Taxation Law Review Notes Corporation)

Tax on Corporations
Updated: 06.30.2010
TAX ON CORPORATION
KIND OF CORPORATE TAXPAYERS
DOMESTIC CORPORATION or Organized and Created in the Philippines or under its Laws (Section 22C & 27)
RESIDENT FOREIGN CORPORATION or FC Engaged in Trade or Business in the Philippines (Section 22H &28A)
NONRESIDENT FOREIGN CORPORATION or FC Not Engaged in Trade or Business in the Philippines(Section 22I &28B)
Section 22B of the NIRC defines a CORPORATION as including partnership, no matter how created or organized, joint stock companies, joint accounts (cuentas en participacion), association, insurance companies, but does not include General Professional Partnership (GPP) and a 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. 1) Partnership, no matter how created or organized; 2)Joint Stock Companies; 3)Joint Accounts; 4)Associations; 5)Insurance Companies; 6) GPP deriving income from any trade or business; &7) Joint Venture or Consortium No matter how created or organized means 1) whether or not organized under the Philippines or foreign laws; 2) whether or not organized in accordance with law or against it; or 3) whether stock or non-stock, profit or non-profit; Where Corporate Income Tax DO NOT Apply: 1) GPP Requisite: Formed by persons for the sole purpose of exercising their profession, no part of the income of which is derived from any trade or business. Hence, If it Engaged In Trade Or Business aside from the practice of profession, the pertinent Corporate Income Tax would already apply. Sec.26 Persons engaging in business as partners in a GPP shall be LIABLE FOR INCOME TAX ONLY in their separate and individual capacities. 2) Joint Venture or Consortium Requisite: Formed for the purpose of undertaking construction projects or engaging energy operations pursuant to an operating or consortium agreement under a service contract with the government.
I.
SOURCES of Income subject to Philippine TAX (General) Kinds of INCOME TAX Applicable
NIT Net Income Tax FIT Final Income Tax MCIT Minimum Corporate Income Tax IAET Improperly Accumulated Earnings Tax OCIT Optional Corporate Income Tax o o o o o o o
Within & Without the Philippines
Within the Philippines
Within the Philippines
II.
1. Net Income Tax

o o General Rate is 35%, effective January 1, 2009 the rate is 30% Preferential Lower NIT Rate of 10% for Proprietary Educational Institution & Hospitals Interest Income from Banks Royalties Interest Income under EFCDS Capital Gains from Sale of Shares of Stock Income under EFCDS Interest from Foreign Loans under EFCDS Capital Gains from Sale of Real Property
1.
Net Income Tax

o o General Rate is 35%, effective January 1, 2009 the rate is 30% Preferential Lower NIT Rate of 10% for Regional Operating Headquarters of MC Gross Philippine Billings Interest Income from Foreign Currency Loans Branch Profit Remittances Interest Income from Banks Royalties Interest Income under EFCDS Income under EFCDS Interest from Foreign Loans under EFCDS Capital Gains from Sale of Shares of Stock
1. Gross Income Tax

o o o o General Rate is 35%, effective January 1, 2009 the rate is 30% Cinematographic Film, Owner, Lessor or Distributors 25% Nonresident Owner or Lessor of Vessels Chartered by Philippine Nationals 41/2% Nonresident Owner or Lessor of Aircraft, Machineries & Other Equipment 71/2% Interest Income from Foreign Loans 20% Intercorporate Dividends 15% - 30% Net Capital Gains from Sale of Shares of Stock 5% - 10%
2. Final Income Tax
2.
Final Income Tax

