TAX ON CORPORATIONS

A. Coverage of the term “Corporation” [Sec 22(B)]

The term “corporation” includes partnerships, no matter how created or organized, joint-stock
companies, joint accounts (cuentas en participacion), associations, or insurance companies

It does NOT include:

1. general professional partnerships (partnerships formed by persons for the sole purpose of exercising
their common profession, no part of the income of which is derived from engaging in any trade or
business)
2. joint venture or consortium formed for the purpose of undertaking construction projects or engaging in
petroleum, coal, geothermal and other energy operations pursuant to an operating consortium agreement
under a service contract with the Government.

B. Classification of Corporations

General Types

1.Domestic Corporation (DC) - one created or organized in the Philippines or under its laws [Sec 22(C)]

2. Foreign Corporation (FC) – one that is not domestic [Sec 22(D)]

Resident Foreign Corporation (RFC) - a foreign corporation engaged in trade or business within the
Philippines [Sec 22(H)]
Non-resident foreign corporation (NRFC) - a foreign corporation not engaged in trade or business within
the Philippines [Sec 22(I)]

Special Types
1. Proprietary educational institutions and non-profit hospitals
2. Domestic Depository Bank (Foreign Currency Deposit Units)
3. Offshore Banking Units
4. Resident Depository Bank (Foreign Currency Deposit Units)
5. Resident international carrier
6. Non-resident owner or lessor of vessel
7. Non-resident cinematographic film owner, lessor or distributor
8. Non-resident lessor of aircraft, machinery and other equipment
9. Regional/Area Headquarters & Regional Operating Headquarters of Multinational companies

C. Scope of Taxation
Allowed Business
Type of Corporation Sources of Taxable Income Deductions?

Domestic Corporation (DC) Within and OUTSIDE the Philippines Yes

Resident Foreign Corporation (RFC) Within the Philippines Yes
Non-resident Foreign Corporation Within the Philippines No.
(NRFC)
non-resident foreign corporations are taxed on GROSS INCOME.

NOTE: A good example of a resident foreign corporation is the Philippine branch of a foreigncorporation
duly licensed by the Securities and Exchange Commission. The Philippine branch is merely an extension of
the foreign head office (i.e., non-resident foreign corporation); hence it does not have nor issue Philippine
shares of stock. There is only one single entity to speak of. However, for income tax purposes, only the
income of the Philippine branch from sources within the Philippines is subject to income tax and the income
of the Philippine branch as well as that of the foreign head office from sources outside the Philippines are
exempt from Philippine income tax.
D. Tax on Domestic Corporations

Domestic corporations are subject to any or some of the following:

Capital Gain Tax
Final Tax on Passive Income
Normal Tax [OR] Minimum Corporate Income Tax (MCIT) [OR] Gross Income Tax (GIT)
Improperly Accumulated Earnings Tax (IAET) [only if a domestic and closely-heldcorporation]

1.Capital Gains subject to Capital Gains Tax

a. On sale, barter, exchange or other disposition of shares of stock of a domesticcorporation not listed and
traded through a local stock exchange, held as acapital asset:

On the net capital gain:

Not over P100, 000 Final Tax of 5%
On any amount in excess of P100, 000 Final Tax of 10%
[NOTE: Tax treatment is the same as that of individuals.]

b. On the sale, exchange or disposition of lands and/or buildings which are not actually used in the
business of a corporation and are treated as capital assets
On thegross selling price, or the current fair market value at the time of the sale, whichever ishigher, a
final tax of 6%
NOTE: Tax treatment is the same as that of individuals.
The capital gains tax is applied on the gross selling price or the current fairmarket value at the time of the
sale, whichever is higher. Any gain or loss onthe sale is immaterial because there is a conclusive
presumption by law that the sale resulted in a gain.

2. Passive Income Subject to Final Tax

Interest Income:
*on any currency bank deposit, yield or any other monetary benefit from depositsubstitutes, trust funds
and similar arrangements - 20%
* under the expanded foreign currency deposit system (EFCDS) - 7.5%
Dividends received from another domestic corporation (Intercompany Dividend)
- EXEMPT
Royalties (any kind) – 20%

3. Income subject to Normal Tax [OR] Minimum Corporate Income

Tax (MCIT) [OR] Gross Income Tax (GIT)
NORMAL CORPORATE INCOME TAX RATE 30% of net taxable income

Tax formula for normal tax:

