Philippine Corporate Tax

Corporate income tax rate both for domestic and resident foreign corporations in Philippines is
30%, based on net taxable income.
Company tax is payable by domestic companies on all income derived from sources within and
outside the Philippines. Foreign corporations, whether resident or nonresident, are taxable only
on income derived from sources within the Philippines.
However, non-resident foreign corporations are, in certain circumstances, subject to a final
withholding tax on passive (investment) incomes at rates generally higher than the applicable
tax rates applying to domestic and resident foreign corporations. Resident companies are those
that are created or organized under the laws of the Philippines or foreign companies duly
licensed to engage in trade or business in the Philippines.
The corporate income tax rate both for domestic and resident foreign corporations is 30%.
Excluded from the income tax are dividends received from domestic corporations; interest on
Philippine currency bank deposit and yield or any other monetary benefit from deposit
substitutes and from trust funds and similar arrangements; and other passive income
previously subject to final taxes.
Interest income derived from the expanded foreign currency deposit is subject to a final tax of
7.5%. All other interest earned by domestic and resident foreign corporations is subject to a
20% final withholding tax.
Regional operating headquarters are taxed at 10% on taxable income.
Special economic zone enterprises duly registered with the Philippines Economic Zone
Authority are taxed at the rate of 5% on gross income in lieu of national and local taxes, except
real property tax. The term 'gross income' refers to gross sales or gross revenue derived from
the business activity within the Ecozone, net of sales discount, sales returns and allowances,
less the cost of sales or direct costs but before deduction is made for administrative expenses
and incidental losses during the taxable period.

MINIMUM CORPORATE INCOME TAX (MCIT)

To address the perennial problem of non-declaration and under-declaration

of revenues by corporations, the Comprehensive Tax Reform Program (CTRP)
provides for the imposition of a minimum corporate income tax (MCIT- Sec.
27 (E)). It is not a new tax imposition as it merely approximates the amount
of the income tax which is payable by a corporation. The MCIT is a means to
ensure that businesses earning positive returns do not avoid paying the
income tax.

Under the CTRP, an MCIT equivalent to two percent (2%) of gross income is imposed beginning
the fourth (4th) taxable year immediately following the taxable year in which such corporation
started its business operations.
The MCIT is imposed whenever such corporation has zero or negative taxable income or
whenever the amount of the MCIT is greater than the regular corporate income tax due from
such corporation.

An MCIT equivalent to two (2%) of the gross income derived from sources within the
Philippines is also imposed on resident foreign corporations.

Carry forward of MCIT

Under the tax scheme, any excess of the MCIT over the regular corporate income tax is carried
forward on an annual basis and can be credited against the regular income tax for three years.

Exemptions:

The MCIT is imposed only on domestic Corporations that are subject to regular corporate tax.
Hence, it is not imposed on the following:

 proprietary educational institutions and nonprofit hospitals as they are subject to ten
percent (10%) on their taxable income;
 the Foreign Currency Deposit Units (FCDU) as their income from foreign currency
transactions with local commercial banks and foreign banks and their interest income
from foreign currency loans granted to residents of the Philippines are subject to final
tax at ten percent (10%) of such income; and
 firms that are taxed under a special income tax regime such as those in accordance with
the Philippine Economic Zone Authority Law and the Bases Conversion Development
Act.
 "international carrier" as they are subject to a tax of two and one-half percent (2 ½%) of
their Gross Philippine Billings
 Offshore Banking Units (OBUs) as their income from foreign currency transactions with
local commercial bank and foreign banks and interest income from currency loans
granted to residents of the Philippines are subject to a final income tax of ten percent
(10%) of gross income
 Regional operating headquarters since they are subject to a ten- percent (10%) of their
taxable income

Relief from MCIT

The Secretary of Finance, upon recommendation of the Bureau of Internal Revenue

Commissioner may suspend the imposition of MCIT upon submission of proof that
thecorporation sustained substantial losses on account of a prolonged labor dispute, "force
majeure", or legitimate business reverses.
Quarterly Income tax

Step 2.1: Determine your [26] Sales/Revenues/Receipts/Fees. Add any [27] Amount You
Received as a Partner from General Professional Partnership (except loans), if any, to arrived
at [28] Total.
Step 2.2: Calculate your [30] Gross income from Operation by subtracting your [29] Cost of
Sales/Services to your [28] Total in Step 2.1. Costs of services are the direct costs attributable
to the rendering of your services, such as the depreciation of the building for business engage
in building rental, internet cost for internet café business, salaries of janitors for business
engaged in janitorial services, and others.
Step 2.3: Compute your [32] Total Gross Income by adding [30] Gross Income to your [31]
Other Income, if any.
Step 2.4: Determine and compute your total allowable [33] Deductions for the quarter. You can
choose one from the two (2) methods of deduction: (a) Itemized deduction or the (b) Optional
Standard Deduction (OSD). Your chosen method of deduction will be your method of deduction
for the entire taxable year. The following are the bases for computing the two methods: