INCOME TAX OF CORPORATIONS - Atty. C. Llamado

Flashcards providing vocabulary terms and definitions related to corporate income taxes in the Philippines, based on lecture notes.

Standard Income Tax

One of the types of income taxes a corporation may be liable for, including Net Income Tax, Final Withholding Tax, Capital Gains Tax, and MCIT.

Net Income Tax

A type of income tax imposed on Ordinary Income of corporations.

Final Withholding Tax (FWT)

A type of income tax imposed on Passive Income of corporations.

Capital Gains Tax

A type of income tax imposed on 'Capital Gains' of corporations.

Minimum Corporate Income Tax (MCIT)

A penalty income tax imposed on domestic and resident foreign corporations, typically 2% of gross income (1% from July 1, 2020 to June 30, 2023).

Branch Profits Remittance Tax (BPRT)

A special income tax imposed on profits remitted by a branch to its head office.

Corporation (NIRC Section 22(B))

Includes one-person corporations, partnerships, joint stock companies, joint accounts, associations, or insurance companies.

General Professional Partnerships (GPPs)

Specifically excluded from the definition of 'corporation' under NIRC Section 22(B) and are generally exempt from income tax.

Domestic Corporations

Corporations created or organized in the Philippines, subject to tax on income from all sources (within and without the Philippines).

Resident Foreign Corporations (RFCs)

Foreign corporations engaged in trade or business within the Philippines, subject to tax only on income sourced within the Philippines.

Non-resident Foreign Corporations (NRFCs)

Foreign corporations not engaged in trade or business within the Philippines, subject to a final withholding tax on gross income from sources within the Philippines.

Exempt Corporations

Specific organizations or institutions that are not subject to income tax in respect to income received by them as such, provided certain conditions are met.

Ordinary Income

Income derived from the regular course of business activities, typically reported in the Income Tax Return (ITR).

Passive Income

Income derived from passive sources like interest, yields, and royalties, usually subject to final withholding tax.

Capital Gains

Income derived from the sale or disposition of capital assets, potentially subject to Capital Gains Tax.

Regular Corporate Income Tax (RCIT)

The standard income tax rate for corporations, generally 25% for domestic and resident foreign corporations.

Reduced Corporate Income Tax (20%)

A preferential RCIT rate for domestic corporations with TNI not over P5M and total net assets not over P100M (excluding land), or for Registered Business Enterprises under EDR.

Taxable Net Income (TNI)

The basis for applying the 20% reduced corporate income tax rate for domestic corporations, specifically if it's not more than P5,000,000.

Total Net Assets (for RCIT reduction)

A criterion for the 20% reduced corporate income tax rate, meaning total net assets (excluding land on which office, plant, and equipment are situated) are not more than P100,000,000.

Registered Business Enterprise (RBE)

An enterprise registered under the enhanced deductions regime (EDR) which qualifies for a reduced corporate income tax rate of 20%.

Land Exclusion (Total Net Assets)

For purposes of the 20% reduced RCIT, the value/cost of land excluded from total net assets is limited to the land where the business entity's office, plant, and equipment are situated.

Intercorporate Dividend (DC from DC)

Dividends received by a domestic corporation (DC) from another domestic corporation (DC) which are not taxable.

Foreign-sourced Dividends (DC Exemption)

Exempt if received by a domestic corporation, reinvested in Philippine business within the next taxable year, used for specific purposes, and the DC holds at least 20% of foreign corporate shares for a minimum of 2 years.

Annual Information Return of FWTs (Form 1604-F)

A BIR form filed by the payor of final withholding taxes on or before January 31 of the year following payment/accrual.

Sale of Domestic Shares (Not Traded) Tax

Subject to a 15% capital gains tax on the net capital gain for all corporate taxpayers.

BIR Form 1707

The form filed for capital gains tax on sale/exchange/disposition of domestic shares of stock not traded at the stock exchange, due within 30 days after each transaction.

Sale of Domestic Shares (Listed and Traded) Tax

Subject to 6/10 of 1% tax based on the gross selling price, filed by the stockbroker who effected the sale.