Gross Income (ALL income items EXCEPT passive income subjectto final tax and capital gain with capital
gain tax) Pxxx
Less: Allowable deductions for expenses and losses
xxx
Taxable Income subject to normal tax Pxxx

MINIMUM CORPORATE INCOME TAX (MCIT) 2% of MCIT Gross Income

What is MCIT gross income? Gross sales less sales returns, discounts andallowances and cost of goods
sold.Cost of goods sold includes all business expensesDIRECTLY incurred to produce the merchandise to
bring them to their presentlocation and use. [Sec. 27 (E) (4)]

MCIT gross income differentiated from the normal tax gross income thelatter would include other
incidental income items, such as rent income, interest, gain on sale of assets, certain tax refunds, etc.
Normal Tax Computation MCIT Computation

Sales revenue Pxxx Sales Revenue Pxxx

Less: Sales Discounts (xxx) Less: Sales Discounts (xxx)
Sales Allowances (xxx) Sales Allowances (xxx)
Net Sales Pxxx Net Sales Pxxx
Less: Cost of Goods Sold (xxx) Less: Cost of Goods Sold (xxx)
Gross Income from Sales xxx MCIT Gross Income Pxxx
Add Incidental Income: xxx Less: Operating Expenses (xxx)
Rent Income xxx Net Operating Income Pxxx
Interest Income xxx Add Incidental Income:
Normal Tax Gross Income Pxxx Rent Income xxx
Less: Allowable deductions (xxx) Interest Income xxx
Net Taxable Income Pxxx Gain on Sale of Property xxx
Net Income Pxxx

When is the MCIT computed? Beginning on the fourth taxable year immediately following the year in
which such corporation commenced its business operations

What amount of income tax is paid by the corporation to the BIR? Whichever is HIGHER between the
normal tax and the minimum corporate income tax.

ILLUSTRATION: E Co., a domestic trading corporation, in its fourth year of operations had a gross profit
from sales of P300, 000 and net taxableincome of P100, 000. How much was the income tax paid by the
corporation
for the year?

MCIT (P300, 000 x 2%)P6, 000

Normal income tax (P100, 000 x 30%) P30, 000
Income Tax to be paid for the year (whichever is higher) P30, 000

Excess MCIT carry-forward

Any excess of the minimum corporate income tax over the normal income tax shall becarried forward and
credited against the NORMAL TAX for the three (3) immediatelysucceeding taxable years. [Sec. 27 (E) (2)]
In the year to which carried forward, thenormal tax should be higher than the MCIT.

ILLUSTRATION: A domestic corporation had the following data oncomputations of the normal tax (NT) and
the minimum corporate incometax (MCIT) for five years.

Year 4 Year 5 Year 6 Year 7 Year 8

MCIT 80,000.00 50,000.00 30,000.00 40,000.00 35,000.00

NT 20,000.00 30,000.00 40,000.00 20,000.00 70,000.00

The excess MCIT over NT carry-forward is shown below:

Year 4 Year 5 Year 6 Year 7 Year 8

MCIT 80,000.00 50,000.00 30,000.00 40,000.00 35,000.00

NT 20,000.00 30,000.00 40,000.00 20,000.00 70,000.00
60,000.00 20,000.00 20,000.00

NT is Higher 40,000.00 70,000.00

From year 4 (40,000.00)
From year 5 (20,000.00)
From year 7 (20,000.00)
Tax Due 80,000.00 50,000.00 - 40,000.00 30,000.00
 While only P40, 000 out of P60, 000 excess MCIT in Year 4 was used in Year 6, the unused P20, 000
cannot be used in Year 8 because Year 8 was beyond three years from Year 4.

Relief from MCIT The Secretary of Finance is authorized to suspend the imposition of the minimum
corporate income tax on any corporation which suffers LOSSES:
on account of prolonged labor dispute (losses from a strike staged by employees that lasts for more than
6 months and caused the temporary shutdown of operations), or
because of force majeure (acts of God and other calamity; includes armed conflicts like war or
insurgency), or
because of legitimate business reverses (substantial losses due to fire, robbery, theft or other economic
reasons).

