CORPORATE INCOME

TAXATION-SPECIAL
CORPORATION
GENERAL
CLASSIFICATION
AND TAX RULES FOR
CORPORATIONS
CORPORATION
is an artificial being created by operation
of law, having the rights of succession
and the powers, attributes and properties
expressly authorized by law or incident
to its existence.
LETS GET STARTED
CLASSIFICATION OF
CORPORATIONS
DOMESTIC CORPORATION is a corporation created and organized under
the law of the Philippines

FOREIGN CORPORATIONS are those which are created and organized

under foreign laws

RESIDENT engaged in trade and business within the Phil. Generally,

it establishes branch or an office for the purpose of
doing business or trade.

NON-RESIDENT FOREIGN CORPORATIONS

not engaged in trade or business within the Philippines.
 Source of Taxable Income
Within Without Tax Base

DOMESTIC CORPORATIONS Taxable Income

RESIDENT FOREIGN CORPORATION Taxable Income

NONRESIDENT FOREIGN CORPORATION Gross Income
Tax on Domestic Corporation
In general - Except as otherwise provided in the Tax Code, the tax is 30% on
taxable income (except certain passive incomes) received during each taxable year
all sources within and without the Philippines.

Computation of Corporate Income Tax

Domestic Corporation - The computation is:

Gross Income (GI) from sources within and/or ouside the Phil.
(all sources)
Less: Deduction from GI from all sources
Taxable income
Multiplied by 30%
Income Tax Payable
ILLUSTRATIVE PROBLEM:
ABC Corporation, a domestic corporation, has the following income and
deductions for 2013.
Gross Income Deductions
From Philippine sources ₱100,000 ₱40,000
From foreign sources -
U.S.A 50,000 25,000
Japan 30,000 10,000

Required: Compute the income tax of the corporation.

Solution:
ABC CORPORATION
Income Tax Computation
December 31, 2013
Gross Income -
Philippine sources ₱100,000
Foreign sources U.S.A ₱50,000
Japan 30,000 80,000
Total gross income ₱180,000
Less - Deductions
Phil. sources ₱40,000
Foreign sources
₱25,000 + ₱10,000 35,000 75,000
Taxable income ₱105,000
Income tax - 30% of 105,000 ₱31,500
Tax on Resident Foreign Corporations
Except as otherwise provided, the rate of 30% applies on the gross income
(except certain passive incomes) derived in the preceding taxable year received
from all sources within the Philippines.

Note: In the case of 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 spend equally for each month of the period.

The reduced corporate income tax rates shall be applied on the amount
computed by multiplying the number of months covered by the new rates
within the fiscal year by the taxable income of the corporation for the
period, divided by 12.
ILLUSTRATION:
ABC Corporation's fiscal year ends on June 30, 2008. The company's net income
for the fiscal year is ₱240,000.

Required: Compute the income tax due of ABC Corporation.

Solution: ABC CORPORATION
Fiscal Year Ending June 30, 2009
Net Income
₱240,000
July 2008 to December 2008:
₱240,000 x 6/12 = ₱120,000 x 35% ₱ 42,000
January 2009 to June 2009:
₱240,000 x 6/12 = ₱120,000 x 30% 36,000
Tax due ₱78,000
Resident Foreign Corporation - The computation is:
Gross income from Philippine sources
Less: Deductions from GI from Phil. sources
Taxable Income
Multiplied by 30%
Income Tax Payable

ILLUSTRATIVE PROBLEM:
Assume that Mon's Traction Corporation is a resident corporation with gross
income of ₱1,000,000 from Philippine sources and deductions amounting to
₱200,000.

Required: Compute its income tax.

Solution:
MON'S TRACTION CORPORATION
Income Tax Computation
December 31, 2013

Gross income from Philippine sources ₱1,000,000

Less - Deductions 200,000
Taxable income ₱800,000

Income tax - 30% of ₱800,000 ₱240,000

Tax on Non-resident Foreign Corporations
Note: Like non-resident aliens not engaged in trade or business in the
Philippines, non-resident foreign corporations are not allowed deductions.

