PART 4

Corporations
CORPORATION DEFINED

For income tax purposes, a corporation as defined under Section 22 of RA 8424 shall
INCLUDE:

1) Partnerships, no matter how created or organized

2) Joint stock companies
3) Joint accounts (cuentas en participation)
4) Associations; or
5) Insurance companies

But does NOT INCLUDE:

1) General professional partnerships; and
2) A joint venture or consortium formed for the purpose of undertaking:
a. Construction projects; or
b. Engaging in petroleum, coal, geothermal and other energy operations pursuant to an
operating or consortium agreement under a service contract with the government.

JOINT VENTURE OR CONSORTIUM

Joint venture is a commercial undertaking by two or more persons, differing from a
partnership in that it relates to the disposition of a single lot of good or the completion
of a single project.

IN GENERAL, a joint venture or consortium is taxable as corporation unless it refers

to joint ventures described above. Additional requirements are as follows:

1. A joint venture or consortium formed for the purpose of undertaking construction

projects is not considered as corporation (RR 10-2012 effective June 2012)
provided:
a) The joint venture was formed for the purpose of undertaking a construction
project; and
b) Should involve joining/pooling of resources by licensed local contracts; that
is, licensed as general contractor by the Philippine Contractors Accreditation
Board (PCAB) of the Department of Trade and Industry (DTI)
c) The local contractors are engaged in construction business; and
d) The Joint Venture itself must likewise be duly licensed as such by the
Philippine Contractors Accreditation Board (PCAB) of the Department of
Trade and Industry (DTI).

FOREIGN CONTRACTORS
1. Joint ventures involving foreign contractors may also be treated as a non-taxable
corporation provided:

 The member foreign contractor is covered by a special license as contractor by the

PCAB.
  The construction project is certified by the appropriate Tendering/Agency
(government office) that the project is a foreign financed/internationally-funded
project and that international bidding is allowed under the Bilateral Agreement
entered into by and between the Philippine Government and the foreign /
international financing institution pursuant to the implementing rules and regulations
of Republic Act No. 4566 otherwise known as Contractor’s License Law.

2. A joint venture or consortium for engaging in petroleum, coal, geothermal and other
energy operations pursuant to an operating consortium agreement under a service
contract with the government.

TREATMENT OF CO-VENTURER’S SHARE IN THE JOINT VENTURE PROFIT

JOINT VENTURE CO-VENTURER
CORPORATION INDIVIDUAL
Taxable Joint Venture Exempt 10% final withholding tax

Non-taxable Joint Venture 30% RCIT Basic Tax

 JOINT STOCK COMPANIES

Joint stock companies are constituted when a group of individuals, acting jointly,
establish and operate business enterprise under an artificial name, with an invested
capital divided into transferable shares, an elected board of directors, and other
corporate characteristics, but operating without formal government authority.

 JOINT ACCOUNT COMPANIES

Joint account (cuentas en participacion) is constituted when one interests himself in the
business of another by contributing capital thereto, and sharing in the profit or losses in
the proportion agreed upon. They are not subject to any formality and may be privately
contracted orally or in writing. The term “associations” includes all organizations which
have substantially the salient features of a corporation to be taxable as a “corporation”.

CLASSIFICATION OF CORPORATE TAXPAYERS

1) Domestic Corporation (DC)

Is a corporation created or organized in the Philippines or under its laws.

2) Resident Foreign Corporation (RFC)

Is a corporation created or organized in a foreign country or under the laws of a foreign
country and engaged in business in the Philippines.

3) Nonresident Foreign Corporation (NRFC)

Is a corporation created or organized in a foreign country or under the laws of a foreign
country but not engaged in business in the Philippines.

DC, RFC AND NFRC MAY BE CLASSIFIED FURTHER INTO:

1) Ordinary Corporation – corporations subject to the regular corporate income tax (RCIT)
rate of 30%.
 2) Special Corporation – corporations subject to income tax rate which is lower than the
regular corporate income tax (RCIT) rate of 30%.

