ACYTAXN: Corporations

Corporations

Shall include:

A. One Person Corporations

B. Partnerships, no matter how created or organized

C. Joint Stock Companies

D. Associations

E. Insurance Companies

Corporations

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 incidental to its existence.

Not Corporations Under the Tax Code

A. General Professional Partnerships

B. Joint Ventures or Consortiums Formed for the Purpose of Undertaking/Engaging In:

* Construction Projects

* Engaging in Petroleum, Coal, Geothermal, and other energy operations pursuant to an operating or consortium agreement under a service contract with the government.

Joint Venture (JV) or Consortium

It 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.

Requirements for Tax Exemption of a Joint Venture (JV) or Consortium Engaged in Construction Activities

A joint venture or consortium formed for the purpose of undertaking construction projects is not considered as corporation 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 contracts; 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).

True

(True or False) Tax-exempt joint venture or consortium herein shall not include those who are mere suppliers of goods, services, or capital to a construction project.

Foreign Contractors

Are joint ventures involving foreign contractors. May also be treated as a non-taxable corporation provided:

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

* 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. 4566 otherwise known as Contractor's License Law.

Joint Stock Companies

Are constituted when a group of individuals, acting jointly, establish and operate business 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 (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 formanily and may be privately contracted orally or in writing.

Associations

Include all organizations which have substantially the salient features of a corporation to be taxable as a corporation.

Domestic Corporation

A corporation created or organized in the Philippines under its laws. It may also be classified as Micro, Small and Medium Enterprise (MSME).

Resident Foreign Corporation

A corporation created or organized in a foreign country under its laws and engaged in business in the Philippines.

Nonresident Foreign Corporation

A corporation created or engaged in a foreign country under its laws and is not engaged in business in the Philippines.

Ordinary Corporations

Are corporations subject to regular corporate income tax (RCIT or MCIT), also known as normal tax or basic income tax, at a rate of either 20% for domestic corporations classified as MSMEs, or 25%, for domestic corporations other than MSMEs and foreign corporations.

Special Corporations

Are corporations subject to income tax rate which is lower than the regular corporation income tax rate of 20% or 25%.

1%

The RCIT of domestic, proprietary educational institutions and non-profit hospitals from July 1, 2020 to June 30, 2023.

10%

The RCIT of domestic, proprietary educational institutions and non-profit hospitals beginning July 1, 2023.

10%

The RCIT of domestic, proprietary educational institutions and non-profit hospitals under the TRAIN LAW (Before July 1, 2020).

2.5% of Gross Philippine Billings

The tax rate of resident foreign corporations who are international carriers. They can be subject to a lower rate or in fact, be exempt, under certain conditions.

Regional Operating Headquarters (ROHQs)

Under the CREATE Law, such corporations are no longer special corporations. Thus, subject to RCIT beginning Jan. 1, 2022.

25% of Gross Income

The applicable income tax of non-resident cinematographic film owner, lessor or distributor.

4.5% of Gross Income

The applicable income tax of non-resident owner or lessor of vessels chartered by Philippine Nationals.

7.5% of Gross Income

The applicable income tax of non-resident owner or lessor of aircraft, machineries, and other equipment.

Exempt Corporation

A. Labor, agricultural, or horticultural organization not organized principally for profit.

Exempt Corporation

B. 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.

Exempt Corporation

C. 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;

Exempt Corporation

D. Cemetery company owned and operated exclusively for the benefits of its members.

Exempt Corporation

E. 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;

Exempt Corporation

F. 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;

Exempt Corporation

G. Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare;

Exempt Corporation

H. A non-stock and nonprofit educational institution.

Exempt Corporation

I. Government Educational Institution

Exempt Corporation

J. 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 solely of assessments, dues, and fees collected from members for the sole purpose of meeting its expenses;

Exempt Corporation

K. 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.

True

(True or False) Income of whatever kind and character of exempt corporations 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 income tax.

Government-Owned or Controlled Corporation (GOCCs)

Such government corporations shall pay such rate of tax upon their taxable income as are imposed upon corporations or associations engaged in a similar business, industry, or activity, except:

a. GSIS

b. SSS

c. PHIC

d. Local Water Districts

e. HDMF (Pag-Ibig)

Domestic Corporations

Are corporations taxable on income derived from within and without the Philippines.