o o o o o o o o o
2. Final Income Tax

o o o
3. Minimum Corporate Income Tax(2% on Gross Income) 4. Improperly Accumulated Earnings Tax 5. Optional Corporate Income Tax
3. 4.
Minimum Corporate Income Tax(2% on Gross Income) Improperly Accumulated Earnings Tax
DISCLAIMER (click here to read more) NOTE: In order to appreciate and understand this Review Notes better, you should read
the Taxation Law Review Book by Atty. Sababan and the pertinent provisions of NIRC at least once. (byJefTaraqui)
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Tax on Corporations
Updated: 06.30.2010
Kind of Corporate Taxpayers III.
DOMESTIC CORPORATION
RESIDENT FOREIGN CORPORATION
NONRESIDENT FOREIGN CORPORATION
Determination of INCOME derived from sources WITHIN or WITHOUT the Philippines (See Section 24 of NIRC) NET INCOME TAX (DC & RFC) Computation
Gross Income (Sec.32.A) LESS Allowable Deduction/ Expenses EQUALS Taxable Income (Sec.31) TIMES Applicable NIT Rate
As a Rule the Income Tax Rate applicable is 30% NIT,however by way of exception some institutions/Corporations are only liable for lower NIT Rate of 10% or Exempt from taxes; 1. Proprietary Educational Institutions & Hospital (Section 27B) a. Stock Corporation; b. Non-Profit Institution; c. Private Educational Institution or Hospital; d. Gross Income from Unrelated Trade, Business or Other Activity , if any, does NOT Exceed 50% of the Total Gross Income from all sources; e. Issued a Permit to Operate from DECS, CHED or the TESDA, or as the case may be in accordance with existing laws & regulations 10%NIT Preferential Rate o Note: If such Institution is qualified for the lower rate of 10%, the MCIT will not apply to them; however, If any of the requirement is not met; such Institution will be subject to the Regular Rate of 30%, consequently the MCIT will also apply.
As a Rule the Income Tax Rate applicable is 30% NIT like in a Domestic Corporation, except for the following Corporations; o Note: if the requisites under the following specific Corporations & Income are not present, such income shall be subject to NIT. 1. International Carrier (Section 28A3) Requisites: must be an ONLINE carrier or a carrier WITH LANDING Rights in the Philippines, otherwise it shall be deem not engaged doing business in the Philippines. Hence, its shall be deemed as NFC subject to GIT. 2 % FIT Rate on Gross Philippine Billings (GPB) a. International Air Carrier(Section 28A3a) Requisites of GBP: Gross revenue derived from; i. Persons, excess baggage, cargo, and the mail must be originating in the Philippine. ii. In a continuous and uninterrupted flight or shipment (stopover must not exceed 48 hours, otherwise the flight is NOT continuous & uninterrupted); and iii. Irrespective of the place of sale or issue and the place of payment of the ticket or passage documents. (If either of the preceding two requisites, i& ii, is not present, FIT on GBP will not apply & the PLACE of sale shall become relevant because it would be the determining factor of the sources of income whether within or without);The RFC shall be liable for the regular NIT for sale within the Philippines RFC engaged in Common Carriage is subject to NIT not under GPB o DC will be subject to NIT at the regular rate o NRFC will be subject to 30% GIT o Revalidation, Exchange &/or Endorsementof Tickets to another International Airline (form part of the GBP) Requisites: i. Passenger must have boarded a plane in a port/point in the Philippines; and, ii. Tickets must have been revalidated, exchange &/or indorsed to another airline. o Note: If oneof the requisite is NOT present the Place of Sale would be material (refer to the rule on letter iii above) & FIT on GPB shall not be applicable, instead the Corporation shall be subject to regular NIT)
Generally liable for Gross Income Tax at the rate of 30% which includes the following income; (Section 28B1) a) Interests b) Dividends c) Rents d) Royalties e) Salaries f) Premiums (except reinsurance premiums) g) Annuities h) Periodic or Casual Gains i) Profits & Income j) Capital Gains(except Net Capital Gains on Sale of Shares of Stocks) 1. Nonresident Cinematographic Film, Owner, Lessor or Distributor(Section 28B2) 25% on its Gross Income from all sources within the Philippines 2. Nonresident Owner or Lessor of Vessels Chartered by Philippine Nationals(Section 28B3) 4 % on its Gross Rentals, Lease or Charter Fees from leases or charters to Filipino Citizens or Corporation as approved by the Maritime Industry Authority 3. Nonresident Owner or Lessor of Aircraft, Machineries and Other Equipment(Section 28B4) 7 %on its Gross Rentals or Fees from rentals, charters and other fees
FINAL INCOME TAX (DC, RFC & NFC) Computation