The Special Corporations under the Tax Code, as amended, are as follows:
a. Domestic corporations
 Propriety educational institutions
 Non-profit hospitals

b. Resident foreign corporations

 International carriers
 Offshore banking units (OBUs)
 Regional Operating Headquarters (ROHQs)

c. Nonresident foreign corporations

 Non-resident Cinematographic Film Owner, Lessor or Distributor
 Non-resident Owner or Lessor of Vessels Chartered by Philippine Nationals
 Non-resident Owner or Lessor of Aircraft, Machineries and Other Equipment

EXEMPT ORGANIZATIONS
 The following organizations shall not be subject to income tax
[(Section 30, RA 8424); National Internal Revenue Code]:

A. Labor, agriculture or horticultural organization not organized principally for profit;

B. Mutual savings bank not having a capital stock organized and operated for mutual
purposes and without profit;
C. A beneficiary society, order or association, operating for the exclusive benefit of the
members such as a fraternal organization operating under the lodge system, or a mutual
aid association or a non-stock corporation organized by employees providing for the
payment of life, sickness, accident, or other benefits exclusively to the members of such
society, order, or association, or non-stock corporation or their dependents;
D. Cemetery company owned and operated exclusively for the benefit of its members;
E. Non-stock corporation or association organized and operated exclusively for religious,
charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no
part of its net income or asset shall belong to or inure to the benefit of any member,
organizer, officer or any specific person;
F. Business league, chamber of commerce, or board of trade, not organized for profit and
no part of the net income of which inure to the benefit of any private stockholder or
individual;
G. Civic league or organization not organized for profit but operated exclusively for the
promotion of social welfare;
H. A non-stock and nonprofit educational institution;
I. Government educational institution;
J. Farmers’ or other mutual typhoon or fire insurance company, mutual ditch or irrigation
company, mutual or cooperative telephone company, or like organization of a purely
local character, the income of which consists solely of assessments, dues, and fees
collected from members for the sole purpose of meeting its expenses; and
K. Farmers’, fruit growers’, or like association organized and operated as a sales agent for
the purpose of marketing the products of its members and turning back to them the
proceeds of sales, less the necessary selling expenses on the basis of quantity of
produce finished by them.
 However, the income of whatever kind and character of the foregoing organizations from
any of their properties, real or personal, or from any of their activities conducted for profit
regardless of the disposition made of such income, shall be subject to income tax.

GOVERNMENT –OWNED OR CONTROLLED CORPORATIONS

All corporations, agencies or instrumentalities owned or controlled by the Government
shall be taxable like “ordinary corporations”. However, the following shall be exempt:

1) Government Service and Insurance System (GSIS)

2) Social Security System (SSS)
3) Philippine Health Insurance Corporation (PHIC)
4) Philippine Charity Sweepstakes Office (PCSO)
5) Local Water Districts (RA 10026)

GENERAL PRINCIPLES
A. SOURCE OF INCOME SUBJECT TO TAX:
1. DC – World
2. RFC and NRFC – Within the Philippines only

B. BASIS OF INCOME SUBJECT TO TAX:

1. DC, RFC – Net Income
2. NRFC – Gross Income

C. APPLICABLE TAXES. The following taxes apply to “ordinary corporations” upon

generation of income:
NATURE OF INCOME/ APPLICABLE TAX DC RFC NRFC
ORDINARY INCOME:
 30% Regular Corporate Income tax (RCIT); OR / / 30% FWT

 Whichever is higher between Regular Corporate / / NA

Income Tax (MCIT) starting on the 4th year of
operations following year of registration; OR

 15% “Gross” Income Tax (GIT)’, if qualified / / NA

CERTAIN PASSIVE INCOME derived from within the Philippines

Final Withholding Tax (FWT) /** /** 30% FWT

CAPITAL GAIN
CAPITAL GAINS TAX:
 ON SALE of shares of stock of a domestic corporation / / /
directly to a buyer – Capital Gains Tax
 ON SALE of land and/or buildings in the Philippines / NA NA