GROSS INCOME TAX (GIT) The President, upon the recommendation of the Secretary of Finance,
may allow domestic corporations the option to be taxed at fifteen percent (15%) of gross income, after the
following conditions have been satisfied:
Tax effort ratio 20% of Gross National Product (GNP)
Ratio of Income Tax collection to total tax revenue 40%
VAT tax effort 4% of GNP
Ratio of Consolidated Public Sector Financial Position
0.90%
(CPSFP) to GNP
Ratio of the Corporation’s Cost of Sales to Gross Sales Does not exceed 55%

The election of the gross income tax option by the corporation shall be irrevocable for three (3)
consecutive taxable years during which the corporation is qualified under the scheme.
Computation of GIT Gross Income Gross sales less sales returns, discounts and allowances and cost of
goods sold. Cost of goods sold shall include all business expenses directly incurred to produce the
merchandise to bring them
to their present location and use. [Sec. 27 (A)]

4. Improperly Accumulated Earnings Tax (IAET) [Sec. 29, as implemented by RR 2-2001 which
prescribes rules governing the impositionof IAET]
a. Rule There is imposed for each taxable year, in addition to other taxes, a tax equal to 10% of the
improperly accumulated taxable income of domestic and closely- held corporations formed or availed of for
the purpose of avoiding the income tax with respect to its shareholders or the shareholders of any other
corporation, by permitting the earnings and profits of the corporation to accumulate instead of dividing
them among or distributing them to the shareholders.

b. Rationale If the earnings and profits were distributed, the shareholders would then be liable to income
tax; if the distribution were not made to them, they would incur no tax in respect to the undistributed
earnings and profits of the corporation. It is a tax in the nature of a PENALTY to the corporation for the
improper accumulation of its earnings, and a DETERRENT to the avoidance of tax upon shareholders who
are supposed to pay dividends tax on the earnings distributed to them.

c. Exception The use of undistributed earnings and profits for the reasonable needs of the business
would not generally make the accumulated or undistributed earnings subject to the tax. What is meant by
“reasonable needs of the business” is determined by the IMMEDIACY TEST.
Immediacy Test - It states that the “reasonable needs of the business” are the
1) immediate needs of the business; and
2) reasonably anticipated needs.

How to prove the “reasonable needs of the business” The Corporationshould prove that there is
1) An immediate need for the accumulation of the earnings and profits; or
2) A direct correlation of anticipated needs to such accumulation of profits
d. Composition: The following constitute accumulation of earnings for the reasonable
Needs of the business: (ILL ABE)
1) ALLOWANCE for the increase in the accumulation of earnings up to 100% ofthe paid-up capital of the
corporation as of Balance Sheet date, inclusive of accumulations taken from other years;
2) Earnings reserved for definite corporate EXPANSION projects or programs requiring considerable capital
expenditure as approved by the Board of Directors or equivalent body;
3) Earnings reserved for BUILDING, PLANT or EQUIPMENT ACQUISITION as approved by the Board of
Directors or equivalent body;
4) Earnings reserved for compliance with any LOAN COVENANT or pre-existing obligation established under
a legitimate business agreement;
5) Earnings required by LAW or applicable regulations to be retained by the corporation or in respect of
which there is legal prohibition against its distribution;
6) In the case of subsidiaries of foreign corporations in the Philippines, all undistributed earnings intended
or reserved for INVESTMENTS WITHIN THE PHILIPPINES as can be proven by corporate records and/or
relevant documentary evidence.

e. Covered Corporations only domestic and closely-held corporations are liable for IAET.
1. Closely-held corporations are those:
a) at least 50% in value of the outstanding capital stock; or
b) at least 50% of the total combined voting power of all classes of stock entitled to vote
is owned directly or indirectly by or for not more than 20 individuals.
Domestic corporations not falling under the aforesaid definition are, therefore, publicly-held corporations.

f. Exempt Corporations: The IAET shall not apply to the following corporations: (BIGPEN-T)
1. Banks and other non-bank financial intermediaries;
2. Insurance companies;
3. Publicly-held corporations;
4. Taxable partnerships;
5. General professional partnerships;
6. Non- taxable joint ventures; and
7. Enterprises that are registered:
a. with the Philippine Economic Zone Authority (PEZA) under R.A. 7916;
b. pursuant to the Bases Conversion and Development Act of 1992 under R.A. 7227; and
c. under special economic zones declared by law which enjoy payment of special tax rate on their
registered operations or activities in lieu of other taxes, national or local.