Each/Individual Income TIMESApplicableFIT Rate (Income is not Totaled or Summed; No deductions/personal exemptions & tax credit)
GROSS INCOME TAX (NRFC) Computation

Total Gross Income TIMES Applicable Rate (Income is not Totaled or Summed; No deductions/personal exemptions & tax credit)
2. Corporations EXEMPT from Tax on Income (Includes NIT, FIT) under Title II (Section 30)There are 11 Categories of Corporations enumerated therein, including a Private Non-Stock & NonProfit Educational Institution. Requisite: The Income derived from whatever kind and character of any Property or Activity is NOT for PROFIT, otherwise it shall be subject to tax. Under the 1987Constitution Section 28 par 3., Article VI of the 1987 Constitution Charitable institutions, churches and personages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation.
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Tax on Corporations
Updated: 06.30.2010
Kind of Corporate Taxpayers NET INCOME TAX (DC & RFC) Computation
DOMESTIC CORPORATION Note: Generally applicable to Private Corporations, since Government Corporations are generally exempt. Exempt from Real Estate Tax Only With regard to Other Kinds of Philippine Tax, apply Section 27B or Section 30 of NIRC Section 4 par. 3 & 4, Article VI of the 1987 Constitution
RESIDENT FOREIGN CORPORATION Transshipment (form part of the GBP) Only the ALIQUOT Portion of the cost of the ticket corresponding to the leg flown from the Philippines to the Point of Transshipment. Requisites: i. The flight originated from the Philippines; ii. The transshipment of the passenger takes place at any port outside the Philippines; and, iii. The passenger transferred to another airline. o Note: If either of the requisite is NOT present the Place of Sale would be material (refer to the rule on [letter c] above) & FIT on GPB shall not be applicable, instead the Corporation shall be subject to regular NIT)
NONRESIDENT FOREIGN CORPORATION 4. Interest on Foreign Loans (Section 28B5b) One where the Lender is a NRFC (Obligee) and the Borrower is DC (Obligor) 20% FIT Rate on the Amount of Interest Exclusion from Gross Income In relation to Section 32B7 Income received by a Foreign Government from investment in the Philippines in; a) Loans b) Stocks c) Bonds d) Other Domestic Securities By (Lenders): a) Foreign Government b) Financing institutions owned, controlled, or enjoying refinancing from Foreign Governments c) International or Regional Financial Institutions established by Foreign Governments 5. Intercorporate Dividends (Section 28B5b) Dividends received by NRFC from a DC 30% FIT Rate Tax Deemed Paid Credit Rule or Tax Sparing Rule is NOT Applicable 15% FIT Rate - Tax Deemed Paid Credit Rule or Tax Sparing Rule is APPLICABLE Two Categories of Countries a) Those countries which impose Tax on Income derived from sources within & without the their countries (Procter & Gamble vs. Commisioner) 15% (Tax Sparing Rule Applicable) If the Country of their domicile allows s Tax Credit of 15% for Taxes deemed paid in the Philippines

(3) All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes SHALL BE EXEMPT FROM TAXES AND DUTIES. Upon the dissolution or cessation of the corporate existence of such institutions, their assets shall be disposed of in the manner provided by law. Proprietary educational institutions, including those cooperatively owned, may likewise be entitled to such exemptions, and subject to the limitations provided by law, including restrictions on dividends and provisions for reinvestment. (4) Subject to conditions prescribed by law, all grants, endowments, donations, or contributions used actually, directly, and exclusively for educational purposes shall be exempt from tax. NOTE: Sec. 30 of NIRC is specific law which prevails over Sec.4 of Art. VI of the 1987 Constitution which is a general law. There is no irreconcilable difference. The Constitutional provisions apply when the law is silent. Exemption from VAT under Section 109 H of NIRC 3. Government-Owned or Controlled Corporations o As a Rule all GOCC, Government Agencies or Institutions are subject to Tax upon their Taxable Income; Exemptions WITHOUT condition or qualification (Section 27C) a. b. c. d. SSS PHIC PCSO GSIS
b. International Shipping (Section 28A3b) (GBP is same with International Air Carrier) Requisites: it must originate in the Philippines up to Final Destination, regardless of the place of sale or payment of ticket. Conversely, if this requisite is not present, NIT will apply (refer to rule on letter c above) 2. Offshore Banking Units (OBU) (Section 28A4) Must be a unit authorized by the BangkoSentralngPilipinas (BSP)