Improperly Accumulated Earnings Tax (IAET) / NA NA

**refer to the schedule of final withholding taxes on passive income below:
PASSIVE INCOME From Philippine Sources SUBJECT TO FINAL TAXES
A. Certain PASSIVE Income Derived From Philippine CORPORATION
Sources subject to Final Tax DC RFC NRFC
1) INTEREST INCOME/YIELD/Other Monetary Benefit 20% 20% 30%
 Interest income in any currency bank deposit 20% 20% 30%
 Yield or any monetary benefit from deposit substitute 20% 20% 30%
 Yield or any monetary benefit from trust fund and other
similar arrangements

 Interest income derived from depository bank under

expanded foreign currency deposit system

o PRIOR to effectivity of TRAIN Law 7½ 7½ Exempt

o Under TRAIN Law 15% 7½ Exempt
 Interest income derived from depository bank under 7½ 7½ Exempt
expanded foreign currency deposit system
2) ROYALTIES 20% 20% Exempt
3) DIVIDENDS received from DC Exempt Exempt 15%** or 30%
 *One of the apparent inconsistencies under the TRAIN Law
 **If the country where the NRFC is domiciled allows a credit for taxes deemed paid in
the Philippines equivalent to 15% (also known as tax sparing), the tax rate is 15%,
otherwise, 30% (without tax sparing).
Income derived under expanded foreign currency deposit system BU DEPOSITORY
BANKS

From foreign currency transactions with:

a. Nonresidents Exempt
b. OBUs in the Philippines Exempt
c. Local commercial banks Exempt
d. Branches of foreign banks Exempt
From foreign currency loans granted to other than the enumerations above 10%
and other depository banks
Income derived by nonresidents (individuals or corporations) from transactions with depository
banks under the expanded foreign currency deposit system shall be exempt from income tax.

B. Certain CAPITAL GAINS Derived from Philippines CORPORATION

Subject to Capital Gains Tax DC RFC NRFC
 CGT is due within 30 days from date of sale

1) On CAPITAL gains from sale of shares of stock of a

domestic corporation not traded in the local stock exchange
 PRIOR to effectivity of TRAIN Law
First P100, 000 capital gain 5% 5% 5%
Amount in excess of P100, 000 capital gain 10% 10% 10%
 Under TRAIN Law
Capital Gain, regardless of amount 15%
 The 5% and 10% rates for RFC & NRFC were retained
2) CAPITAL GAINS TAX on sale or exchange or disposition of 6% NA NA
Land or/or buildings (Basis: Selling Price of Fair market
value, whichever is higher)

 **FMV is the higher amount between the valuation provided by the Provincial of City
assessors, also known as “assessed value” versus the zonal valuation provided by the
BIR
The 6% CGT is imposed, regardless of whether the sale resulted to a gain or loss.
The option available to individual taxpayers to the subject the sale to either 6% CGT or
Basic Tax if the buyer is the government is not applicable to domestic corporations.
CAPITAL GAINS TAX
 Capital Gains Tax on Sale of Land and/or Buildings
Requisites:
1) The land and/or building must be a capital asset; and
2) It must be located in the Philippines.
3) Regardless of whether the transaction resulted to a gain or loss
FORMULA:
Tax Base Pxxx
Rate 6%
CGT Pxxx

TAX BASE:
1. Selling Price Highest
2. Fair Market Value
3. Zonal Value

 Capital Gains tax on Sale of Shares of Stock of a Domestic Corporation

Requisites:
1) The shares of stock sold, bartered, exchanged or disposed must be from a domestic
corporation; and
2) The transaction must be not through the local stock exchange.
3) The seller should not be a dealer in securities (held for investment only)
4) The transaction should result to a capital gain based on computation shown below:

FORMULA:
Selling Price Pxx
Cost (xx) **Prior to TRAIN Law:
Selling expense (xx) 1st P100, 000 cap. gain = 10%
Capital Gain Pxx In excess of P100, 000 cap. gain = 15%
Rate %** Upon effectivity of TRAIN Law:
CGT Pxx Regardless of the amount of gain = 15%
  Sale of shares of a domestic corporation through the local stock exchange is not subject
to income tax but to a “business law” of:
 PRIOR to effectivity of TRAIN Law
o ½ of 1% of GSP (also known as stock transaction tax).
 Under TRAIN Law
o 15% of GSP (also known as stock transaction tax).

