Income Tax on Corporations

(Reference: 2019 Edition Philippine Income Tax Volume 1 by C. Llamado

and J. de Vera)

A corporation may be liable for at most seven types of income

taxes, namely:

Standard Income Taxes

• Net Income Tax
• Final Tax
• Capital Gains Tax
Penalty Income Taxes
• Minimum Corporate Income Taxes
• Improperly Accumulated Earnings Tax
Special Income Tax
• Gross Income Tax
•
Under Section 22 (B) of the NIRC, the term corporation
shall include:
a) partnerships, no matter how created or organized
b)Joint-stock companies
c) Joint accounts
d)Associations
e) Insurance companies

However, the term does not include:

f) General professional partnerships
g)Joint Venture
General Professional Partnerships are partnerships
formed by persons for sole purpose of exercising their
common profession, no part of the income of which is derived
from engaging in any trade or business.

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 or consortium agreement under a service contract
with the Government.
Classification of Corporations
1)Domestic Corporations
2)Foreign Corporations
a) Resident Foreign Corporation
b) Non-resident Foreign Corporation
3)Government-owned or controlled
corporations
4)Special Corporations
5)Exempt Corporations
Corporate Source of Taxable Tax Base Tax
Rates
Taxpayer Income

1. Domestic Within and without Net Income 30%

2. Resident Within the Philippines only Net Income 30%

Foreign Corp.

3. Non-resident Within the Philippines only Gross income FWT

of 30%
Foreign Corp. Enumerated by
law
Section 28(B)(1) of the Tax Code enumerates the items
of gross income from sources within the Philippines of
a non-resident foreign corporation which are subject
to final withholding tax, as follows:

a) Interest, dividends, rents, royalties, salaries

b)Premiums, except insurance premiums
c) Annuities, emoluments or other fixed or
determinable annual, periodic, or casual gains,
profits and income
d)Capital Gains, except capital gains from the sale of
shares of in a domestic corporation not traded in
the stock exchange
Case:

XYZ Corporation has the following income and

expenses in 2018

Gross income, Rent, Philippines P600,000.00

Gross income, rent US 400,000.00
Expenses, Philippines 100,000.00
Expenses, US 200,000.00

Compute the tax payable if taxpayer is a:

a) Corporation organized in the Philippines
b)Foreign corporation with a branch in the
Philippines
c) Foreign corporation with no branch or office in the
Philippines
a.) Domestic Corporation
Gross Income, Philippines P200,000.00
Gross Income, US 400,000.00
P600,000.00

Expenses, Philippines 100,000,00

Expenses, US 200,000.00 300,000.00

Taxable Net Income 300,000.00

Tax Rate 30%
Tax Payable P90,000.00
b)Resident Foreign Corporation

Gross Income, Philippines P200,000.00

Less: Expenses, Philippines 100,000.00

Taxable Net Income 100,000.00

Tax Rate 30%

Tax Payable P30,000.00

c.) Non-resident Foreign Corporation

Gross Income Philippines P200,000.00

Tax Rate 30%

Final Withholding Tax P60,000.00

Passive Income DC and RFC NRFC

1. Interest on currency bank deposit 20%

30%
2. Yield on any other monetary benefit
1) Deposit substitutes 20% 30%
2) Trust Funds and similar 20%
arrangements
3. Royalties 20% 30%
4. Interest from a depository bank 7.5% -RFC
Exempt
under the expanded foreign currency 15% - DC
deposit system
Case 2

A corporation has the following income for 2018

1. Interest on bank deposit, BDO Manila

gross of withholding tax P100,000.00
2. Interest, US Dollar Deposit, BDO, Manila $
50,000.00
3. Royalty, Philippines P600,000.00
4. Royalty, US P200,000.00

Compute the final withholding tax if the taxpayer is:

5. Domestic Corporation
6. Resident Foreign Corporation
7. Non-resident foreign corporation
a.) Domestic Corporation
Interest, bank deposit, BDO Manila P100,000.00
Royalty, Philippines 600,000.00
Total 700,000.00
Rate of Tax 20%
Final Withholding Tax
P140,000.00

Interest, US Dollar Deposit, BDO Manila

$50,000.00
Tax Rate 15%

Final Withholding Tax $7,500.00

Notes: Each payor of income must withhold the

corresponding tax.
b. ) Resident Foreign Corporation
Interest, bank deposit, BDO Manila P100,000.00
Royalty, Philippines 600,000.00
Total 700,000.00
Rate of Tax 20%
Final Withholding Tax P140,000.00

Interest, US Dollar Deposit, BDO Manila $50,000.00

Tax Rate 7.5%

Final Withholding Tax $3,750.00

Notes: Same solution as in letter a.

