ASIA PACIFIC COLLEGE

Makati City
TAXATION
SUMMARY OF TAXING INCOME FOR CORPORATIONS

Domestic (a)

On Business Income and Other Income

Gross income
Pxxx
Less itemized deductions
xxx
Taxable income (compartmentalized then globalized)
Pxxx
Applicable tax rate, effective: (Final tax if NRFC)
January 1, 1998
34%
January 1, 1999
33%
January 1, 2000
32%
Or, a minimum corporate income tax based on gross income as of the end of the taxable year,
beginning on the 4th taxable year immediately following the year in which such corporation
commenced its business operations, when the minimum income tax is greater than the normal
corporate income tax. Any excess of the minimum corporate income tax over the normal income tax
shall be carried forward and creditable against the normal income tax for the 3 immediately
2%
succeeding taxable year.
Effective January 1, 2000, an option to a qualified corporation to be taxed based on gross income
whose ratio of CGS does not exceed 55% of gross sales or receipts from all sources and that such
choice shall be irrevocable for 3 consecutive years that the corporation availed of such option.
15%
On Passive Income subject to Final Tax
A. Interest or yield on bank savings deposit, bank time deposit, deposit substitute or money market
placements, trust funds or similar arrangements; and royalties
20%
B. Interest income from depository bank under the expanded foreign currency deposit system
7%
C. Interest on foreign loans
D. Intercorporate dividends received from Domestic Corporation
Exempt
On Income from Capital Asset transactions subject to Final Tax
A. Sale of real property located in the Philippines
6% of GSP or
FMV

Resident

Prof. . R.E. Hermosilla

Foreign (b)
Non-Resident

Pxxx
xxx
Pxxx

Pxxx
Pxxx

34%
33%
32%

34%
33%
32%

2%

NA

NA

NA

Exempt

1998, 34%; 1999,

33%; & 2000, 32%
Exempt
20%
15%

Not FT but
returnable in the

1998, 34%; 1999,

33%; & 2000, 32%

20%
7%

whichever is
higher

AITR as CA txn. of the capital gain

Page 2 of 4

B. Sale of shares of stock in a Domestic Corporation

1. Traded based on GSP (now a percentage tax)
2. Non-traded based on net capital gains of:
Not over
P100,000
Over
100,000

On Income of Special Corporations (enjoying preferential rates)

A. Proprietary Educational Institutions and Hospitals which are nonprofit

B. Regional operating headquarters established in the Philippines by multinational companies

C. Resident Foreign International Carrier
D. Resident Foreign Offshore Banking and Foreign Currency Deposit Units
E. Non-resident Cinematographic Film owner, Lessor or Distributor
F. Non-resident Owner or Lessor of vessels chartered by Philippine Nationals
G. Non-resident Owner or Lessor of aircraft, machineries , and other equipment

of 1%

of 1%

of 1%

5%
10%

5%
10%

5%
10%

Taxable income, or
If the gross income from unrelated trade, business
or other activity exceeds 50% of the total gross
income from all sources, effective:
January 1, 1998
January 1, 1999
January 1, 2000
January 1, 2005
Passive investment income, such as interest and
royalties
Taxable income
Gross Philippine Billings
Gross onshore income
Film rentals and other items of gross income
Gross rentals and other chartered fees
Gross rentals

Tax Rate
10%

34%
33%
32%
35%
20%
10%
2%
10%
25%
4%
7 %

Notes:

Page 3 of 4

For income derived from sources within the Philippines, which has been subjected to a final tax (e.g., interest on savings and time deposits, yield on deposit
substitutes or
money market placements, monetary benefit from trust funds or similar arrangements, and royalties), such income should not be included anymore in the
computation of
taxable income in the corporate income tax return and be subjected again to the tax rates of 34%, 33%, 32% and 35% in 1998, 1999, 2000 and 2005 thereafter
respectively.
(a) Within and outside the Philippines.
(b) Within the Philippines only.
All corporations owned or controlled by the government, except the GSIS, SSS, PHIC, PCSO and PAGCOR, shall pay the same rate of tax as are imposed upon
corporations engaged in a similar business, industry or activity.
Any profit remitted abroad by a branch office to its mother company shall be subject to tax of 15% except those registered with the Export Processing
Zone Authority. Branch profits shall not include interests, dividends, rents, royalties, including remuneration for technical services, salaries, wages,
premiums, annuities, emoluments or other fixed or determinable annual, periodic or casual gains, profits, income and capital gains.
Effective January 1, 1998, every corporation formed or availed for the purpose of avoiding the imposition of income tax with respect to its shareholders or the
stockholders of any other corporation, by permitting its earnings and profits to accumulate instead of being divided or distributed, shall be liable to a 10% tax on the
said improperly accumulated taxable income. Improperly accumulated taxable income means taxable income adjusted by income exempt from tax; income
excluded from gross income; income subject to final tax; and amount of net operating loss carry-over deducted; and reduced by the sum of: income tax paid; and
dividends actually or constructively paid.

TAXATION

Page 4 of 4

Problems:
1. The normal tax of an ordinary corporation starting year 2000 and thereafter is:
a. 32%
b. 33%
c. 34%
d. 35%
2. Taxable income received during the year from all sources is the tax base for income tax purposes of
this class of taxpayer:
a. Domestic corporation
c. Non-resident alien
b. Resident foreign corporation
d. Non-resident foreign corporation
3.
One of the following is subject to final tax on gross income:
a. Domestic corporation
c. Non-profit cemetery
b. Resident foreign corporation
d. Nonresident foreign corporation
Items 4 through 6 are based on the following information:
A Corporation, in its first year of operations, had the following data:
Philippines
Foreign
Gross income
P400,000
P300,000
Expenses
200,000
200,000
4. The taxable income, if a domestic corporation and the data are on business, is:
a. P200,000
b. P300,000
c. P100,000
d. P400,000
5. If the taxpayer is a resident foreign corporation and the data are on business, the taxable income is:
a. P200,000
b. P300,000
c. P100,000
d. P400,000
6. If the taxpayer is a non-resident foreign corporation and the income and expenses are on an isolated
transaction, the taxable income is:
a. P200,000
b. P300,000
c. P100,000
d. P400,000
7. B Corporation, a corporation engaged in business in the Philippines and abroad, has the following data in
2005:
Gross income, Philippines
P975,000
Expenses, Philippines
750,000
Gross income, U.S.A.
770,000
Expenses, U.S.A.
630,000
Interest on bank deposit, Philippines
25,000
The income tax payable if the corporation is:
Domestic
Resident foreign
Nonresident foreign
a. P116,800
P 72,000
P320,000
b.
72,000
116,800
72,000
c.
312,000
515,850
116,800
d.
575,850
312,000
557,850
Items 8 and 9 are based on the following information:
C Company is a domestic corporation with the following data for 2005 (first year of operations):
Gross profit from sales
P2,000,000
Dividend from domestic corporation
20,000
Capital gain on land in the Philippines held for two years
(sold at P1,000,000)
200,000
Capital gain on shares of domestic corporation held for two
months (direct sale to buyer)
120,000
Business expenses
1,100,000
8. The total capital gains taxes for the year:
a. P64,000
b. P54,000
c. P67,000
d. P0
9. The normal tax of the corporation at the end of the year:
a. P327,000
b. P1,070,000
c. P288,000
d. P900,000
10. Aside from the ordinary corporate income tax of 35%, what other tax may be imposed on corporations
under the income tax law?
a. Minimum corporate income tax
c. Capital gains tax
b. Passive income tax
d. All of these