The Corporation Code of the Philippines defined "corporation" as an artificial being created by operation of law, having

the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence.
However, for purposes of income taxation, the Tax Code provides that the term "corporation" shall include partnerships,
no matter how created or organized, joint stock companies, joint accounts (ceuntas en participacion), associations, or
insurance companies. It also includes mutual fund companies, regional operating headquarters of multinational
corporations, and joint accounts.

Tax Exempt Corporations

Under Section 30 of the Tax Code, the following not be taxed in respect to income received by them as such:
organizations that
a) Labor, agricultural or horticultural organizations not organized principally for profits.
b) Mutual savings bank not having a capital stock represented by shares Mutualoperative bank without 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 nonstick 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 rehabilitation of veterans, no part of its net income or asset shall belong 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 inures 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 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 organizations 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 them the proceeds of sales, less the necessary selling on the basis of the
quantity of produced finished by them
l) Some Government owned or controlled Corporation

Types of Corporation
Domestic Corporation (DC) = Resident Citizen
Foreign Corporation = Alien
• Resident Foreign Corporation (RFC)
• NonResident Foreign Corporation (NRFC) 25% of Gross Income (Gross Sales/Receipts)

Income Tax rate and Basis

Regular/Ordinary income = 25%/20% of Taxable Income; Special Corporation less than 25%
Certain passive income = Final Income tax
Domestic shares and real property within the Philippines = Capital Gains Tax

Final Income Tax

• Interest Income from deposit/deposit substitute = Long term deposits is subject to 20%. There is no exemption in
the Corporation.
• Foreign Currency Deposit with Foreign Depositary bank = Same with Individuals
 • Dividends

Source of Dividends Recipient of Dividend Tax

Domestic Corp. Domestic Corp./Resident Foreign Corp. Exempt
Resident Foreign Corp. Refer to the rules below Exempt/RIT
Non-resident Foreign Corp. Domestic Corporation RIT

Situs of Dividend from Foreign Corporation

Required reading below
o Revenue Regulations (RR) 5-2021.
o Revenue Memorandum Circular (RMC) 62-2021 (Clarifies the RR above)

Ratio of Gross Income

Derived in the Philippines Situs of Dividend Tax
At least 50% The entire dividend is considered derived from EXEMPT
within the Philippines

Less than 50% The entire dividend is considered derived Exempt under certain
abroad (Foreign sourced dividend) Conditions

The Bureau of Internal Revenue (BIR) issued Revenue Regulation (RR) 05-2021 upon implementation of
the CREATE Law. Under Section 5 of the RR, the following conditions must concur for the tax exemption
to apply:

1. The dividends actually received or remitted into the Philippines are reinvested in the business operations of the
domestic corporation within the next taxable year from the time the foreign-sourced
dividends were received or remitted;

2. The dividends received shall be used to fund the working capital requirements, capital expenditures,
dividend payments, investment in domestic subsidiaries and infrastructure projects; and

3. The corporation holds directly at least twenty percent (20%) in value of the outstanding shares of the
foreign corporation and has held the shareholdings uninterruptedly for a minimum of two (2) years at
the time of the dividends distribution. In case the foreign corporation has been in existence for less than
two (2) years at the time of dividends distribution, then the domestic corporation must have
continuously held directly at least twenty percent (20%) in value of the foreign corporation's
outstanding shares during the existence of the corporation.

• Prizes – Regular income tax

• Winning
o PCSO – same with individuals
o Other winning – Regular income tax
• Tax informers reward -same with invidual

Capital Gains Tax

Domestic shares sold directly to buyer = same with individuals
Sale, exchange, and other desposition of real property capital assets in the Philippines
Applicable to Domestic Corporation only
Regular Corporate Income tax
• 25%/20% (MSME) or lower for Special Corp
• Minimum Corporate Income Tax (MCIT) – Applicable for Domestic Corp and Resident Foreign Corp
o X+4
o 2% of Gross Income.
a. The corporation has zero taxable income; or
b. The corporation has negative taxable income; or
c. Whenever the amount of 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
o Can be credited/offsetted against RCIT for _ years

The Secretary of Finance is authorized 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

Proforma for MCIT

Provision for Income Tax/Income tax expense
Deferred charge – MCIT/MCIT Carry over
Income tax Payable/Cash

A taxpayer is a manufacturer of goods

Gross recorded Sales P 5,000,000

Sales returns, allowance and disc. 250,000
Rental Income 300,000
Interest income from bond investment 30,000
Interest income from customers note 100,000
Gain on sale of Equipment 20,000
Dividend from domestic corporation 100,000
Gain Domestic shares sold directly sold to buyer 25,000
Cost of sales (Inventory) 1,790,000
Plant Depreciation expense 300,000
Depreciation expense of delivery equipment 68,000
Factory labor 400,000
Salary (Admin. And Selling Department) 350,000

The taxpayer leases a portion of it’s building.