This document defines key terms related to corporate taxpayers and income tax rates in the Philippines. It identifies different types of corporate taxpayers such as domestic, resident foreign, and non-resident foreign corporations. It also defines passive income and lists tax rates for various categories of corporate income including business, passive, and certain industries. The document provides examples to illustrate the tax computations for different types of corporate taxpayers.
This document defines key terms related to corporate taxpayers and income tax rates in the Philippines. It identifies different types of corporate taxpayers such as domestic, resident foreign, and non-resident foreign corporations. It also defines passive income and lists tax rates for various categories of corporate income including business, passive, and certain industries. The document provides examples to illustrate the tax computations for different types of corporate taxpayers.
This document defines key terms related to corporate taxpayers and income tax rates in the Philippines. It identifies different types of corporate taxpayers such as domestic, resident foreign, and non-resident foreign corporations. It also defines passive income and lists tax rates for various categories of corporate income including business, passive, and certain industries. The document provides examples to illustrate the tax computations for different types of corporate taxpayers.
This document defines key terms related to corporate taxpayers and income tax rates in the Philippines. It identifies different types of corporate taxpayers such as domestic, resident foreign, and non-resident foreign corporations. It also defines passive income and lists tax rates for various categories of corporate income including business, passive, and certain industries. The document provides examples to illustrate the tax computations for different types of corporate taxpayers.
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OF
CORPORAT IONs Chapter 3 CONTENTS OF Report
1. Identify the income taxpayers other than individuals.
2. Define corporation. 3. Identify the classification of corporate taxpayers. 4. State the sources of income of corporate taxpayers. 5. Recognize the categories of income and state the tax rates to be used by each type of corporate taxpayer. 6. List the sources of passive income and state the final tax rates to be used by each type of corporate taxpayer. 7. Show the pro-forma computation of the normal income tax of domestic, resident and non- resident foreign corporations, in general. DEFINITION OF TERMS
CORPORATION It includes partnerships, no matter how created or organized, joint-stock companies, joint accounts (cuentas en participacion), associations, or insurance companies, but does not include general professional partnerships and a joint venture or consortium formed for the purpose of undertaking construction project or engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating or consortium agreement under a service contract with the Government. DOMESTIC CORPORATION – means created or organized in the Philippines or under its laws. FOREIGN CORPORATION – means a corporation which is not domestic. RESIDENT FOREIGN CORPORATION – applies to a foreign corporation engaged in trade or business within the Philippines. NON-RESIDENT FOREIGN CORPORATION – applies to a foreign corporation not engaged in trade or business within the Philippines.
DEFINITION OF TERMS SOURCES OF INCOME
SOURCES CORPORATION Within the
Philippines Without the Philippines
OF 1. Domestic / / INCOME 2. Foreign / CATEGORIES OF INCOME AND TAX RATES 1. BUSINESS INCOME - generally, business income earned by a corporation is taxed at the following rates (Section 27(A), 28(A)(1) and 28(B)(1)): Year Tax Rate 1997 35% 1998 34% 1999 33% 2000 - October 2005 32% November 2005 - 2008 35% 2009 30%
2. Passive INCOME - is subject to separate and final tax. These are taxed at fixed rates ranging 5% to 20%. Passive income is not to be included in the gross income computation. Domestic and resident foreign corporations
Pro-forma computation of normal income
tax: Gross Income P xxx Less: Allowable Deductions xxx Net Income P xxx Multiply by tax rate (2009) 30% Tax Due P xxx DOMESTIC CORPORATION, IN PARICULAR PROPRIETARY EDUCATIONAL INSTITUTIONS AND NON-PROFIT HOSPITALS – the 10% tax on the taxable income is subject to limitation. If the gross income from unrelated trade, business or other activity exceeds fifty percent (50%) of the total gross income derived from all sources, the tax prescribed under Section 27(A) shall be imposed on the entire taxable income. DOMESTIC CORPORATION, IN PARICULAR Unrelated trade, business or other activity – means any activity which are not substantially related to the exercise or performance by such educational institution or hospital of its primary purpose or function. Illustrations 1:
SGB University, a proprietary educational institution, has a gross income for the taxable year 2009 of P15M. Of the gross income, P5 million derived from unrelated trade or business. Total deductions amount to P3 million.
