TAXATION OF CORPORATION
January 20, 2009
Classification of Income Taxpayers (other than individuals)
1. CORPORATION
January 20, 2009
Classification of Income Taxpayers (other than individuals)
1. CORPORATION
a. DOMESTIC CORPORATIONS- are those created or organized under and by virtue of Philippine laws
1. Domestic corporations in general
2. Government-owned and controlled corporations
3. Taxable partnerships
4. Proprietary educational institutions
5. Non-profit hospitals
b. FOREIGN CORPORATIONS- are those organized in accordance with laws of their respective countries
1. Resident Corporations- are those engaged in trade or business within the Philippines
2. Non-resident corporations- are those not engaged in trade or business within the Philippines
2. Government-owned and controlled corporations
3. Taxable partnerships
4. Proprietary educational institutions
5. Non-profit hospitals
b. FOREIGN CORPORATIONS- are those organized in accordance with laws of their respective countries
1. Resident Corporations- are those engaged in trade or business within the Philippines
2. Non-resident corporations- are those not engaged in trade or business within the Philippines
Sources of Income
Aside from knowing the classification of the taxpayer, the source of income is the next important thing to determine- whether it is from the Philippines or without. The following rules apply:
1. Domestic corporations are taxable on income from sources within and without the Philippines;
2. Foreign corporations whether resident or non-resident are taxable only on income from Philippines sources.
Categories of income and tax rates
1. Business Income- generally, business income earned by a corporation is taxed at the following rates, (sec. 27A, sec. 28a1 and sec. 28b1)
Year Tax Rate
2000 32%
2. Passive income- passive income are subject to a separate and final tax. These are taxed at fixed rates ranging from 5% to 20%. Passive income are not to be included in gross income computation.
Domestic and resident foreign corporations.
Generally, the pro forma computation of the normal income tax of domestic and resident foreign corporations follows:
Gross income xxx
Less allowable deductions xxx
NET INCOME xxx
Multiply by TAX RATE (2000) 32%
Tax Due X X X
For domestic and resident corporations adopting the fiscal year accounting period, the taxable income shall be computed without regard to the specific date when specific sales, purchases and other transactions occur. Their income and expenses for the fiscal year shall be deemed to have been earned and spent equally for each month of the period.
Domestic and resident foreign corporations are subject to the Minimum corporate Income tax (MCIT).
Domestic Corporations in particular
Proprietary Educational Institutions and Non-Profit Hospitals. The 10% tax on the taxable income is subject to limitation. If the gross income from unrelated trade, business or other activity exceeds 50% of the total gross income derived from all sources, the tax prescribed under sec. 27A of the tax code shall be imposed on the entire taxable income.
Note: 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.
Government-Owned or Controlled Corporations, Agencies or Instrumentalities- subject to the provisions of existing special laws or general laws, all corporations, agencies or instrumentalities owned or controlled by the Government shall pay such rate of tax upon their taxable income as are imposed by the code upon corporations or associations engaged in a similar business, industry or activity. The following are exempt:
1. GSIS
2. SSS
3. Philippine Health and Insurance Corporation
4. Philippine Charity Sweepstakes Office
5. Philippine Amusement and Gaming Corporation
The basis of tax for non-resident foreign corporation is gross income from sources within the Philippines, such as interest, dividends, rents, royalties, salaries, premiums (except reinsurance premiums) annuities, emoluments, or other fixed or determinable annual. Period or casual gains, profits and income and capital gains.
Generally, the pro-forma computation of the income tax of non-resident foreign corporation follows:
Gross income xxx
Multiply by tax rate (2000) 32%
Tax Due xxxx
Non-resident foreign corporation, in particular
• Non resident cinematographic film owner, distributor is taxed at 25% of gross income
• Non resident owner or lessor of vessels chartered by Philippine nationals is taxed at four and one-half percent of gross rentals, lease or charter fees from leases or charters to Filipino citizens or corporations, as approved by the maritime industry authority.
Allowable deductions
Allowable deductions are items or amounts which the law allows to be deducted from gross income in order to arrive at the taxable income. A domestic or resident foreign corporation may deduct from its business income, itemized deduction under the tax code. Non resident foreign corporations are not allowed deductions from gross income.
