INCOME TAX ON CORPORATION

A corporation may be liable for at most seven (7) types of income taxes, namely:

 Net Income Tax (on Ordinary Income)

 Final Withholding Tax (on Passive Income)
 Capital Gains Tax (on “Capital Gains”)
 Minimum Corporate Income Tax (“MCIT”)
 Improperly Accumulated Earnings Tax (“IAET”)
 Gross Income (“GIT”)
 Branch Profits Remittance Tax (“BPRT”)

Definition
Under Section 22(B) of NIRC, the term “corporation” shall include:
a) Partnerships, no matter how created or organized;
b) Joint stock companies;
c) Joint accounts (cuentas en participacton);
d) Associations; or
e) Insurance companies.
However, the term does not include:
a) General professional partnerships (GPPs)
AND
b) Joint venture or consortium formed for the purpose of (1) undertaking construction projects or (2) engaging
in energy operations pursuant to an operating or consortium agreement under a service contract with the
Government.
Classification of Corporations
(1) Domestic Corporations.
(a) In general
(b) GOCCs EXC: SSS, GSIS, PHIC, LWDs
(c) Taxable partnerships
(d) Proprietary educational institutions engaged in petroleum operations
(e) FCDUs of domestic banks
(f) Service contractors/ subcontractors engaged in petroleum operations
(g) Ecozone enterprises
(h) Exempt corporations
(2) Resident foreign corporations.
(a) In general
(b) Resident International carriers
(c) OBUs
(d) ROHQs/RHQs of MNCs
(e) Service contractors/subcontractors engaged in petroleum operations
(f) Ecozone enterprises
(3) Non-resident foreign corporation
(a) In general
(b) Non-resident owners/lessors of vessels chartered by Philippines nationals;
(c) Non-resident owners/lessors of aircraft, machineries, and other equipment;
(d) Non-resident cinematographic film owner, lessor, or distributor;
(4) Exempt Corporations
DOMESTIC COMPANIES SUBJECT TO SPECIAL TAX RATES
1. Proprietary educational Institutions
Proprietary educational institutions are subject to a special tax rate of 10% of the taxable net income
within and without the Philippines.

2. Hospitals which are non-profit

Hospitals which are non-profit are also subject to a special tax rate of 10% of taxable net income within
and without the Philippines.

Provided – the gross income from unrelated trade, business, or other activity does not exceed 50% of the
total gross income derived from all sources, however, if it exceeds 50%, the normal tax rate will be applied
on the entire taxable income (i.e. 30%).

3. Final tax on income of a Foreign Currency Deposit Unit (“FCDU”) of a local bank under the Expanded
Foreign Currency Deposit System (“FCDS”)
a) Income from foreign currency loans granted to Philippine residents (other than OBUs or other
depository banks) – 10% final tax
b) Interest income from foreign currency interbank deposits – 10% final tax
c) Income from foreign currency transactions with non-residents, OBUs, local commercial banks and
branches of foreign banks authorized to transact business under the FCDS – Exempt
“Income from foreign currency transactions” shall include interest income from leading operations, including
bank charges, commissions, service fees, and net foreign exchange transaction gains.
4. Service / Contractors/ Subcontractors Engaged in Petroleum Operations
- Liable to an eight percent (8%) final tax on gross income derived from such contract in petroleum
operations
Provided, however, that any income received from all other sources under and without the Philippines in
the case of domestic contractors/subcontractors, shall be subject to the regular income tax under the Tax
Code.
5. Ecozone Enterprises
All business enterprises registered with the Philippine Economic Zone Authority (“PEZA”), SBMA, or CDA
and operating within the Special Economic Zones (“ECOZONE”) availing the 5% GIT incentive shall be taxed
5% of gross income on registered activities. Two percent (2%) to the city or municipality where the
enterprise is located.

(a) The exemption from all other taxes under the ITH and 5% GIT regimes does not include the following:
(1) Withholding taxes at source (expanded withholding tax (“EWT”) and Final Withholding Tax (“FWT”))
on income payments by PEZA-registered entities;
(2) Withholding tax on compensation income of employees of PEZA-registered entities; and
(3) Fringe Benefits Tax (“FBT”) on fringe benefits given to managerial or supervisory employees of PEZA-
registered entities.
These taxes are not the tax of a PEZA-registered entity. Instead, these are taxes of a PEZA-registered
entity’s payees which are withheld and remitted by the PEZA-registered enterprise.
(b) On the other hand, the BIR has ruled that all income payments received from its customers related
to its registered activities, by a PEZA-registered enterprise, whether availing the ITH or 5% GIT
incentive, are exempt from the withholding tax.
(c) Income derived by an entity registered with the PEZA from its registered activities shall be subject to
such treatment as may be specified in its terms of registration, i.e. (a) the ITH where such income shall
he exempt from the regular income tax; or (b) the 5% preferential GIT, if the same has been approved.

However, the following shall be subjected to the regular internal revenue taxes(i.e., regular corporate
income taxes; final taxes on bank deposits, capital gains taxes, etc.):
(1) Income realized by registered entities from activities which are not registered;
(2) Income of entities/individuals which are not registered (i.e. income payments to entities in the
Customs Territory, to shareholders, and to non-registered creditors, etc.)
(3) Income of Service Enterprises or providers (e.g. those providing customs brokerage,
transportation, parcel, janitorial, restaurant, banking, insurance services, etc.) which are required by
locator enterprises but which need not be physically based inside the ECOZONE.
6. Tourism Enterprises registered with the Tourism Infrastructure and Enterprise Zone Authority
(“TIEZA”)
As an alternative to the Income Tax Holiday (“ITH”) a new Registered Tourism Enterprise within a Tourism
Enterprise Zone may, in lieu of all national and local taxes except real estate taxes and fees as may be
imposed by the TIEZA, pay a tax of five percent (5%) on its gross income earned from its registered activities.

The 5% gross income tax shall be remitted as follows:

(a) One-third to the proportionally allocated among affected cities or municipalities based on the area of the
RTE:
(b) One-third to the National Government; and
(c) One-third to the TIEZA

7. Microfinance NGO
A duty registered and accredited Microfinance NGO shall pay a two percent (2%) tax based on its gross
receipts from microfinance operations in lieu of all national taxes. However, the non-microfinance activities
of Microfinance NGOs shall be subject to all applicable regular taxes.