30%NIT on anyINCOME derived from its FOREIGN CURRENCY

TRANSACTIONS (FCT)
EXEMPT: Income derived in transacting with; (Exempt from ALL Taxes) a. Nonresidents (Individuals - NRC, OCW, NRA & Corporations NRFC); b. Other OBU; c. Local Commercial Banks; d. Branches of Foreign Banks authorized by BSP to transact with OBU. Exception to Exception: Net Income from such transactions (FCT) as may be specified by the Sec. of Finance upon the recommendation of the Monetary Board which shall be subject to NIT at regular rate. o Note: Any income of Nonresidents, whether individual or corporation, from transactions with OBU shall be EXEMPT from tax. 10% FIT on Income derived from FOREIGN CURRENCY LOANS on Residents (Individuals - RC, RA & Corporation DC, RFC) Except: a. OBU; b. Local Commercial Banks c. Local Branches of foreign banks authorized by BSP to transact with OBU d. Nonresidents
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Tax on Corporations
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DOMESTIC CORPORATION Exemptions WITH condition or qualification (Section 32B7b)those that derives their Income from any Public Utility or from Exercise of any Essential Government Function accruing to the Government of the Phils. or to any Political Subdivision. e.g. Non-Stock, Non-Profit Government Education Institution ; NAPOCOR o As a Rule, the Government can Tax itself, except for; National Government - those enumerated in Section 27C & Section 32B7b Local Government Unit it cannot Levy Tax on; 1) National Government; 2) its Agencies & Instrumentalities; and 3) Other Local Government Units.
RESIDENT FOREIGN CORPORATION 3. Branch Profits Remittances(Section 28A5) Only Branch Office in the Philippines of Foreign Corporations abroad are liable for the payment of Branch Profits Remittance Tax (BPR Tax) 15% FIT based on the Total Profits APPLIED or EARMARKED for remittance without any Deduction for the Tax component thereof Requisites: a. Profits must be remitted by the Branch of RFC to its Head Office; and b. Such profits must be effectively connected with the conduct of its trade or business in the Philippines. (Otherwise it shall be subject to NIT) Exception: Those activities which are registered with Philippine Economic Zone Authority (PEZA) Note: o The basis of tax is Not on the amount of actually remitted. o Applicable only to Branches, it does NOT apply to Local Subsidiaries of Foreign Corporations (they are liable for tax on Dividends in relation to NRFC) o Profits include Interest, dividends, rents, royalties, remunerations and the like provided there are effectively connected with the trade or business. Rationale: To impose an equivalent tax measures similar to that impose on Dividends declare & issued by a Subsidiary to its parent NRF. 4. Regional or Area Headquarters (RAH) & Regional Operating Headquarters (ROH) of Multinational Companies(Section 28A6) R/AH (Exempt from Income Tax) Requisites: 1) One that DO NOT Earn Or Derive Income from the Philippines; 2) Which acts as supervisory, communications & coordinating center for their affiliates, subsidiaries, or branches (Section 22DD) ROH (Subject to NIT)(defined under Section 22EE) 10% on their Taxable Income (preferential Net Income Tax) Rationale: Why liable? Because the claim for exemption of resident airlines shall be minimized.
NONRESIDENT FOREIGN CORPORATION 30% (Tax Sparing Rule is NOT Applicable) If the Country of their domicile DOES NOT allow tax credit or the law is Silent b) Those countries which impose Tax on Income derived from sources within only, and those income from without are exempt. (Wander vs. Commissioner) Always subject to 15%FIT Rate, because their law is Silent or because there is No Law which imposes tax on income derived without their countries.