Resident Foreign Corporations and Non-Resident Foreign Corporations

Are corporations taxable on income derived from within the Philippines only.

Domestic Corporations

Are corporations who are taxable within and without. Its basis of taxable income is its net income. It has an RCIT rate of 25%, 20% if MSME.

Resident Foreign Corporations

Are corporations who are taxable within only. Its basis of taxable income is its net income. It has an RCIT rate of 25%.

Non-Resident Foreign Corporations

Are corporations who are taxable within only. Its basis of taxable income is its gross income. It has an RCIT rate of 25%.

Micro, Small and Medium Enterprise (MSME)

Refers to a domestic corporation with:

a. Total assets of P100 million and below; and

b. Net Income of P5 million and below

Total assets excludes 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. Thus, if the land is held primarily for sale or for investment purposes, the value of land is to be included in determining total assets, regardless of whether the business of the company is leasing of land. In cases there are areas in the company's office building that are being leased out, the percentage of the floor area devoted to the company's office is to be multiplied with the total value of land in determining the value of land to be excluded in the computation of total assets.

(True or False)

The 20% RCIT rate for MSME is not applicable to foreign companies.

P00 million and below

The total maximum amount of assets so that a domestic corporation can still be considered an MSME.

P5 million and below

The total maximum net income so that a domestic corporation can still be considered an MSME.

Minimum Corporate Income Tax

Is a tax of two percent (2%) of the gross income as of the end of the taxable year. It is to be imposed upon any domestic corporations and resident foreign corporations beginning on the 4th taxable year immediately following the taxable year in which such corporation commenced its business operations, when the MCIT is greater than RCIT.

Domestic and Resident Foreign Corporations

These are the following corporations subject to MCIT.

One Percent (1%)

The MCIT rate on July 1, 2020 to June 30, 2023.

Instances When MCIT Shall be Imposed

a. The corporation has zero taxable income.

Instances When MCIT Shall be Imposed

b. The corporation has negative taxable income.

Instances When MCIT Shall be Imposed

c. Whenever the amount of MCIT is greater than the regular corporate income tax

Two Percent (2%)

The MCIT rate during TRAIN Law (Beg. January 1, 2018).

One Percent (1%), Two Percent (2%)

The MCIT rate during CREATE Law (From July 1, 2020 to June 30, 2023), and (Beg. July 1, 2023).

True

(True or False) MCIT is not applicable to NRFCs, Special Corporations, and corporations subject to other types of income tax regime such as PEZA registered entities.

Carry Forward of Excess MCIT (MCIT Carry-Over)

Any excess of MCIT over RCIT. It shall be carried forward and credited against the RCIT for the three (3) immediately succeeding taxable years.

Three (3) Years

The maximum amount of years excess MCIT can be carried over.

MCIT Computation for Seller of Goods

Gross Sales - Sales Discounts - Sales Returns and Allowances - Cost of Sales - Gross Income + Other Income Subject to RCIT

COGs Computation for Traders or Merchandisers

Invoice COGs + Import Duties + Freight + Insurance

COGs Computation for Manufacturers

Raw Materials Used + Direct Labor + Manufacturing Overhead + Freight Cost + Insurance Premiums + Other Cost of Production

MCIT Computation for Seller of Services

Gross Receipts - Sales Discounts and Allowances - Cost of Services + Other Income Subject to RCIT

Cost of Services Computation

Salaries/Employee Benefits of Personnel, Consultants, and Specialists Directly Rendering the Service + Cost of Facilities Directly Utilizing in Providing the Service + Other Direct Costs and Expenses Necessarily Incurred to Provide the Services

True

(True or False) In cases of banks, "cost of services" shall include interest expense.

Secretary of Finance

Is authorized to suspend the imposition of the MCIT on any corporation which suffers losses on account of:

a. Prolonged labor disputes.

b. Force Majeure

c. Legitimate Business Reverses

Net Operating Loss

Means means the excess of allowable deduction over gross income of the business in a taxable year.