Gross Income P 15,000,000
Less: Deductions 3,000,000 Net Income P 12,000,000 Multiply by tax rate 10% Tax Due P 1,200,000 Illustrations 2:
SGB University, a proprietary educational institution, has a gross income for the taxable year 2009 of P15M. Of the gross income, P5 million derived from unrelated trade or business. Total deductions amount to P3 million.
Gross Income P 15,000,000
Less: Deductions 3,000,000 Net Income P 12,000,000 Multiply by tax rate 30% Tax Due P 3,600,000 GOVERNMENT-OWNED OR –CONTROLLED CORPORATIONS, AGENCIES OR INSTRUMENTALITIES Subject to the provisions of existing special laws or general laws, all corporations, agencies, or instrumentalities owned or controlled by the Government shall pay such rate of tax upon their taxable income as are imposed by the Code upon corporations or associations engaged in a similar business. Industry or activity. The following are exempted: 1. GSIS 2. SSS 3. PHIC 4. LWD 5. PCSO MUTUAL LIFE INSURANCE COMPANIES
These companies are now subject to the regular
corporate income tax rates. RESIDENT FOREIGN CORPORATIONS, IN PARTICULAR
INTERNATIONAL SHIPPING - BRANCH PROFIT REMITTANCES – any profit remitted by a branch to its head office shall be subject Gross Philippine Billings – 2.50% to a tax of fifteen percent (15%) which shall be based on the total profits applied or earmarked for remittances without deduction for the tax component thereof OBUs – income authorized by BSP from foreign (except those activities which are registered with currency transactions rest income derived from PEZA). with local commercia banks, including branches of foreign banks that may be authorized by BSP, including any interest from foreign currency loans granted to residents, shall be subject to a final income tax at ten percent (10%) of such income. RESIDENT FOREIGN CORPORATIONS, IN PARTICULAR
REGIONAL OPERATING HEADQUARTERS –
shall mean a branch established in the Philippines by multinational companies which are engaged in various services. TEN PERCENT (10%) OF TAXABLE INCOME
REGIONAL OR AREA HEADQUARTERS – shall
mean a branch 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. EXEMPT FROM INCOME TAX RESIDENT FOREIGN CORPORATIONS, IN PARTICULAR
INTERNATIONAL AIR CARRIER – refer to a
foreign airline corporation doing business in the Philippines having been granted landing rights in any Philippines port to perform international air transportation services/activities or flight operations anywhere in the world.
Generally, subject to GROSS PHILIPPINES BILLING
TAX of 2.50% unless subject to a different tax rate under the applicable treaty to which the Philippines is a signatory. In computing for gross Philippines billings, the following should be included: a. Gross revenue derived from passage of persons Determination b. Excess baggage c. Cargo and/or mail of gross Originating from the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or Philippine issue and the place of payment of passage documents.
billings Non-resident foreign corporation, in general
The basis of tax for non-resident foreign corporations is gross income from 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.
Gross Income P xxx
Multiply by tax rate 2009 30% Tax Due P xxx Non-resident foreign corporation, in PARTICULAR
• CINEMATOGRAPHIC FILM OWNER, LESSOR OR DISTRIBUTOR – 25% of
GROSS INCOME
• OWNER OR LESSOR OF VESSELS CHARTERED BY PHILIPPINES
NATIONS – 4.5% of GROSS RENTALS, LEASE OR CHARTER FEES FROM LEASES OR CHARTERS TO FILIPINO CITIZENS OR CORPORATIONS, AS APPROVED BY THE MARTIME INDUSTRY AUTHORITY.