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Tax on Corporations
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DOMESTIC CORPORATION Note: PRIZES, OTHER WINNINGS & RENT are included in the Gross Income hence subject to NIT 1. Interest from Banks(Section 27D1) a. Interest from Deposits & Yields b. Any other Monetary Benefit from Deposits Substitutes c. Any other Benefits from Trust Funds & Similar Arrangements d. Income from Long-Term Deposits Requisite: It must be from sources within the Philippines (Banks should be located in the Phils.) 20% FIT Rate 2. Royalties(Section 27D1) The 10% Lower Rate which is applicable to Individual Taxpayers does Not apply to DC 20% FIT Rate See Section 42A4 for the enumeration of Royalties derived from sources within the Phils. 3. Interest Income derived by DC from a Depository Bank under the Expanded Foreign Currency Deposit System (EFCDS) (Section 27D1) 7.5% FIT Rate 4. Net Capital Gains from the Sale of Shares of Stock Not Traded in the Stock Exchange (Section 27D2) Requisites: (Includes also the Barter, Exchange or other Disposition of Shares) a. Shares in a Domestic Corporation b. Shares are NOT Listed & Traded in the Local Stock Exchange (even if listed in the SE provided it was traded outside the SE) c. Classified as Capital Assets Note: o Basis of Tax is the NET Capital Gains(it means the total
gains less the total loss for the whole taxable year)
RESIDENT FOREIGN CORPORATION Note: PRIZES, OTHER WINNINGS & RENT are included in the Gross Income hence subject to NIT Same Rules (Section 28A7a) 20% FIT Rate
NONRESIDENT FOREIGN CORPORATION Note: PRIZES, OTHER WINNINGS & RENT

(except for those under no. 2 & 3 above) are included in the Gross Income hence subject to30% GIT
30% GIT

Same Rules (Section 28A7a) 20% FIT Rate
30% GIT Except for those under no. 1 above, which is subject to 25% on Gross Income

Same Rules (Section 28A7a) 7.5% FIT Rate
30% GIT
Same Rules (Section 28A7c) 5%for the first Php100,000.00; 10%in excess of Php100,000.00
Same Rules (Section 28B7c) 5%for the first Php100,000.00; 10%in excess of Php100,000.00
o The Rule on Holding Period is NOT applicable.
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Tax on Corporations
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DOMESTIC CORPORATION o If the Shares in Foreign Corporation it is not subject to FIT; it will subject to NIT/GIT; the place where it was sold is material; if sold in the Phil. It is deemed income derived from sources within; if sold abroad it is income derived from sources without. o If the Shares are Ordinary Assets; it will be subject to NIT or GIT for NRAETB/NRANETB o If the Shares are Traded & Listed; it will subject to Percentage Tax of of 1% o The Only Income subject to FIT NOT subject to WITHHOLDING TAXand applicable to ALL Corporate Taxpayer
RESIDENT FOREIGN CORPORATION Same Rules (Section 28A7c) 5%for the first Php100,000.00; 10%in excess of Php100,000.00
NONRESIDENT FOREIGN CORPORATION Same Rules (Section 28B5c) 5%for the first Php100,000.00; 10%in excess of Php100,000.00

5%for the first Php100,000.00; 10%in excess of

Php100,000.00 5. Income derived by a Depository Bank (income earner) under the Expanded Foreign Currency Deposit System (EFCDS) (Section 27D3) A bank under the EFCDS is one which is authorized by the BSP to transact business in Philippines currency as well as in acceptable foreign currency. 30% NIT on anyINCOME derived under the EFCDS transactions. Exempt: Income derived in transacting with; (Exempt from ALL Taxes) a. Nonresidents b. Offshore Banking Unit in the Phils. c. Local Commercial Banks d. Branches of Foreign Banks authorized by BSP to transact under the EFCDS e. Other Depository Banks under the EFCDS Exception to Exception: Net Income from such transactions as may be specified by the Sec. of Finance upon the recommendation of the Monetary Board which shall be subject to NIT at regular rate. 6. Income derived from Foreign Currency LOANS under the EFCDS (Section 27D3) Same Rules (Section 28A7b) 10% FIT Rate (Section 28B5a) (refer to no. 4 above) 20% FIT Rate Same Rules (Section 28A7b) Generally Exempt; 30% NIT on those Not expressly Exempt EXEMPT FROM TAX