Net Operating Loss Carry-Over (NOLCO)

Net operating loss of the business for any taxable year shall be carried over as a deduction from gross income for the next three (3) consecutive taxable years immediately following the year of such loss.

Five (5) Consecutive Taxable Years

The number of years NOLCO can be applied, from taxable years 2020 and 2021. This was implemented by RA 11494 Bayanihan Act II.

Requisites for NOLCO Deductibility

1. At the time of incurring net loss, the taxpayer must not be exempt from income tax; and

2. There is no substantial change in the ownership of the business or enterprise in that:

a) Not less than seventy-five (75%) in nominal value of outstanding issued shares, if the business is in the name of a corporation, is held by or on behalf of the same persons; or

b) Not less than seventy-five (75%) of the paid-up capital of the

corporation, if the business is in the name of a corporation, is held by or on behalf of the same persons.

One Percent (1%)

The income tax rate for proprietary educational institutions and hospitals from July 1, 2020 to June 30, 2023.

Ten Percent (10%)

The income tax rate for proprietary educational institutions and hospitals from July 1, 2023 onwards.

Offshore Baking Unit (OBUs)

Upon the effectivity of the CREATE Act, such corporations are now taxed as resident foreign corporations.

Twenty Percent (20%)

The final withholding tax rate of domestic corporations and resident foreign corporations from interest income/yield/other monetary benefit from:

a. Interest income in any currency bank deposit

b. Yield or any monetary benefit from deposit substitutes

c. Yield or any monetary benefit from trust fund and other similar arrangements

Fifteen Percent (15%)

The final withholding tax rate of domestic corporations and resident foreign corporations from interest income/yield/other monetary benefit from:

a. Interest income derived from depositary bank under expanded foreign currency deposit unit/system (FCDS/FCDU)

25%

The final withholding tax rate of non-resident foreign corporations from interest income/yield/other monetary benefit from:

a. Interest income in any currency bank deposit

b. Yield or any monetary benefit from deposit substitutes

c. Yield or any monetary benefit from trust fund and other similar arrangements

Exempt

The final withholding tax rate of non-resident foreign corporations from interest income/yield/other monetary benefit from:

a. Interest income derived from depositary bank under expanded foreign currency deposit unit/system (FCDS/FCDU)

Twenty Percent (20%)

The final withholding tax rate of domestic and resident foreign corporations from royalties.

Twenty-Five Percent (25%)

The final withholding tax rate of non-resident foreign corporations from royalties.

Exempt

The final withholding tax rate of domestic corporations and resident foreign corporations from dividend income of domestic corporations.

25%/15%

The final withholding tax rate of non-resident foreign corporations from dividend income of domestic corporations.

Exempt

The final withholding tax rate of domestic corporations from foreign corporations' dividends, if the situs of the dividend is from the Philippines.

RCIT

The final withholding tax rate of resident foreign corporations from foreign corporations' dividends, if the situs of the dividend is from the Philippines.

25% FWT

The final withholding tax rate of non-resident foreign corporations from foreign corporations' dividends, if the situs of the dividend is from the Philippines.

Exempt

The final withholding tax rate of resident foreign corporations and non-resident foreign corporations from foreign corporations' dividends, if the situs of the dividend is from without the Philippines.

Exempt

The final withholding tax rate of domestic corporations from foreign corporations' dividends, if the situs of the dividend is from without the Philippines.

True

(True or False) Dividend from a foreign corporation shall be treated as income derived from sources within the Philippines unless less than 50% of the gross income of the foreign corporation for the three year period ending with the close of its taxable year preceding the declaration of such dividends (or for such part of the period as the corporation has been in existence) was derived from sources within the Philippines.

Tax Sparing Rule

Entitles a non-resident foreign corporation to be taxed with a lower 15% FWT rate from dividend income of domestic corporations. It shall be subject to the condition that the country in which the NRFC is domiciled:

a. Shall allow a credit against the tax due from the said NRFC which are equivalent to taxes deemed to have been paid in the Philippines equal to ten percent (10%) effective January 1, 2021, which represents the difference between the regular income tax rate for NRFC under Sec. 28(B)(1) of the NIRC, as amended, and the fifteen percent (15%) tax on dividends as herein

provided;

b. Does NOT impose any income tax on dividends received from a domestic corporation.