g. Computation
Year's taxable income: P XX
Add: Income exempt from tax XX
Income excluded from gross income XX
Income subject to final tax XX
Amount of net operating loss carry-over(NOLCO)deducted XX
Total P XX
Less: Income tax paid/payable for the taxable year XX
Dividends actually or constructively paid/issued from
the applicable year's taxable income XX
Amount reserved for the reasonable needs of the
business emanating from the covered year's
taxable income XX
Improperly Accumulated Taxable Income P XX
Multiplied by IAET rate 10%
Improperly Accumulated Earnings Tax (IAET) P XX

h. Limitation The profit that has been subjected to IAET shall no longer be subjected to IAET in later
years even if not declared as dividend. However, profits which have been subjected to IAET, when declared
as dividends, shall be subject to tax on dividends except in those instances where the recipient is not
subject thereto.
i. Declaration of Dividends from earnings For purposes of determining the source of earnings or
profits declared or distributed from accumulated income, the dividends shallbe deemed to have been paid
out of the most recently accumulated profits or surplus and shall constitute a part of the annual income of
the recipient for the year in which received pursuant to Section 73(C) of the Code.

j. Period for Payment of Dividend/IAET The dividends must be declared and paid or issued not later
than one year following the close of the taxable year, otherwise, the IAET, if any, should be paid within
fifteen (15) days thereafter.

ONE LAST NOTE ON THE APPLICABILITY OF TAX RATES OF DOMESTIC CORPORATIONS: All
corporations, agencies, or instrumentalities owned or controlled by the GOVERNMENT are taxable and shall
pay such rate of tax upon their taxable income as are imposed on domestic corporations engaged in a
similar business, industry, or activity.

EXCEPTIONS (i.e, not taxable):

o Government Service Insurance System (GSIS),
o Social Security System (SSS),
o Philippine Health Insurance Corporation (PHIC),
o Philippine Charity Sweepstakes Office (PCSO) and
o the Philippine Amusement and Gaming Corporation (PAGCOR)11
Note: Exemption for PAGCOR was withdrawn by RA 9337

E. Tax on Resident Foreign Corporations

Resident foreign corporations are subject to any or some of the following:
Capital Gain Tax
Final Tax on Passive Income
Normal Tax [OR] Minimum Corporate Income Tax (MCIT) [OR] Gross Income Tax (GIT)
Branch Profit Remittance Tax

Capital Gains subject to Capital Gains Tax On sale, barter, exchange or other disposition of shares of
stock of a domestic corporation not listed and traded through a local stock exchange, held as a capital
asset:

On the net capital gain:

Not over P100,000 Final Tax of 5%
On any amount in excess of P100,000 Final Tax of 10%

NOTE:
Tax treatment is the same as that of individuals and domestic corporations.

There is no corresponding provision for resident foreign corporations regarding capital gain tax on the
sale of real property held as a capital asset. Hence, the net taxable income from the sale of real property
realized by the resident foreign corporation shall be subject to the 30% normal corporate income tax.

Passive Income Subject to Final Tax

Interest Income:
o on any currency bank deposit, yield or any other monetary benefit from deposit substitutes, trust funds
and similar arrangements - 20%
o under the expanded foreign currency deposit system (EFCDS) - 7.5%
Dividends received from a domestic corporation (Intercompany Dividend) - EXEMPT
Royalties (any kind) – 20%

Income subject to Normal Tax [OR] Minimum Corporate Income Tax (MCIT) [OR]
Gross Income Tax (GIT) The discussion with respect to this topic (income subject to normal tax, MCIT,
or GIT) under the subheading of domestic corporations is equally applicable to resident foreign
corporations, both as to concepts and computations, except that RFCs are taxed only on income from
sources within the Philippines.
 NORMAL CORPORATE INCOME TAX RATE 35% of net taxable income from sources within the
Philippines
MINIMUM CORPORATE INCOME TAX (MCIT) 2% of MCIT Gross Income from sources within the
Philippines. The MCIT is imposed on RFCs under the same conditions as domestic corporations. [Sec.
28(A)(2)]
GROSS INCOME TAX (GIT) The President, upon the recommendation of the Secretary of Finance, may
allow resident foreign corporations the option to be taxed at fifteen percent (15%) of gross income within
the Philippines, under the sameconditions as domestic corporations. [Sec. 28(A)(1)]

. Branch Profit Remittance Tax [Sec. 28(A)(5)]

Taxable transaction – any profit remitted by a branch to its head office
Tax Rate and Base – 15% based on the total profits applied or earmarked for remittance without any
deduction for the tax component
Non-taxable activities –activities which are registered with the Philippine Economic Zone Authority
Income NOT TREATED AS BRANCH PROFITS unless effectively connected with the conduct of trade or
business in the Philippines:
i. Interests, dividends, rents, royalties, including remuneration for technical services
ii. salaries, wages premiums, annuities, emoluments
iii. other fixed or determinable annual, periodic or casual gains, profits, income
iv. capital gains received during each taxable year from all sources within the Philippines

NOTES:
- The branch profit remittance tax is imposed whether the head office of the foreign corporation is located
in a tax treaty country, in a tax haven or other non-treaty country.
- The branch profit remittance tax is imposed only on the profits remitted by a Philippine branch to the
head office of a foreign corporation. Should the branch of a domestic corporation remit profits to its head
office, the transaction is not subject to the branch profit remittance tax.