Taxable income and tax due
In case of corporations, taxable income is the pertinent items of gross income less the deductions authorized for such types of income. Taxable income is the amount or tax base upon which tax rate is applied to arrive at the tax due. Depending on the taxpayer involved and for purposes of computing the income tax liability of a corporation, taxable income may refer to either one of the following:
1. Net income. The income arrived at after subtracting from the gross income from business the deductions of the taxpayer. For domestic and resident foreign corporations, in general; and other corporations from whose gross income deductions are allowed.
Gross income xxxx
Less allowable deductions xxxx
Net Income xxxx
Multiply by tax rate xxxx
Tax due xxxx
2. Gross income: The entire or gross income from business without any deduction
For domestic and resident foreign corporations, subject to the MCIT; non resident foreign corporations not subject to the normal income tax rate (sec. 28b1)
Gross income xxxx
Multiply by tax rate xxxx
Tax due xxxx
Note that in computing for the taxable income, fraction of a peso is disregarded. For the tax due, a fraction amounting to fifty centavos or more is rounded off to a peso while a fraction amounting to less than fifty centavos is disregarded.
Corporations exempt from income tax.
1. Labor, agricultural or horticultural organization not organized principally for 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 fraternal organization operating under the lodge system, or a mutual aid association or a nonstick corporation organized by employees providing for the payment of life, sickness, accident or other benefits exclusively to the members of such society, order, or associations, nonstick corporation or their dependents.
4. Cemetery company owned and operated exclusively for the benefit of its members;
5. Nonstock corporations or associations 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 inures 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;
8. A nonstick and nonprofit educational institutions
9. Government educational institution;
10. Farmers; or other mutual typhoon or fire insurance company, mutual ditch or irrigation company or like organizations of a purely local character, the income of which consists solely of assessments, dues, and fees collected from member for the sole purpose of meeting its expenses, and
11. Farmers’ fruit growers or like associations 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
Declaration of quarterly corporate income tax.
Every corporation shall file in duplicate a quarterly summary declaration of its gross income and deductions on a cumulative basis for the preceding quarter or quarters upon which the income tax shall be levied, collected and paid. The income tax computed decreased by the amount of tax previously paid or assessed during the preceding quarters shall be paid and the return filed not later than 60 days from the close of each of the first three quarters of the taxable year, whether calendar or fiscal.
A return showing the cumulative income and deductions shall still be filed even if the operations for the quarter and the preceding quarters yielded no tax due.
Every taxable corporation is likewise required to file a final adjustment return covering the total taxable income of the corporation for the preceding calendar or fiscal year which is required to be filed and paid on or before April 15 on or before the 15th day of the 4th month following the close of the fiscal year, as the case may be. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year, the corporation shall either
2. Foreign corporations whether resident or non-resident are taxable only on income from Philippines sources.
Categories of income and tax rates
1. Business Income- generally, business income earned by a corporation is taxed at the following rates, (sec. 27A, sec. 28a1 and sec. 28b1)
Year Tax Rate
2000 32%
2. Passive income- passive income are subject to a separate and final tax. These are taxed at fixed rates ranging from 5% to 20%. Passive income are not to be included in gross income computation.
Domestic and resident foreign corporations.
Generally, the pro forma computation of the normal income tax of domestic and resident foreign corporations follows:
Gross income xxx
Less allowable deductions xxx
NET INCOME xxx
Multiply by TAX RATE (2000) 32%
Tax Due X X X
For domestic and resident corporations adopting the fiscal year accounting period, the taxable income shall be computed without regard to the specific date when specific sales, purchases and other transactions occur. Their income and expenses for the fiscal year shall be deemed to have been earned and spent equally for each month of the period.
Domestic and resident foreign corporations are subject to the Minimum corporate Income tax (MCIT).
Domestic Corporations in particular
Proprietary Educational Institutions and Non-Profit Hospitals. The 10% tax on the taxable income is subject to limitation. If the gross income from unrelated trade, business or other activity exceeds 50% of the total gross income derived from all sources, the tax prescribed under sec. 27A of the tax code shall be imposed on the entire taxable income.
Note: 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.