 Sale of shares of stock by a dealer in securities such as brokerage firms, regardless of

whether the shares were sold directly to a buyer or through the local stock exchange is
subject to basic income tax and value added tax.

 Under RR 6-2013, the value of the shares of stock at the time of sale shall be the fair
market value. In determining the value of the shares, the Adjusted Net Asset Method
shall be used whereby all assets and liabilities are adjusted to market values. For
purposes of discussion in this review material, the selling price is assumed to be the
market value computed using the aforementioned method, assuming the latter is not
provided.

REGULAR CORPORATE INCOME TAX (RCIT)

Gross Income Pxxx
Allowable Deductions (xxx)
Taxable Income Pxxx
Rate 30%
RCIT Pxxx

GROSS INCOME – includes all income not subject to final withholding tax, capital gains tax and
not considered exempt under the law.

ALLOWABLE DEDUCTIONS
1) Business Expenses & Losses ( Itemized Deductions); or
2) Optional Standard Deduction

MINIMUM CORPORATE INCOME TAX (MCIT)

MCIT of two percent (2%) of the gross income as of the end of the taxable year (whether
calendar or fiscal), is imposed upon any domestic corporations and resident foreign
corporations beginning on the 4th taxable year immediately following the taxable year in which
such corporation commenced its business operations. The MCIT shall be imposed whenever:
 The corporation has zero taxable income; or
 The corporation has negative taxable income; or
 Whenever the amount of the MCIT is greater than the regular corporate income tax (RCIT)
due from such corporation. Hence, MCIT is always computed and compared to RCIT
starting on the fourth year of operations.
 GROSS INCOME DEFINED FOR MCIT PURPOSES:
1) Seller of Goods
Gross Sales Pxx
Sales Discounts (xx)
Sales Returns and Allowances (xx)
Cost of Sales (xx)
Gross Income Pxx
Ass: Other Income subject to RCIT xx
Total Gross Income for MCIT purposes Pxx

Cost of Goods Sold:

a. Trader or Merchandiser
Invoice cost of goods sold Pxx
Import duties xx
Freight xx
Insurance xx
Total Pxx

b. Manufacturing Concern
Raw materials used Pxx
Direct labor xx
Manufacturing overhead xx
Freight cost xx
Insurance premiums xx
Other cost of production xx
Total Pxx

2) Seller of Services
Gross Receipts Pxx
Sales Discounts and allowances (xx)
Cost of Services (xx)
Gross Income Pxx
Add: Other Income subject to RCIT xx
Total Gross Income for MCIT purposes Pxx

COST OF SERVICES:
Salaries/Employee benefits of personnel, consultants and specialists directly rendering the service Pxxx
Cost of facilities directly utilized in providing the service (e.g. rentals and cost of supplies) xxx
Other direct costs and expenses necessarily incurred to provide the services xxx
TOTAL Pxxx

o In case of banks, “cost of services” shall include interest expense.

CARRY FORWARD OF EXCESS MCIT (MCIT CARRY-OVER)

Any excess of the MCIT over RCIT shall be carried forward and credited against the RCIT for
the three (3) immediately succeeding taxable years.
RELIEF FROM THE MCIT
The Secretary of Finance is authorized to suspend to suspend the imposition of the MCIT on
any corporation which suffers losses on account of:
1) Prolonged labor dispute
2) Force majeure
3) Legitimate business reverses

DOMESTIC CORPORATIONS EXEMPT FROM MCIT:

1) Proprietary educational institutions and hospitals which are non-profit
2) Depository banks under expanded foreign currency deposit system

RESIDENT FOREIGN CORPORATIONS EXEMPT MCIT:

1) International carrier
2) Offshore banking units
3) Regional or area headquarters
4) Regional operating headquarters
5) Firms that are taxed under special tax regime (e.g. Covered by PEZA law & Bases
Conversion Development Act)

OPTIONAL CORPORATE INCOME TAX (15% Gross Income Tax)

The President, upon the recommendation of the Secretary of Finance may, effective
January 1, 2000, allow domestic and resident foreign corporations to be subjected to optional
corporation tax of 15% based on gross income. Election of 15% tax shall be irrevocable for the
three (3) consecutive taxable years during which the corporation is qualified under the scheme.