F. Tax on Nonresident Foreign Corporations

Non-resident foreign corporations are subject to any or some of the following:
Capital Gain Tax
Final Tax on Passive Income
Final Tax on [Other] Gross Income from sources within the Philippines

1. Capital Gains subject to Capital Gains Tax On sale, barter, exchange or other disposition of shares
of stock of a domestic corporation not listed and traded through a local stock exchange, held as a capital
asset:

On the net capital gain:

Not over P100,000 Final Tax of 5%
On any amount in excess of P100,000 Final Tax of 10%

NOTE:
Tax treatment is the same as that of individuals and domestic/resident foreign corporations.
There is no corresponding provision for non-resident foreign corporations regarding capital gain tax on
the sale of real property held as a capital asset. Hence, the gross income from the sale of real property
realized by the non-resident foreign corporation shall be subject to a 30% final tax imposed on gross
income from sources within the Philippines.

2. Passive Income Subject to Final Tax

Interest
o on foreign loans contracted on or after August 1, 1986 – 20%
o under the expanded foreign currency deposit system (EFCDS) - EXEMPT
Dividends (cash and/or property) received from a domestic corporation (Intercorporate Dividend) – 15%,
AS LONG AS the country in which the nonresident foreign corporation is domiciled allows a tax credit for
taxes “deemed paid” in the
Philippines equivalent to 15%
- 15% represents the difference between the regular income tax of 30% on corporations and the 15% tax
on dividends
- If the country within which the NRFC is domiciled does NOT allow a tax credit, a final withholding tax at
the rate of 30% is imposed on the dividendsreceived from a domestic corporation. [In other words, the
dividends are subject to the third kind of tax: Final Tax on [Other] Gross Income from sources within the
Philippines.]

3. Final Tax on [Other] Gross Income from sources within the Philippines 30% of the gross
income received from all sources within the Philippines, such as interests, dividends, rents, royalties,
salaries, premiums (except reinsurance premiums), annuities, emoluments or other fixed or determinable
annual, periodic or casual gains, profits and income, and capital gains EXCEPT capital gains resulting from
the sale of shares of stock of a domestic corporation not listed and traded through a local stock exchange,
held as a capital asset.

G. Special Types of Corporations

A. Special Type of Domestic Corporations

1. Proprietary Educational Institutions and Hospitals (Non-profit)
Tax Rate and Base – 10% on net income (except on income subject to capital gains tax and passive
income subject to final tax) within and without the Philippines
NOTE: If gross income from unrelated trade or business or other activity exceeds 50% of total gross
income derived from all sources, the tax rate of 30% shall be imposed on the entire taxable income.
- Unrelated trade, business or other activity 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.
- Proprietary educational institution any private school maintained and administered by private individuals
or groups with an issued permit to operate from the DECS, CHED or TESDA.

2. Depository Banks (Foreign Currency Deposit Units) [Sec. 27(D)(3) as amended by RA 9294 (2004)]
Coverage of the Rule – ONLY income derived by a depository bank under the expanded foreign currency
deposit system from foreign currency transactions with:
- nonresidents,
- offshore banking units in the Philippines,
- local commercial banks including branches of foreign banks that may be authorized by the
BangkoSentralngPilipinas (BSP) to transact business with foreign currency deposit system units and
- other depository banks under the expanded foreign currency deposit system

Tax Rate: Exempt from all taxes, except net income from such transactions as may be specified by the
Secretary of Finance, upon recommendation by the Monetary Board to be subject to the regular income tax
payable by banks

- EXCEPTION: Interest income from foreign currency loans granted by such depository banks under said
expanded system to residents other than offshore units in the Philippines or other depository banks under
the expanded system shall be subject to a final tax at the rate of 10%.