Government-Owned or Controlled Corporations, Agencies or Instrumentalities- subject to the provisions of existing special laws or general laws, all corporations, agencies or instrumentalities owned or controlled by the Government shall pay such rate of tax upon their taxable income as are imposed by the code upon corporations or associations engaged in a similar business, industry or activity. The following are exempt:
1. GSIS
2. SSS
3. Philippine Health and Insurance Corporation
4. Philippine Charity Sweepstakes Office
5. Philippine Amusement and Gaming Corporation
The basis of tax for non-resident foreign corporation is gross income from sources within the Philippines, such as interest, dividends, rents, royalties, salaries, premiums (except reinsurance premiums) annuities, emoluments, or other fixed or determinable annual. Period or casual gains, profits and income and capital gains.
Generally, the pro-forma computation of the income tax of non-resident foreign corporation follows:
Gross income xxx
Multiply by tax rate (2000) 32%
Tax Due xxxx
Non-resident foreign corporation, in particular
• Non resident cinematographic film owner, distributor is taxed at 25% of gross income
• Non resident owner or lessor of vessels chartered by Philippine nationals is taxed at four and one-half percent of gross rentals, lease or charter fees from leases or charters to Filipino citizens or corporations, as approved by the maritime industry authority.
Allowable deductions
Allowable deductions are items or amounts which the law allows to be deducted from gross income in order to arrive at the taxable income. A domestic or resident foreign corporation may deduct from its business income, itemized deduction under the tax code. Non resident foreign corporations are not allowed deductions from gross income.
Taxable income and tax due
In case of corporations, taxable income is the pertinent items of gross income less the deductions authorized for such types of income. Taxable income is the amount or tax base upon which tax rate is applied to arrive at the tax due. Depending on the taxpayer involved and for purposes of computing the income tax liability of a corporation, taxable income may refer to either one of the following:
1. Net income. The income arrived at after subtracting from the gross income from business the deductions of the taxpayer. For domestic and resident foreign corporations, in general; and other corporations from whose gross income deductions are allowed.
Gross income xxxx
Less allowable deductions xxxx
Net Income xxxx
Multiply by tax rate xxxx
Tax due xxxx
2. Gross income: The entire or gross income from business without any deduction
For domestic and resident foreign corporations, subject to the MCIT; non resident foreign corporations not subject to the normal income tax rate (sec. 28b1)
Gross income xxxx
Multiply by tax rate xxxx
Tax due xxxx
Note that in computing for the taxable income, fraction of a peso is disregarded. For the tax due, a fraction amounting to fifty centavos or more is rounded off to a peso while a fraction amounting to less than fifty centavos is disregarded.
Corporations exempt from income tax.
1. Labor, agricultural or horticultural organization not organized principally for 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 fraternal organization operating under the lodge system, or a mutual aid association or a nonstick corporation organized by employees providing for the payment of life, sickness, accident or other benefits exclusively to the members of such society, order, or associations, nonstick corporation or their dependents.
4. Cemetery company owned and operated exclusively for the benefit of its members;
5. Nonstock corporations or associations 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 inures 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;
8. A nonstick and nonprofit educational institutions
9. Government educational institution;
10. Farmers; or other mutual typhoon or fire insurance company, mutual ditch or irrigation company or like organizations of a purely local character, the income of which consists solely of assessments, dues, and fees collected from member for the sole purpose of meeting its expenses, and
11. Farmers’ fruit growers or like associations 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
Declaration of quarterly corporate income tax.
Every corporation shall file in duplicate a quarterly summary declaration of its gross income and deductions on a cumulative basis for the preceding quarter or quarters upon which the income tax shall be levied, collected and paid. The income tax computed decreased by the amount of tax previously paid or assessed during the preceding quarters shall be paid and the return filed not later than 60 days from the close of each of the first three quarters of the taxable year, whether calendar or fiscal.
A return showing the cumulative income and deductions shall still be filed even if the operations for the quarter and the preceding quarters yielded no tax due.
Every taxable corporation is likewise required to file a final adjustment return covering the total taxable income of the corporation for the preceding calendar or fiscal year which is required to be filed and paid on or before April 15 on or before the 15th day of the 4th month following the close of the fiscal year, as the case may be. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year, the corporation shall either
1. Pay the balance of the tax still due or
2. Carry over the excess credit
3. Be credited or refunded with the excess amount paid.
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