%
RFC NET UNLESS Special corp.; or under
INCOME special tax regime
REGULAR INCOME
within without basis RATE

NRFC GROSS INCOME FWT- 30%

REGULAR INCOME
within without basis RATE
RCIT- 30%

DC NET MCIT- 2%
UNLESS Special corp.; or under
INCOME special tax regime

RCIT- 30%
MCIT- 2%
RFC NET UNLESS Special corp.; or under
INCOME special tax regime

NRFC GROSS INCOME FWT- 30%

REGULAR CORPORATE
INCOME TAX (RCIT)
• Generally, the pro-forma computation of the normal income tax of domestic
and resident foreign corporations follows:

Gross income xx
Less: Allowable deductions xx
Net income xx
Multiply by: Tax rate 30%
Tax due xx
ALLOWABLE DEDUCTIONS
• These are items or amounts which the law allows to be deducted from gross
income in order to arrive at the taxable income.

• Corporations may have itemized deductions or may elect optional standard

deduction (40% of gross income).
ILLUSTRATION
The gross sales TEBD Corporation for 2018 amounted to P6,500,000 with cost of sales amounting to
P4,300,000. It incurred operating expenses amounting to P1,500,000, and on the filing of its First
Quarter Income Tax Return, it signified its intention to avail of the OSD.

Itemized Deduction
Sales P6,500,000
COS (4,300,000)
OE (1,500,000)
TI 700,000
X 30%
Income tax due P210,000
ILLUSTRATION
The gross sales TEBD Corporation for 2018 amounted to P6,500,000 with cost of
sales amounting to P4,300,000. It incurred operating expenses amounting to
P1,500,000, and on the filing of its First Quarter Income Tax Return, it signified its
intention to avail of the OSD.

Optional Standard Deduction

*Refer to page 121
REGULAR CORPORATE
INCOME TAX (RCIT)
Year Tax rate
1997 35%
1998 34%
1999 33%
2000 - Oct. 2005 32%
Nov. 2005 - 2008 35%
2009 30%
REGULAR CORPORATE
INCOME TAX (RCIT)
For domestic and resident corporations adopting the fiscal-year accounting period,
their income and expenses for the fiscal year shall be deemed to have been earned
and spent equally for each month of the period.

Formula:
Taxable Income x No. of months covered by 32% x 32% = P xx
12

Taxable Income x No. of months covered by 35% x 35% = xx

12

Total Tax Due per ITR P xx

ILLUSTRATION
Warranty Corporation’s fiscal year ended Mar. 31, 2006. It has a taxable income of
P600,000 for the fiscal year, its second year of operations. The income tax payable
for the fiscal year ended Mar. 31, 2006 is computed below:

April – Oct. 2005:

P600,000 x 7mos. = P350,000 x .32 = P112,000

12
Nov. 2005 – Mar. 2006:
P600,000 x 5mos. = P250,000 x .35 = 87,500
12
Total P199,500
ILLUSTRATION
Assume the following data for Hannah Corporation for the current year:

Gross income, Philippines P975,000

Expenses, Philippines 750,000
Gross income, Malaysia 770,000
Expenses, Malaysia 630,000
Interest on bank deposit 25,000
Capital gain on shares of DC 80,000
ILLUSTRATION
How much is the income tax due assuming the corporation is a Domestic
Corporation?

Total Gross income P1,745,000

Total expenses (1,380,000)
Net income 365,000
X 30%
Income tax due 109,500
ILLUSTRATION
How much is the RCIT assuming the corporation is a Resident Foreign Corporation?

Gross income, Philippines P975,000

Expenses, Philippines (750,000)
Net income 225,000
X 30%
Income tax due 67,500
ILLUSTRATION
How much is the FWT assuming the corporation is a Nonresident Foreign
Corporation?