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Tax on Corporations
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DOMESTIC CORPORATION The Loans must be granted to the following to be subject to FIT; RESIDENTS (Individuals - RC, RA & Corporation DC, RFC)other than Offshore Banking Units in the Phils. or other than other Depository Banks under the EFCDS Except: a. OBU; b. Local Branches of foreign banks authorized by BSP to transact with OBU. c. Nonresidents 10% FIT Rate 7. Intercorporate Dividends (Section 27D4) EXEMPT from Tax Dividends received from another Domestic Corporation Note: Dividends received by DC from a RFC or NFC = Subject NIT DC will be liable to NIT regardless if it is derived from sources within or without the Philippines 8. Capital Gains Realized from the Sale, Exchange or Disposition of Real Properties(Section 27D5) Same Rules on Individual Taxpayer, except that the Real Property involve is only LANDS and/or BUILDINGS Option to pay by way of NIT in case of Individual Taxpayers is NOT also applicable.
RESIDENT FOREIGN CORPORATION Same Rules (Section 28A7b) 10% FIT Rate
NONRESIDENT FOREIGN CORPORATION (Section 28B5a) (refer to no. 4 above) 20% FIT Rate

Same Rules (Section 28A7d) Dividends received by RFC from RFC/NRF = Subject to NIT, If It deemed from sources within; a) At least 50% of its Gross Income is from
sources within the Philippines; and b) Such Gross Income must be for the three-year period ending with the close of the taxable year preceding the declaration of such dividends. Except that; it refers to Dividends received by a RFC from a DC
(Section 28B5b) (refer to no. 5 above) 30% & 15% FIT Rate

Subject to 30% NIT Rateunder Section 39
Subject to 30% GIT Rate under Section 39
Kind of Corporate Taxpayers MINIMUM CORPORATE INCOME TAX (MCIT 2%) (Section 27E) Computation:
Gross Sales LESS Sales Returns, Discounts & Allowances, Cost of Goods Sold/Manufactured or Cost of Service EQUALS Gross Income Taxable TIMES MCIT Rate
DOMESTIC CORPORATION
RESIDENT FOREIGN CORPORATION
NON-RESIDENT FOREIGN CORPORATION
RULE: Asbetween NIT & MCIT, ONLY ONEmay be imposed, whichever is higher. The application of the other operates to prohibit the application of the other to be imposed on the same Taxable Year. Requisites: (Section 27E1) 1. Beginning on the 4th Taxable Year following the commencement of the business operations of the Corporation 2. The MCIT computed is higher than the NIT 2% based on Gross Income[(Gross Salesless Sales Returns, Discounts & Allowances, and Cost of Goods Sold/Cost of Goods Manufactured/Cost of Service) (in case of Banks COS includes Interest Expense) (Section 27E4)] Carry Forward of Excess Minimum Tax (Section 27E2) Any EXCESS of the MCIT over the NIT shall be CARRIED FORWARD & CREDITEDagainst the Normal Income Tax (NIT) for the three (3) immediately succeeding taxable years
DISCLAIMER (click here to read more) NOTE: In order to appreciate and understand this Review Notes better, you should read the Taxation Law Review Book by Atty. Sababan and the pertinent provisions of NIRC at least once. (byJefTaraqui)
N/A
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Tax on Corporations
Updated: 06.30.2010
Note: In order that this may apply, the tax imposed on the succeeding taxable years must be a NIT (which necessarily means that NIT is higher compared to MCIT); otherwise if MCIT higher the Carry Forward shall not apply. Relief from the MCIT under Certain Conditions(Section 27E3) The Sec. of Finance is authorized to SUSPEND the imposition of MCIT under the following conditions; The Corporation suffers LOSSES on account of; 1. Prolonged Labor Disputes; 2. Force Majeure 3. Legitimate Business Reverse CAPITAL GAINS & LOSSES General Rule: Section 39 (Subject to NIT) Exception: Section 27D5 (Subject to FIT) Applicable to ALL TAXPAYER depending upon their Status NIT (Except LAND & BUILDING: FIT under #8 above ) NIT (Including LAND & BUILDING) GIT (Including LAND & BUILDING)
Net Income Tax on Capital Gains & Losses (Generally this form parts or included among the items in the Gross Income (Sec.32A) of the Taxpayer subject to allowable deductions) Capital Assets are properties held by the Taxpayer except for the following; (Section 39A) (SPPR) 1. Stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year; or 2. Property held by the taxpayer primarily for sale to customers in the ordinary course of his traded & business; or 3. Property used in the trade or business of a character which is subject to allowance of depreciation; or 4. Real property used in trade or business of the taxpayer. Relevance of determining whether an asset is capital or ordinary is for the applicability of the following; (Holding Period Rule & Holding Period Rule are NOT Applicable on Corporation) 1. Kind of Income Tax to be applied (FIT/NIT) 2. Loss Limitation Rule (Section 39C); Capital Loss can only be deducted from Capital Gains but never from an Ordinary Gain, while an Ordinary Loss may be deducted from both Ordinary & Capital Gain. Applicable to INDIVIDUAL & CORPORATE Taxpayer. Except for Banks & Trust Companies or similar Companies with substantially related business. Gain & Losses from Short Sale Short Sale is the selling of property w/out distinction whether such is ordinary or capital wherein such was not in his possession; included also is the Gain or Loss attributable to the failure to exercise privileges or option to buy or sell. Conversion: 1. Capital to Ordinary: Requisites; 1) In furtherance of the Taxpayers Trade or Business; 2) is substantially Improved Or Very Actively Sold Or Both. 2. Ordinary to Capital (Applicable only to Taxpayers NOT engaged in Real Estate Business); Automatically converted in to Capital if, Requisites; proof that it was not used for business for more than 2 years prior to the consummation of the Taxable Transaction on the said property.
It is hereby declared the policy of the State to promote sustainable economic growth through the rationalization of the Philippine internal revenue tax system, including tax administration; to provide, as much as possible, an equitable relief to a greater number of taxpayers in order to improve levels of disposable income and increase economic activity; and to create a robust environment for business to enable firms to compete better in the regional as well as the global market, at the same time that the
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Tax on Corporations
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State ensures that Government is able to provide for the needs of those under its jurisdiction and care. (Section 2, State Policy of the Tax Reform Act of 1997 as amended by R.A. No. 8424)
BRAVO LEVIATHAN!
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Tax on Corporations