• OWNER OR LESSOR OF AIRCRAFT, MACHINERY AND OTHER
EQUIPMENT – 7.5% of GROSS RENTALS, CHARTERS AND OTHER FEES. PASSIVE INCOME OF NON-RESIDENT FOREIGN CORPORATIONS
1. Interest on foreign loans contracted on or after August 1, 1986 are taxed at 20%. 2. Income derived by a depository bank under the expanded foreign currency deposit system from foreign currency transaction with local commercial banks, including branches of foreign that may be authorized by the BSP, including interest income from foreign currency loans are EXEMPT. 3. Dividends received from a domestic corporation – final withholding tax at 15% on the condition that the country in which the non-resident foreign corporation is domiciled, shall allow a credit against the tax due from the non-resident foreign corporation taxes deemed to have been paid in the Philippines equivalent to: 2009 – 15%. Non-resident foreign corporation, in PARTICULAR
4. CAPITAL GAINS from sale of shares of stock not traded in the stock exchange. A final tax at the rates prescribed below is imposed upon the net capita gains realized during the taxable year from the sale, barter, exchange or other disposition or shares of stock in a domestic corporation, except shares sols, or disposed of through the stock exchange: Not over P100,000 5% On any amount in excess of P100,000 10% ALLOWABLE DEDUCTIONS
Allowable deduction are items or amounts which the law allows to be
deducted from gross income in order to arrive at the taxable income. A domestic or resident foreign corporation may deduct from its business income, itemized deductions under the Tax Code, or, these corporations may elect a standard deduction in an amount not exceeding forty percent (40%) of its gross income (RA 9504). Non-resident foreign corporations are not allowed deductions from gross income. TAXABLE INCOME AND TAX DUE
In case of corporations, TAXABLE INCOME is the pertinent items of gross
income less the deduction authorized for such types of income. Taxable income is the amount or tax base upon which tax rate is applied to arrive at the tax due. Depending on the taxpayer involved and for purposes of computing the income tax liability of a corporation, taxable income may refer to either one of the following: 1. NET INCOME – the income arrived at after subtracting from the gross income the deductions of the taxpayer. For domestic and resident foreign corporations, in general; and other corporations from whose gross income deductions are allowed: PRO-FORMA COMPUTATION
Sales/Revenue/Receipts/Fees xxx Less: Cost of Sales/Services xxx Gross Income from Operation xxx Add: Non-Operating and Taxable Other Income xxx Total Gross Income xxx Less: Deductions Optional Standard Deduction or Itemized Deduction xxx Taxable Income xxx Multiply by: Tax Rate % Tax Due xxx TAXABLE INCOME AND TAX DUE
2. GROSS INCOME – the entire or gross income from business without
any deductions for either optional standard deduction or itemized deduction.
For domestic and resident foreign corporations subject to the MCIT; and non-resident foreign corporation not subject to the normal income tax rate (Section 28(B)(1)).
Gross Income xxx
Multiply by tax rate 2009 % Tax Due xxx CORPORATIONS EXEMPT FROM INCOME TAX (SECTION 30, NIRC)
GENERALLY, CORPORATIONS ESTABLISHED NOT FOR
PROFIT ARE EXEMPTED FROM INCOME TAX. (refer to slide 15- 17) TAXATION FOR COOPERATIVES
Cooperatives with accumulated reserves and undivided net savings
of not more than TEN MILLION PESOS (P10M) – EXEMPT FROM ALL NATIONAL INTERNAL REVENUE TAXES FOR HICH COOPERATIVES ARE LIABLE.
Cooperatives with accumulated reserves and
undivided net savings of more than TEN MILLION PESOS (P10M) – (refer to slide 20-21) Declaration of quarterly income tax
Every corporation shall file in duplicate a quarterly summary
declaration of its gross income and deductions on a cumulative basis for the preceding quarter or quarters upon which the income tax shall be levied, collected and paid. The income tax computed decreased by the amount of tax previously paid or assessed during the preceding quarters shall be paid and the return filed not later than sixty (60) days from the close of each of the first three (3) quarters of the taxable year, whether calendar or fiscal.
A return showing the cumulative income and
deductions shall still be filed even if the operations for the quarter and the preceding quarters yielded no tax due. Declaration of quarterly income tax (cont’d)
Every taxable corporation is likewise required to file a final adjustment return covering the total taxable income of the corporation for the preceding calendar or fiscal year, which is required to be filed and paid on or before April 15, or on or before the 15 th day of the 4th month following the close of the fiscal year, as the case may be. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year, the corporation shall either: 1. Pay the balance of tax still due; or 2. Carry over the excess credit; or 3. Be credited or refunded with the excess amount paid. illustration
The result of operations of a corporation for 2010 whose taxable year