Gross income, Philippines 975,000

Interest on bank deposit 25,000
Total income 1,000,000
X 30%
FWT 300,000
SPECIAL CORPORATIONS
(DOMESTIC)
DOMESTIC CORPORATIONS
ORDINARY
CORPORATION
30%

PROPRIETARY
EDUCATIONAL
INSTITUTION
10%

NON-PROFIT
HOSPITALS 10%
TYPES OF SCHOOLS
10%
PROPRIETARY
EDUCATIONAL
INSTITUTION

NON-STOCK,
NON-PROFIT Generally,
EDUCATIONAL
INSTITUTION TAX-EXEMPT

GOVERNMENT Generally,
EDUCATIONAL
INSTITUTION TAX-EXEMPT
PROPRIETARY EDUCATIONAL
INSTITUTION
A proprietary educational institution is any private school maintained and
administered by private individuals or groups with an issued permit to
operate from the Department of Education, Culture and Sports (DECS), or
the Commission on Higher Education (CHED), or the Technical Education
and Skills Development Authority (TESDA), as the case may be, in
accordance with existing laws and rules and regulations.

It has an optional treatment for Capital expenditures.

PROPRIETARY EDUCATIONAL
INSTITUTION
Sec. 27B NIRC. Proprietary educational institutions and hospitals which are
non-profit are subject to 10% percent income tax based on net income from
sources within and without the Philippines.

However, if the gross income from unrelated trade, business or other activity
exceeds 50% of the total gross income derived from all sources, such
educational institution or non-profit hospital will be subject to normal
corporate income tax rate of 30% on its net taxable income.
PROPRIETARY EDUCATIONAL
INSTITUTION
Unrelated trade, business or other activity means any trade, business or other
activity, the conduct of which is not substantially related to the exercise or
performance by such educational institution or hospital of its primary purpose or
function.

Examples of related income:

1. Income from tuition fees and miscellaneous school fees
2. Income from hospital where medical graduates are trained for residency
3. Income from canteen situated within the school campus
4. Income from bookstore situated within the school campus
ILLUSTRATION
SGB University, a proprietary educational institution, has a gross income for the
taxable year 2019 of P15 million. Of the total gross income, P5 million was derived
from unrelated trade or business. Total deductions amount to P3 million.

Gross income 15,000,000

Expenses (3,000,000)
Net income 12,000,000
X 10%
Income tax due 1,200,000
ILLUSTRATION
In the preceding illustration, maintain all assumptions except that the institution’s
gross income derived from unrelated trade or business is P9 million. How much tax
is due?

Net income 12,000,000

X 30%
Income tax due 3,600,000
NON-PROFIT HOSPITALS
Same provisions with the proprietary educational
institution, except on having no optional treatment for
Capital expenditures.
ILLUSTRATION
ABC Hospital is a proprietary hospital which is non-profit. During the taxable year,
its income and expenses are as follows:

Gross income from:

Hospital fees P4,000,000
Rental income 1,000,000
Operating expenses 1,500,000

Income tax due (10%) 350,000

SPECIAL CORPORATIONS
(RESIDENT FOREIGN)
INTERNATIONAL CARRIER
Gross Philippine Billings xxx
x Rate 2.5%
Income tax xx

International carriers may avail of a lower tax rate (preferential rate) or exemption under RA
10378 on the basis of:
a. Tax treaty
b. International agreement
c. Reciprocity- An international carrier, whose home country grants income tax exemption to
Philippine carriers, shall likewise be exempt from income tax.
INTERNATIONAL CARRIER
1. International carrier- A foreign airline corporation doing business in the
Philippines which has been granted landing rights in any Philippine port to perform
international air transportation services/activities or flight operations anywhere in the
world.

On-line carriers refer to international air carriers having or maintaining flight

operations to and from the Philippines.

Off-line carriers refer to international air carriers having no flight operations to and
from the Philippines.
GROSS PHILIPPINE BILLINGS
- It refers to the amount of gross revenue derived from carriage of persons, excess
baggage, cargo and mail:

a. Originating from the Philippines

b. In a continuous and uninterrupted flight
c. Irrespective of the place of sale or issue and the place of payment of the ticket or
passage of document
GROSS PHILIPPINE BILLINGS
Note:

1. Tickets revalidated, exchange and/or indorsed to another international airline form

part of the GPB if a passenger boards a plane in a port or point in the Philippines.