REQUISITES
All of the following conditions shall have to be satisfied in the allowance of optional
corporate tax:
1. A tax effort ratio of 20% of Gross National Product (GNP);
2. A ratio of 40% of income tax collection of total tax revenue;
3. A VAT effort of 4% of GNP; and
4. A 0.9 ratio of the Consolidated Public Sector Financial Position to GNP.
5. The option to be taxed based on gross income shall be available only to firms whose
ratio of cost of sales to gross sales or receipts from all sources does not exceed
55%.
 FORMULA:

Sales/Revenues Pxx
Cost of Sales/Cost of direct services __(xx)_
Gross Income xx
Gross Income tax rate 15%_
Income tax due Pxx
Less: Taxes Withheld (xx)
Taxes paid- previous quarters (xx)
Foreign tax credits (xx)_
Income tax payable Pxx

IMPROPERLY ACCUMULATED EARNING TAX (IAET)

This tax is only applicable to domestic corporations which are classified as closely-held
corporations.
The following shall be exempt:
a) Banks and other non-bank financial intermediaries;
b) Insurance companies;
c) Publicly-held corporations;
d) Taxable partnerships;
e) General professional partnerships;
f) Non-taxable joint ventures; and
g) Enterprises duly registered with the:
i. PEZA
ii. Pursuant to Bases Conversion and Development Act of 1992
iii. Special Economic Zones
iv. BOI registered entities

TAXABLE EVENT
The taxable event in IAET is the accumulation of earnings BEYOND the reasonable needs of
the business.

REASONABLE NEEDS OF THE BUSINESS

The test used in determining the reasonable needs of the business is the so called “Immediacy
Test”. It provides that “reasonable needs” of the business is equivalent to:
Immediate Needs Pxxx
Reasonably anticipated needs xxx
Reasonable Needs Pxxx

The following constitute accumulation of earnings for the reasonable needs of the business:

1) Earnings reserved for definite corporate expansion projects or programs requiring

considerable capital expenditure as approved by the Board of Directors or equivalent
body;
 2) Earnings reserved for building, plants or equipment acquisition as approved by the
Board of Directors or equivalent body;

3) Earnings reserved for compliance with any loan covenant or pre-existing obligation
established under a legitimate business agreement;

4) Earnings required by law or applicable regulations to be retained by the corporation or in

respect of which there is legal prohibition against its distribution;

5) In the case of subsidiaries of foreign corporations in the Philippines, all undistributed

earnings intended or reserved for investments within the Philippines as can be proven by
corporate records and/or relevant documentary evidence.

FORMULA (REVISED UNDER RMC 35-2011)

Taxable Income for the year Pxxx
Add: Income exempt from tax Pxxx
Income excluded from gross income xxx
Income subject to final taxes xxx
Net Operating loss carry over (NOLCO) xxx xxx
Less: Dividends (actually or constructively paid) (xxx)
Income tax paid/payable for the whole year* (xxx) (xxx)
Total Pxxx
ADD: Retained earnings prior years xxx
Accumulated earnings as of the end of the current year xxx
LESS: AMOUNT THAT MAY BE RETAINED
(100% of paid up capital as of year-end**) (xxx)
EXCESS (considered Improperly accumulated earnings) xxx
x IAET rate 10%
Improperly accumulated earnings tax (IAET) Pxxx
*(total applicable basic, final and capital gains taxes)

SPECIAL CORPORATIONS
1. DOMESTIC CORPORATIONS:
 Proprietary Non-Profit Educational Institutions and Hospitals
The rules applicable to ordinary corporations will also apply to proprietary
educational institutions and hospitals which are nonprofit except the following:
1) In computing basic income tax, the rate is 10%. However, if income not
related to its primary purpose or function is more than 50% of its total gross
income, the rate applicable is 30%.