The royalty from the US is not taxable because
the RFC is taxable only on income from sources within
the Philippines.
c).Non- Resident Foreign Corporation
Interest, bank deposit, BDO Manila P100,000.00
Royalty, Philippines 600,000.00
Total 700,000.00
Rate of Tax 30%
Final Withholding Tax
P210,000.00

Notes: a.) Interest on the US Dollar deposit with BDO,

Manila is not taxable. The NFRC is exempt from tax on
passive incomes.
b.)The royalty from US is not taxable because
NFRC is taxable only on income from sources within the
Philippines.
Capital Gains Tax
1. Sale , exchange, or other disposition of domestic shares of
stock.
a.) Not traded at the stock exchange:

For domestic corporations:

Net Capital Gain 15%

For foreign corporation:

Net capital gain not over P100,000.00 5%
Amount in excess of P100,000.00 10%

b) Shares listed and traded at the stock exchange:

Rate and base- 6/10 of 1% based on the gross selling

price
Notes:

Final tax on capital gains on the sale of shares of stock applies

to all corporate taxpayers, except:
a) Dealers in Securities- The gains from such sales by dealers
in securities are not considered capital gains but shall be
included in ordinary income in their income tax returns.
b)Investors in shares of stock in mutual fund company in
connection with the gains realized by said investor upon
redemption of said shares of stock in a mutual fund
company.
c) All other judicial persons who are specifically exempt from
national internal revenue taxes under existing investment
incentives and other special laws
Capital Gains Tax on Capital Asset

1. Seller is a domestic corporation- Final tax of 6% based on

the GSP or FMV, whichever is higher. The FMV is the
higher between the Commissioner’s value and the
Assessor’s value.
2. Seller is an RFC- Gain on Sale is returnable and subject
to normal tax rate of 30% and also subject to creditable
withholding tax.
3. Seller is an NRFC- Final tax of 30% of the capital gain
realized on sale
A corporation has the following income , expense and transactions in 2019.

Gross income, Philippines P800,000.00

Expenses 480,000.00

Gross Income, US 500,000.00

Expenses 300,000.00
Sales of Assets-
1. Sold shares traded at the stock exchange P800,000, with cost
P900,000.00
2. Sold shares not traded at the stock exchange for P500,000.00, with cost-
P600,000.00
3. Sold vacant lot (not used for business) located in the Philippines for
P3,000,000.00 (Cost is P1,000,000.00)
4. Sold land located in US for P5,000,000.00 Cost- P2,000,000.00

Compute the final taxes , capital gain tax and income tax payable if the tax
payer is a
a) Domestic Corporation
b.) Resident Foreign Corporation
Domestic Corporation
1.) Final Tax on Sale of assets:
Selling price of shares, traded P800,000.00
Tax Rate .006
Final Withholding Tax P4,800.00

Selling price of shares, not traded 500,000.00

Cost 600,000.00
Net Loss (100,000.00)
Final Withholding Tax none

Selling Price, vacant lot 3,000,000.00

Tax Rate 6%
Final Withholding Tax P180,000.00
2.) Income Tax Payable

Gross income, Philippines 800,000.00

Gross income, US 500,000.00
P1,300,000.00
Less:
Expenses, Philippines 480,000.00
Expenses, US 300,000.00 780,000.00
Net income from operations P520,000.00
Add: Gain on Sale of land in US
(P5,000,000.00 – P2,000,000.00 3,000,000.00
Total Net Income 3,520,000.00
Tax Rate 30%
Tax Payable P1,056,000.00
Resident Foreign Corporation
1.) Final Tax on Sale of assets:
Selling price of shares, traded P800,000.00
Tax Rate .006
Final Withholding Tax P4,800.00

Selling price of shares, not traded 500,000.00

Cost 600,000.00
Net Loss (100,000.00)
Final Withholding Tax none
2.) Income Tax Payable

Gross income, Philippines 800,000.00

Less: Expenses, Philippines 480,000.00
320,000.00

Add: Gain on Sale of land in the Philippines

(P3,000,000.00 – P1,000,000.00 2,000,000.00
Total Net Income 2,320,000.00
Tax Rate 30%
Tax Payable P696,000.00
Non-Resident Foreign Corporation-

1.) Final Tax on Sale of assets:

Selling price of shares, traded P800,000.00
Tax Rate .006
Final Withholding Tax P4,800.00

Selling price of shares, not traded 500,000.00

Cost 600,000.00
Net Loss (100,000.00)
Final Withholding Tax none
2.) Final Tax on other Income

Gross Income, Philippines 800,000.00

Gain on Sale of land in the Philippines
(3,000,000.00- P1,000,000.00 2,000,000.00
Total Gross Income P 2,800,000.00
Tax Rate 30%
Final Withholding Tax P840,000.00