Corporations-1

Regular Income Taxation

  • Focuses on taxation mechanisms for corporations.

  • Types include Regular Corporation.

General Classification and Taxation of Corporations

A. Domestic Corporations

  • Tax Rate: 20% or 25% regular tax on worldwide taxable income.

B. Resident Foreign Corporation

  • Tax Rate: 25% regular tax on Philippine taxable income.

C. Non-Resident Foreign Corporation

  • Tax Rate: 25% final tax on Philippine gross income.

Corporate Taxes

  1. Final Income Tax

  2. Capital Gains Tax

  3. Regular Income Tax

  4. Gross Income Tax

  5. Minimum Corporate Income Tax

  6. Improperly Accumulated Earnings Tax

  7. Branch Remittance Tax

Corporate Tax Schemes on Regular Corporations

A. Domestic Corporations

  • Options: Gross income tax or regular corporate tax, subject to minimum corporate income tax.

B. Resident Foreign Corporation

  • Options: Regular corporate tax, subject to minimum corporate income tax.

C. Non-Resident Foreign Corporation

  • Tax: Final tax.

The Corporate Gross Income Tax

  • Effective January 1, 2000, domestic corporations may opt to be taxed at 15% on gross income if certain conditions are met:

    1. Tax effort ratio of 20% of GNP.

    2. Income tax collection ratio at 40% of total tax revenue.

    3. VAT tax effort of 40% of GNP.

    4. 0.9% ratio of CPSFP to GNP.

Minimum Corporate Income Tax (MCIT)

  • Rate: 2% of gross income.

  • Payable when: a. Corporation has zero or negative taxable income. b. MCIT exceeds Regular Corporate Income Tax (RCIT).

  • Imposed starting from the fourth taxable year after commencement of operations.

Excess MCIT Carry-Over

  • The excess MCIT over RCIT can be deducted against any RCIT due within three subsequent years.

  • Rules for excess MCIT: a. Can only be used as a tax credit against RCIT due. b. Credit can reduce income tax below MCIT for that year. c. FIFO basis for several excess MCITs. d. Unused MCIT expires after three years.

Example: Corporate Records

  • Example provided shows the computation of income tax payable from gross income and expenses over four years.

Improperly Accumulated Earnings Tax (IAET)

  • IAET: 10% penalty tax for improper accumulation of corporate earnings.

  • Assessment by BIR required for imposition.

  • Scope covers domestic corporations, with dividends needing declaration within a year post-tax year.

Branch Remittance Tax

  • Tax: 15% on profits remitted to head office abroad, final and withheld at source.

  • Applicable to resident foreign corporations with specific coverage.

Special Corporations

Description

  • Some corporations receive special treatment or preferential tax rates.

Sub-Classification of Corporate Income Taxpayer: Domestic Corporations

  1. Exempt Domestic Corporations

    • Non-profit corporations, government entities, certain GOCCs, cooperatives.

  2. Special Domestic Corporations

    • Proprietary educational institutions, FCDUs, PEZA/BOI-registered enterprises.

  3. Regular Domestic Corporations

Exemption Requisites for Non-Stock, Non-Profit Corporations

  1. Must be organized for specific purposes (e.g., charitable).

  2. Include organizational and operational tests.

  3. No part of net income can benefit specific persons.

  4. Must not be a foreign branch.

Private Educational Institutions and Non-Profit Hospitals

  • Predominance test:

    • If unrelated activities' gross income exceeds 50%, 30% RCIT applies.

  • Summary of Tax Rules:

    • Private non-profit hospitals and educational institutions have specific tax liabilities.

Examples of Tax Payable for Educational Institutions

  • Sample scenarios provided for ABANGERS University and NABASTED College, focusing on tuition and income details.

Foreign/Expanded Currency Deposit Units (FCDUs) Taxation

  • Nature of Income for FCDUs, OBUs, other residents, and non-residents described with varying tax rates for forex transactions.

PEZA or BOI-Registered Enterprises Taxation

  • PEZA tax rate: 5% on gross income in lieu of local and national taxes, not including real property tax.

Sub-Classification of Corporate Income Taxpayer: Resident Foreign Corporations

  1. Special Resident Foreign Corporations

    • Include specific entities like offshore banking.

  2. Regular Resident Foreign Corporations

International Carrier Income Tax Rates

  • General: 2.5% of Gross Philippine Billings.

  • Exceptions based on treaties or reciprocity.

Sub-Classification of Corporate Income Taxpayer: Non-Resident Foreign Corporations

  1. Special Non-Resident Foreign Corporations

    • Specific categories outlined.

  2. Regular Non-Resident Foreign Corporations

Corporate Lease or Charter Tax Rates**

  • Tax rates specified based on income type and residency of corporation.

Quarterly Filing of Income Tax Return

  • Corporations must file quarterly returns within 60 days post quarter.

  • Regular corporations report through BIR Form 1702-RT or 1702-MX if they have special income.

References

  • Comprehensive list of taxation materials including textbooks and review guides.