B. Special Types of Resident Foreign Corporations

1. International Carriers
Tax Rate and Base – 2.5% on Gross Philippine Billings (GPB)
What is GPB?
- In the case of International Air Carriers, GPB refers to the amount of:
gross revenue derived from carriage of persons, excess baggage, cargo and mail originating from the
Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or issue and the place
of payment of the ticket or passage document
gross revenue from tickets revalidated, exchanged and/or indorsed to another international airline if the
passenger boards a plane in a port or point in the Philippines
for flights which originate from the Philippines, but transshipment of passenger takes place at any port
outside
the Philippines on another airline, the gross revenue consisting of only the aliquot portion of the cost of the
ticket corresponding to the leg flown from the Philippines to the point of transshipment [RR 15-2002]
Air Canada vs. CIR (CTA Case No. 6572) – Air Canada is a foreign corporation with authority to operate
as an off-line carrier. The CTA held that the Air Canada is subject to income tax as a resident foreign
corporation. In order that a foreign corporation may be regarded as doing business, there must be
continuity of conduct and intention to establish business, such as the appointment of a local agent. A
foreign airline company selling tickets in the Philippines through their local agents shall be considered as
resident foreign corporation engaged in trade or business in the country. The absence of flight operations
within the Philippine territory cannot alter the fact that the income received was derived from activities
within the Philippines. The test of taxability is the source, and the source is that activity which produced the
income.
- In the case of International Shipping, GPB means:
gross revenue whether for passenger, cargo or mail originating from the Philippines up to final
destination,regardless of the place of sale or payments of the passage or freight documents.

2. Offshore Banking Units authorized by the BangkoSentralngPilipinas (BSP) [Sec.

28(A)(4) as amended by RA 9294 (2004)]
Coverage of the Rule – ONLY income derived by offshore banking units from
foreign currency transactions with:
- nonresidents,
- other offshore banking units
- local commercial banks including branches of foreign banks that may be authorized by the
BangkoSentralngPilipinas (BSP) to transact business with offshore banking units

Tax Rate: Exempt from all taxes, except net income from such transactions as may be specified by the
Secretary of Finance, upon recommendation by the Monetary Board to be subject to the regular income tax
payable by banks
- EXCEPTION: Interest income derived from foreign currency loans granted to residents other than offshore
banking units or local commercial banks, including local branches of foreign banks that may be authorized
by the BSP to transact business with offshore banking units, shall be subject only to a final tax at the rate
of 10%.

3. Resident Depository Bank (Foreign Currency Deposit Units) [Sec. 28(D)(7)(b) as amended by RA 9294
(2004)]
Coverage of the Rule – ONLY income derived by a depository bank under the expanded foreign currency
deposit system from foreign currency transactions with:
- nonresidents,
- offshore banking units in the Philippines,
- local commercial banks including branches of foreign banks that may be authorized by the
BangkoSentralngPilipinas (BSP) to transact business with foreign currency deposit system units and
- other depository banks under the expanded foreign currency deposit system

Tax Rate: Exempt from all taxes, except net income from such transactions as may be specified by the
Secretary of Finance, upon recommendation by the Monetary Board to be subject to the regular income
tax payable by banks

- EXCEPTION: Interest income from foreign currency loans granted by such depository banks under said
expanded system to residents other than offshore units in the Philippines or other depository banks under
the expanded system shall be subject to a final tax at the rate of 10%.

4. Regional or Area Headquarters and Regional Operating Headquarters of Multinational

Companies
Regional or area headquarters – not subject to income tax
- Regional or area headquarters a branch established in the Philippines by multinational companies and
which headquarters do not earn or derive income from the Philippines and which act as supervisory,
communications and coordinating center for their affiliates, subsidiaries, or branches in the Asia-Pacific
Region and other
foreign markets.
 Regional operating headquarters – 10% of their taxable income
- a branch established in the Philippines by multinational companies which are engaged in any of the
following services:
1. general administration and planning
2. business planning and coordination
3. sourcing and procurement of raw materials and components
4. corporate finance advisory services
5. marketing control and sales promotion
6. training and personnel management
7. logistic services
8. research and development services and product development
9. technical support and maintenance
10. data processing and communications, and
11. business development.

C. Special Types of Non-resident Foreign Corporations

1. Non-resident cinematographic film owners, lessors or distributors – 25% of gross income from all
sources within the Philippines
2. Nonresident Owner or Lessor of Vessels Chartered by Philippine Nationals – 4.5% of gross rentals, lease
or charter fees from leases or charters to Filipino citizens or corporations, as approved by the Maritime
Authority
3. Nonresident Owner or Lessor of Aircraft, Machineries and Other Equipment – 7.5% of gross rentals or
fees