KIND OF CORPORATE TAXPAYERS

Within & Without the Philippines

Within the Philippines

Within the Philippines

1. Net Income Tax

Net Income Tax

1. Gross Income Tax

2. Final Income Tax

Final Income Tax

2. Final Income Tax

Kind of Corporate Taxpayers III.

RESIDENT FOREIGN CORPORATION

NONRESIDENT FOREIGN CORPORATION

FINAL INCOME TAX (DC, RFC & NFC) Computation

GROSS INCOME TAX (NRFC) Computation

FINAL INCOME TAX (DC, RFC & NFC) Computation

GROSS INCOME TAX (NRFC) Computation

30%NIT on anyINCOME derived from its FOREIGN CURRENCY

FINAL INCOME TAX (DC, RFC & NFC) Computation

GROSS INCOME TAX (NRFC) Computation

NONRESIDENT FOREIGN CORPORATION Note: PRIZES, OTHER WINNINGS & RENT

FINAL INCOME TAX (DC, RFC & NFC) Computation

Same Rules (Section 28A7a) 20% FIT Rate

GROSS INCOME TAX (NRFC) Computation

Same Rules (Section 28A7a) 7.5% FIT Rate

o The Rule on Holding Period is NOT applicable.

FINAL INCOME TAX (DC, RFC & NFC) Computation

5%for the first Php100,000.00; 10%in excess of

GROSS INCOME TAX (NRFC) Computation

FINAL INCOME TAX (DC, RFC & NFC) Computation

GROSS INCOME TAX (NRFC) Computation

Subject to 30% NIT Rateunder Section 39

Subject to 30% GIT Rate under Section 39

RESIDENT FOREIGN CORPORATION

NON-RESIDENT FOREIGN CORPORATION

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