Gross Income Ratio of At Least 50% Derived Within the Philippines

The dividend income earned by domestic corporation from a foreign corporation is considered exempt.

Gross Income Ratio of Less than 50% Derived Within the Philippines

The dividend income earned by a domestic corporation from a foreign corporation is considered taxable, unless another exemption applies.

Requirements for Exemption of Foreign-Sourced Dividend Received by a Domestic Corporation

These are the requirements in-order for a domestic corporation to be exempted from foreign sourced dividend earned, if the following foreign corporation has a gross income ratio derived from the Philippines of less than fifty percent (50%):

1) The dividends actually received or remitted into the Philippines are reinvested in the business operations of the domestic corporation within the next taxable year from the time the foreign-sourced dividends were received or remitted;

2) The dividends received shall only be used to fund the working capital requirements, capital expenditures, dividend payments, investment in domestic subsidiaries, and infrastructure project; and

3) The domestic corporation holds directly at least twenty percent (20%) in value of the outstanding shares of the foreign corporation and has held the shareholdings uninterruptedly for a minimum of two (2) years at the time of the dividends distribution. In case the foreign corporation has been in existence for less than two (2) years at the time of dividends distribution, then the domestic corporation must have continuously held directly at least twenty percent (20%) in value of the foreign corporation's outstanding shares: during the entire existence of the corporation.

Absence of any one of the above conditions shall subject the foreign dividend earnings from RCIT to the domestic corporation.

15% CGT

The capital gains tax rate of domestic corporations, resident foreign corporations, and non-resident foreign corporations from gains on sale of shares of a domestic corporation not traded in the local stock exchange.

15% CGT

The capital gains tax rate of domestic corporations from gains on sale of shares of a domestic corporation not traded in the local stock exchange. Under the TRAIN Law.

5% CGT

The capital gains tax rate of RFCs and NRFCs from gains on sale of shares of a domestic corporation not traded in the local stock exchange, on the first P100,000 capital gain. Under the TRAIN Law.

10%

The capital gains tax rate of RFCs and NRFCs from gains on sale of shares of a domestic corporation not traded in the local stock exchange, on the capital gain in excess of P100,000. Under the TRAIN Law.

6%

The capital gains tax of domestic corporations (DCs only) from the sale or exchange or disposition of land and/or buildings. The tax basis shall be the selling price or Fair Market Value whichever is higher.

True

(True or False) The sale of shares of stock by a dealer in securities such as brokerage firms, regardless of whether the shares were sold directly to a buyer or through the local stock exchange is subject to basic income tax and value added tax.

Special Corporations

Are corporations subject to lower corporate income tax rates compared to the regular tax rate of 25% (20% for MSME) under CREATE Law, on their regular or ordinary income.

Proprietary Educational Institutions and Non-Profit Hospitals

Are special corporations subject to a special corporate income tax rate of 1% or 10%, as the case may be, based on net taxable income. Provided, that beginning July 1, 2020 until June 30, 2023, the tax rate herein imposed shall be one percent (1%). Provided further, that 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 tax prescribed hereof shall be imposed on the entire taxable income.

Proprietary Educational Institutions

Refer to any private schools maintained and administered by private individuals or groups with an issued permit to operate from the DepEd, Culture and Sports, and CHED, or the TESA.

Unrelated Trade, Business or Other Activity

Is an activity which is not substantially related to the exercise or performance of the school or hospital's primary purpose or function such as but not limited to rental income from available school spaces or facilities.

Proprietary Educational Institution

The only corporation to have the privilege of treating capital expenditures as an outright expense. Provided, such expenditure is intended for the expansion of school facilities.

Non-Stock, Non-Profit Educational Institutions Whose Net Income or Assets Accrrue/Inure to or Benefit Any Member of Specific Person

Are non-stock, non-profit educational institutions that are subject to the preferential corporate income tax rate of 1% or 10%.