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INCOME TAXATION PART 1

TAX ON CORPORATIONS (HANDOUTS)

SITUS ON TAXABLE INCOME

Kinds of Corporation Income Income Tax Base Tax Rate

Within Without
Domestic Yes Yes Taxable income 35% from Nov. 1, 2005 until Dec. 31,
Resident foreign Yes No Taxable income 2008
Non-resident foreign Yes No Gross income 30% effective January 1, 2009

MINIMUM CORPORATE INCOME TAX (MCIT)

 2% of gross income if higher than Normal Income Tax (NIT)
 Effectivity
 4th taxable year immediately following the year the corporation has commenced business
 Carry forward of excess minimum corporate income tax
 Three immediately succeeding taxable years
 Limitation on carry over
 The excess of MCIT over the NIT can be carried forward only to the next three succeeding
years when the normal income tax is greater than the MCIT. It cannot be claimed as
credit against the MCIT itself or against any other losses

SPECIAL CORPORATIONS

Kinds of Special Corporations Rate Tax base

Proprietary educational institutions and hospitals 10% Taxable income
Exceptions: If income from unrelated activity is more than
30% Taxable income
50% of entire gross income
International carrier 2.5% Gross Phil. Billings
Tax on Branch Profits Remittances 15% Profit remitted abroad
Non-resident cinematographic film owner, lessor or
25% Gross income within
distributor
Non-resident owner or lessor of vessels chartered by Phil.
4.5% Gross rental, lease or charter fees within
Nationals
Non-resident owner or lessor of aircraft, machineries and
7.5% Gross rental or fees within
other equipment
Interest on foreign loans Interest on loans contracted on or after
20%
August 1, 1986

PASSIVE INCOME SUBJECT TO FINAL WITHHOLDING TAX

 The following income within of a domestic and resident foreign corporation shall be subject to 20% final tax:
 Interest on any currency bank deposit
 Yield or any other monetary benefit from deposit substitute
 Yield from trust funds and similar arrangements
 Royalties

TAX EXEMPT CORPORATIONS

 Government Service Insurance System (GSIS)
 Social Security System (SSS)
 Philippine Charity Sweepstakes Office (PCSO)
 Local water districts

IMPROPERLY ACCUMULATED EARNINGS TAX (IAET)

 Rate and base
 10% of improperly accumulated taxable income
 Improperly accumulated taxable income is taxable income adjusted by adding back:
 Income exempt from tax
 Income excluded from gross income
 Income subject to final tax
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 The amount of NOLCO deducted

 Improperly accumulated taxable income is taxable income adjusted by reducing:
 Dividends actually/constructively paid/issued from applicable year’s taxable income
 Amount reserved for reasonable needs of the business; and
 Income tax paid/payable for the taxable year

EXEMPTIONS FROM TAX ON CORPORATIONS

 The following organizations are not taxable in respect to income received by them as such:
 Labor, agricultural or horticultural organization not organized principally for profit
 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
 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;
 Cemetery company owned and operated exclusively of the benefit of its members
 Non-stock corporation or association organized and operated exclusively for religious,
charitable, scientific, athletic, or cultural purposes, of 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
 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
 Civic league or organization not organized for profit but operated exclusively for the promotion
of general welfare
 A non-stock and non-profit educational institution
 Government educational institution
 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 of the sole purpose of meeting its expenses
 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 the quantity of produce finished by
them
 Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of
the foregoing organizations from any of their properties, real or personal, or from any of their activities
conducted for profit regardless of the disposition made of such income, shall be subject to tax imposed
under the code

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