“Unrelated trade, business or other activity” is an activity which is not

substantially related to the exercise or performance of the school or hospital’s
primary purpose of function such as but not limited to rental income from
available school spaces or facilities.
 Examples of related income (RMC 4-2013)
 Income from tuition fees and miscellaneous school fees
 Income from hospital where medical graduates are trained for residency
 Income from canteen situated within the school campus
 Income from bookstore situated within the school campus

“Proprietary educational institution” is any private school maintained and administered by

private individuals or groups with an issued permit to operate from the Department of
Education, Culture and Sports (DECS), or the Commission on Higher Education
(CHED), or the Technical Education and Skills Development Authority (TESDA), as the
case may be, in accordance with existing laws and regulations.

2) It is not subject to MCIT

3) Expenditure for expansion of school facilities may not be capitalized but
instead claimed as outright expense. This rule shall not apply, however, to
non-profit hospital.

Applicable Income Tax of Educational Institutions in the Philippines

EDUCATIONAL PASSIVE CAPITAL
INSTITUTION ORDINARY INCOME INCOME* GAINS**
Proprietary Educational Generally 10% of net income FWT CGT****
Institutions (PEIs)*** 30% if unrelated income> related income

Non-stock Non-profit - Philippine Constitution, Art. XIV Sec. 4(3):

Educational Institutions ALL REVENUES and ASSETS of non-stock, non-profit educational
(NSEIs) institutions used actually, directly and exclusively for educational
purposes shall be exempt from taxes and duties; and
- Exempt under Section 30, NIRC: FWT CGT****
The following shall not be taxed in
respect to income received by them as such:
(H) A non-stock non-profit educational institution.

Government - Exempt under Section 30, NIRC – The FWT CGT

Educational Institutions following shall not be taxed in respect to
(GEIs) income received by them as such:
(I)Government educational institution; &
- As provided for in the law or charter creating the GEI
*On certain passive income derived from Philippine sources:
**On sale of shares of stock of a non-listed domestic corporation and real properties located in
the Philippines classified as capital assets.
***Only PEIs are classified as special corporations unless its Unrelated Income (UI) is higher
than Related Income (RI). Hence, the discussions regarding PEIs in the preceding pages shall
not be applied to NSEIs and GEIs.
****Section 234 of the Local Government Code (LGC) – The following are exempted from
payment of the real property tax: (b) Charitable institutions, churches, parsonages or
covenants appurtenant thereto, mosques, nonprofit or religious cemeteries and all lands,
 buildings, and improvements actually, directly, and exclusively used for religious, charitable or
educational purposes.

Applicable Income Tax of Hospitals in the Philippines

PASSIVE CAPITAL
HOSPITAL ORDINARY INCOME INCOME GAINS
(higher): 30% RCIT ; 2%MCIT FWT CGT
Proprietary Hospital

Non-stock Non-profit 10% of net income, however, 30% if FWT CGT****

Hospitals (Special Corp.)*** Unrelated income>related income

Non-stock Non-profit May be exempt if all the FWT CGT****

Hospitals requirements for exemptions as
provided for under the law in the
case of St. Luke’s Medical Center
vs. CIR are complied
*On certain passive income derived from Philippine sources.
**On sale of shares of stock of a non-listed domestic corporation and real properties located in the
Philippines classified as capital assets.
***Generally, non-stock non-profit hospitals are classified as special corporations. Therefore, generally
taxable at 10% unless its Unrelated Income (UI) is higher than Related Income (RI).
****Under Section 234 of the Local Government Code (LGC) – The following are exempted from payment
of the real property tax: (b) Charitable institutions, churches, parsonages or covenants appurtenant
thereto, mosques, nonprofit or religious cemeteries and all lands, buildings, and improvements actually,
directly, and exclusively used for religious, charitable or educational purposes.