Non-resident Foreign Corporations - The computation is:

Gross income from

Philippine sources x 30% = Income tax

ILLUSTRATIVE PROBLEM:
Assume that Mon's Traction Corporation is a non-resident corporation.

Required: Compute its income tax.

Solution:
Gross income from sources within the Philippines ₱1,000,000
Multiplied by 0.30
Income tax ₱300,000
SUB CLASSIFICATION OF
CORPORATE INCOME TAX
PAYERS
SPECIAL CORPORATIONS

Certain corporations are subject to a special tax

treatments or preferential tax rates lower than the
regular corporate income tax rates. These are
generally referred to as "special corporations".
Corporate Income Taxpayers
A. Domestic Corporations
1. Regular Domestic Corporations [25% or 20% (MSMEs)]
2. Special Domestic Corporations
- Non-profit hospitals
- Proprietary educational institutions
- Foreigncurrency deposit units (FCDU's) and expanded FCDU'S
- PEZA or BOI-registered enterprises
3. Exempt Domestic Corporations
- Exempt non-profit corporations under the NIRC
- Governance Agencies and instrumentalities
- Certain Government-owned and controlled corporations
- Cooperatives
B. Resident Foreign Corporations
It establishes its physical presence in the Philippines through an office, a
branch or a sales office. Its Foreign corporations or entities could do business in
the Philippines as a domestic corporation or as a resident foreign corporation.

1. Regular Resident Foreign Corporations [25%]

2. Special Resident Foreign Corporations
- Offshore banking units (OBU) and expanded FCDU's.
- Regional Areas Headquarters and Regional Operating
Headquarters of Multinational Companies
- International carrier
- BOI and PEZA registered enterprises
C. Non-Resident Foreign Corporations
It does not have any presence in the Philippines but derives income in the
Philippines such as extending foreign loans earning interest income, investing in
shares of stocks of domestic corporations earning dividends, or leasing out assets
in the country for a fee.

1. Regular Resident Foreign Corporations [25% FWT]

2. Special Non-Resident Foreign Corporations
- Non-resident cinematographic film owner, lessor or distributor
- Non-resident lessor of vessels, chartered by Philippine nationals
- Non-resident owner or lessor of aircraft, machineries and other equipment.
 Exempt Corporations
A. Exempt non profit corporations under
NIRC
B. Government agencies and
intrumentalities
C. Certain government owned and
controlled corporations
D. Cooperatives
 THE FOLLOWING ORGANIZATIONS SHALL NOT BE
SUBJECT TO INCOME TAXT IN RESPECT TO INCOME
RECEIVED BY THEM AS SUCH:

1. Labor, agricultural or horticultural organizations not organized principally for

profit.
2. Mutual savings bank not having a capital stock represented by shares and
cooperative banks 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 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.
4. Cemetery company owned and operated exclusively for the
benifit of its members
5. A non-stock and non-profit educational institutions.
The Classification Rule
Since exemption applies only to income from related activities,
the income of exempt corporations are classified into income
from related activities and income from unrelated activities. The
income from unrelated activities is subjected to regular income
tax.
 Tax on Domestic Corporation
Example:
ABS Corp. a domestic corporation in its
second year of operations, had the
following data for the year.
Computation:
Gross Income from business ₱2,000,000 Gross Inc. ₱2,000,000
Business Expenses & Losses ₱1,000,000 Less: Exp. & losses ₱1,000,000
Capital gain on Sale of land for ₱5,000,000 ₱90,000
Taxable Inc. ₱1,000,000
Interest on Phil. Currency bank deposit ₱20,000
Tax Rate: x 30%
Required: Compute for the Normal Income Tax Tax Payable: 300,000