2. Flight which originates from the Philippines, but transshipment of passenger takes
place at any port outside the Philippines on another airline, 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 GPB.
INTERNATIONAL CARRIER
2. International Shipping- An international sea carrier refers to a foreign shipping
corporation doing business in the Philippines, having touched or with the intention
of touching any Philippine port, to perform international sea transportation
services/activities from the Philippines to anywhere in the world and vice versa.
GROSS PHILIPPINE BILLINGS
- It means gross revenue whether for passenger, cargo or mail originating
from the Philippines up to final destination, regardless of the place of sale or
payments of the passage or freight documents.
ILLUSTRATION
China Airlines Inc., a resident foreign corporation, has the following data for the
taxable year 2018:

Passengers airfare from China to the Philippines P1,800,000

Passengers airfare from Philippines to China 1,500,000
Airfare for cargoes from China to Philippines 700,000
Airfare for cargoes from Philippines to China 1,300,000

How much was the income tax due?

ILLUSTRATION
Passengers airfare from Phils. To China 1,500,000
Airfare for cargoes from Phils. To China 1,300,000
Total 2,800,000
X tax rate 2.5%
Income tax due 70,000
REGIONAL OPERATING
HEADQUARTERS
The rules applicable to ordinary corporations will also apply except the following:

1. In computing the basic income tax, the rate is 10%.

2. It is not subject to MCIT.

Regional or Area Headquarters- not subject to income tax

SPECIAL CORPORATIONS
(NON-RESIDENT FOREIGN)
SPECIAL CORPORATIONS
TYPE TAX BASE RATE

Non-resident Cinematographic Film Owner,

25%
Lessor or Distributor Gross income

Non-resident Owner or Lessor of Vessels

4.5%
Chartered by Philippine Nationals Gross rentals, lease or charter fees

Non-resident Owner or Lessor of Aircraft,

7.5%
Machineries and Other Equipment Gross rentals, charters/other fees
PASSIVE INCOME (FINAL
WITHHOLDING TAX)
INCOME TAX OF CORPORATE
TAXPAYERS
REGULAR
INCOME
RCIT/MCIT/
GIT
PASSIVE
INCOME FWT

CAPITAL
GAINS CGT
PASSIVE INCOME (FWT)

Interests

PASSIVE
INCOME Royalties
(Corporations)

Dividends
INTEREST INCOME
DC RFC NRFC

Interest income, Yield, or Monetary Benefit from:

1. Bank deposit
2. Deposit substitute 20% 20% 30%
3. Trust fund
4. Mutual fund
5. Other similar arrangements

DC RFC NRFC

FCDS 15% 7.5% Exempt

ROYALTIES

DC RFC NRFC

Royalty income 20% 20% 30%

DIVIDENDS
DC RFC NRFC

Cash/Property Dividends from 15% or

Exempt Exempt
Domestic Corporation 30%

15%- tax sparing

CAPITAL GAINS (CAPITAL
GAINS TAX)
INCOME TAX OF CORPORATE
TAXPAYERS
REGULAR
INCOME
RCIT/MCIT/
GIT
PASSIVE
INCOME FWT

CAPITAL
GAINS CGT
CAPITAL ASSETS AND
ORDINARY ASSETS
For income taxation purposes, assets are classified either as ordinary or capital assets. Under the tax
code, the following are ordinary assets:
1. Stock in trade of the taxpayer or other property of a kind which would properly be included in the
inventory of the taxpayer if on hand at the close of the taxable year.
2. Property used in trade or business subject to depreciation.
3. Real property held by the taxpayer primarily for sale to customers in the ordinary course of trade or
business.
4. real property used in trade or business of the taxpayer.

Capital assets
Capital assets include all other property held by the taxpayer (whether or not connected with his trade or
business) not included in the definition of ordinary assets above.
CAPITAL GAINS TAX
DC RFC NRFC

Shares of Stocks 15% 5% on 1St P100,000 Capital Gain

Capital gain 10% in excess of P100,000 Capital Gain

6% NA NA
Real Properties SP/FMV/ZV