2. RESIDENT FOREIGN CORPORATIONS:

 INTERNATIONAL CARRIERs
Gross Philippine Billings Pxxx
Rate 2.5%
Income Tax Pxxx
** International carriers may avail of a lower tax rate (preferential rate) or
exemption under RA10378 on the basis of:
a) Tax Treaty
b) International agreement
c) Reciprocity- An international carrier, whose home country grants income
tax exemption to Philippine carriers, shall likewise be exempt from income
tax.

GROSS PHILIPPINE BILLINGS (GPB):

a) International Air Carrier- refers to the amount of gross revenue derived
from carriage of persons, excess baggage, cargo and mail:
- Originating from Philippines;
- In a continuous and uninterrupted flight;
- Irrespective of the place of safe or issue and the place of payment of
the ticket or passage of document.
 NOTE:
1. Tickets revalidated, exchanged and/or endorsed into another
international airline from part of the GPB if a passenger boards a
plane in a port or point in the Philippines.
2. Flight which originates from the Philippines, but transshipment of
passenger takes place at any port outside the Philippines on other
airlines, only the aliquot portion of the cost of the ticket corresponding
to the leg flown from the Philippines to the point of transshipment shall
form part of the GPB.

b) International Shipping- means gross revenue whether for passenger,

cargo or mail originating from the Philippines up to the final destination,
regardless of the place of sale or payments of passage or freight
documents.

 REGIONAL OPERATING HEADQUARTERS (ROHQs)

The rules applicable to ordinary corporations will also apply to Regional
Operating Headquarters except the following:
1. In computing basic income tax, the rate is 10%.
2. It is not subject to MCIT.

3. NON-RESIDENT FOREIGN CORPORATIONS

TYPE TAX BASE RATE
Non-resident Gross Income 25%
Cinematographic Film
Owner, Lessor or
Distributor
Non-resident Owner or Gross rentals, lease or 4.5%
Lessor of Vessels charter fees
Chartered by Philippine
Nationals
Non-resident Owner or Gross rentals, 7.5%
Lessor of Aircraft, charters/other fees
Machineries and Other
Equipment

OFFSHORE BANKING UNITS (OBU)

An OBU is a branch, subsidiary or affiliate or a foreign banking corporation
located in a/an Offshore Financial Center
(OFC) when is duly authorized by the BSP to transact offshore banking business in the
Philippines (PD1034; BSP Circular No. 1389). OBUs are allowed to provide all traditional
banking units are forbidden to make any transactions in Philippine Peso. Banking
transactions to residents are limited and restricted. Income derived by offshore banking
units (OBU’s) from foreign currency transactions shall be taxed as follows:
 COUNTERPARITY RATE
Non-residents Exempt
Other OBU’s Exempt
Local Commercial Banks Exempt
Branches of foreign banks Exempt
Other residents 10%

If an OBU earn income other than from foreign currency transactions, it will be
subject to basic income tax (RCIT vs. MCIT, whichever is higher). Hence, OBUs are not
classified as special corporations. Any Income derived by nonresidents (individuals or
corporations) from transactions with OBUs shall not be subject to income tax.

REGIONAL OR ARE HEADQUARTERS (RHQs)

RHQs shall not be subject to income tax. RHQs are not included in the definition
of Corporation for income tax purposes. Hence, RHQs are not special corporations.

BRANCH PROFIT REMITTANCES TAX (BPRT) OF RFCs

FORMULA:
Profit Remittance PXXX
Rate 15%
BPRT PXXX

PROFIT REMITTANCE
PROFIT REMITTED APPLICABLE TAX
Connected with the conduct
of its trade or business in the Subject to 15% BPRT
Philippines

Others (i.e., passive income) Not subject to BPRT

EXEMPT ENTITIES
Activities registered with the following shall be exempt from BPRT:
1) Philippine Economic Zone Authority (PEZA)
2) Subic Bay Management Authority (SBMA)
3) Clark Development Authority (CDA)

Reference/Author: Enrico D. Tabag