Sale of Real Property (Capital Asset - DC) Tax

A final tax of 6% based on the gross selling price or Fair Market Value (FMV), whichever is higher, for a domestic corporate seller.

Fair Market Value (Real Property)

For capital gains tax on real property, this refers to the market value as shown in the Schedule of Market Values (SMV) of the local assessors, or the gross selling price, whichever is higher.

Exemption from CGT (Real Property)

Includes sales of raw lands for socialized housing projects, those under the Community Mortgage Program, and land transfers under the Comprehensive Agrarian Reform Law.

Proprietary Educational Institutions Tax Rate

Subject to a special tax rate of 10% on taxable net income, reduced to 1% from July 1, 2020, to June 30, 2023, within and without the Philippines, provided the predominance test is passed.

Non-profit Hospitals Tax Rate

Subject to a special tax rate of 10% of taxable net income, reduced to 1% from July 1, 2020, to June 30, 2023, within and without the Philippines, provided the predominance test is passed.

Predominance Test (Re: preferential rates)

For proprietary educational institutions and non-profit hospitals, gross income from unrelated trade/business must not exceed 50% of total gross income to avail of preferential rates; otherwise, the normal tax rate applies to total taxable income.

Foreign Currency Deposit Unit (FCDU) Tax

Income from foreign currency loans to Philippine residents (other than OBUs or other depository banks) and interest income from foreign currency interbank deposits are subject to a 10% final tax.

Service Contractors (Petroleum Operations) Tax

Liable to an 8% final tax on gross income derived from contracts in petroleum operations.

Ecozone Enterprises Tax

Registered enterprises within Special Economic Zones availing the 5% Gross Income Tax (GIT) incentive on gross income from registered activities.

5% GIT (Ecozone/TIEZA)

A preferential gross income tax rate, where 3% is paid to the National Government and 2% to the local government unit for Ecozone enterprises, or specific allocations for TIEZA enterprises.

Tourism Enterprises (TIEZA) Tax

May pay a 5% tax on gross income earned from registered activities in lieu of all national and local taxes (except real estate taxes and TIEZA fees).

Special Corporate Income Tax (SCIT)

An income tax equivalent to 5% of gross income, in lieu of all national and local taxes, for qualifying corporations (effective July 1, 2020).

Microfinance NGO Tax

A duly registered and accredited NGO paying a 2% tax based on its gross receipts from microfinance operations in lieu of all national taxes, with non-microfinance activities subject to regular taxes.

Philippine-Based Offshore Gaming Licensee (Gaming Revenue) Tax

Subject to a 5% gaming tax on gross gaming revenue or pre-determined minimum monthly revenue, whichever is higher, in lieu of all other direct and indirect internal revenue taxes and local taxes.

Gross Gaming Revenue or Receipts

For offshore gaming licensees, this means gross wagers less payouts.

Accredited Service Providers (Offshore Gaming)

Natural or juridical persons providing ancillary services to offshore gaming licensees, not subject to the 5% gaming tax, but pay tax under Title II of the Tax Code and other applicable taxes.

International Carriers (GPB) Tax

International carriers doing business in the Philippines pay a tax of two and one-half percent (2.5%) of Gross Philippine Billings (GPB).

Gross Philippine Billings (GPB)

Gross revenue from carriage of persons, excess baggage, cargo, and mail originating from the Philippines in a continuous and uninterrupted flight.

Offshore Banking Units (OBUs) Tax Treatment after April 2021

No longer enjoy 10% preferential income tax rates and are taxed as any other resident foreign corporation (25% RCIT) as of April 11, 2021.

Regional or Area Headquarters (RHQ) Tax

Regional or area headquarters of multinationals are not subject to income tax.

Regional Operating Headquarters (ROHQ) Tax Treatment after Jan 2022

Subject to the regular corporate income tax of 25% (previously 10% prior to January 1, 2022) and therefore also subject to MCIT.

MCIT Effective Date

Applies beginning on the fourth taxable year immediately following the year in which the corporation commenced its business (year registered with the BIR).

Carry Forward of Excess MCIT

Any excess of the MCIT over the regular corporate income tax in a particular year can be carried forward and credited against the regular income tax for the three immediately succeeding taxable years.