1. TAXATION OF CORPORATION
Chapter 3 - Ballada

2. 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 partneships and
a joint venture or consortium formed for the purpose of undetaking construction
projects or engaging in petroleum, coal, geothermal and other energy operations
pursuant to an operating or consortium agreement under a service contract with
the Government.

3. DEFINITION OF TERMS
DOMESTIC CORPORATION – means created or organized in the Philippines or under
its laws.
FOREIGN CORPORATION – means a coporation 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.

4. SOURCES OF INCOME
Corporation Sources of Income
Within the Phils. Without the Phils.
1. Domestic √ √
2. Foreign √

5. CATEGORIES OF INCOME AND TAX RATES
1. Business Income – generally, business income earned by a corporation is taxd at
the following rates (Sections 27(A), 28(A)(1) and 28(B)(1)):
Year Tax Rate
1997 35%
1998 34%
1999 33%
2000-Oct. 2005 32%
Nov. 2005-2008 35%
2009 30%
2. Passive Income – passive income is subject to separate and final tax. These are
taxed at fixed rates ranging from 5% to 20%. Passive income is not to be
included in the gross income computation.

6. 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

7. DOMESTIC CORPORATION,
IN PARTICULAR
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.
Unrelated trade, business or other activity – means any activity which are not
subtantially related to the exercise or performance by such educational
institution or hosital of its primary purpose or function.

8. 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 was derived from
unrelated trade or business. Total deductions amount to P3million.
Gross Income 15,000,000
Less: Deductions 3,000,000
Net Income 12,000,000
Multiply by tax rate 10%
Tax Due 1,200,000

9. ILLUSTRATIONS 2:
SGB University, a proprietary educational institution, has a gross income for the
taxable year 2009 of P15M. Of the gross income, P9 million was derived from
unrelated trade or business. Total deductions amount to P3million.
Gross Income 15,000,000
Less: Deductions 3,000,000
Net Income 12,000,000
Multiply by tax rate 30%
Tax Due 3,600,000

10. 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

11. MUTUAL LIFE INSURANCE COMPANIES
These Companies are now subject to the regular corporate income tax rates.

12. RESIDENT FOREIGN CORPORATIONS, IN PARTICULAR
INTERNATIONAL SHIPPING -
Gross Philippine Billings – 2.50%
OBUs – income authorized by BSP from foreign currency transactions rest income
derived from with local commercial banks, including branches of foreign banks
that may 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.
BRANCH PROFITS REMITTANCES – any profit remitted by a branch to its head office
shall be subject 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 (except those activities which are registered with PEZA).

13. RESIDENT FOREIGN CORPORATIONS, IN PARTICULAR
REGIONAL OPERATING HEADQUARTERS –
shall mean a branch established in the Philippines by multinational comanies
which are engaged in various services.
TEN PERCENT (10%) OF TAXABLE INCOME
REGIONAL OR AREA HEADQUARTERS –
shall mean a branch established 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

14. 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 Philippine port to perform international air
transportation services/ activities or flight operations anywhere in the world.
Generally, subject to GROSS PHILIPPINE BILLING TAX of 2.50% unless subject to a
different tax rate under the applicable treaty to which the Philippines is a
signatory.

15. DETERMINATION OF GROSS PHILIPPINE BILLINGS
In computing for gross Philippine billings, the following should be included:
a. Gross revenue deerived from passage of persons
b. Excess baggage
c. Cargo and/or mail
originating from the Philippines in a continuous and uninterrupted flight,
irrespective of the place of sale or issue and the place of payment of passage
documents.

16. 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 othe 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

17. NON-RESIDENT FOREIGN CORPORATION, IN PARTICULAR
CINEMATOGRAPHIC FILM OWNER, LESSOR OR DISTRIBUTOR – 25% of GROSS
INCOME
OWNER OR LESSOR OF VESSELS CHARTERED BY PHILIPPINE NATIONS - 4.5% of
GOSS 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.

18. 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 exanded foreign currency
deposit system from foreign currency transaction with local commercial
banks, including branches of foreign that may be authorized by the BSP, incuding
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 deemded to have been paid in the Philippines
equivalent to:
2009 – 15%

19. PASSIVE INCOME OF NON-RESIDENT FOREIGN
CORPORATIONS
4. CAPITAL GAINS from sale of shares of stock not traded in the stock exchange. A
final taxt at the rates prescribed below is imposed upon the net caita gains
realized during the taxable year from the sale, barter, exchange or other
disposition of shares of stock in a domestic corporation, except shares sold, or
disposed of through the stock exchange:
Not over P100,000 5%
On any amount in excess of P100,00 10%

20. ALLOWABLE DEDUCTIONS
Allowable deductions 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 dduct 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.

21. TAXABLE INCOME AND TAX DUE
In case of corporations, TAXABLE INCOME is th pertinent items of gross income less
the deductions authorized for such types of income. Taxable income is the
amount or tax base uon 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 cororation, 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 taxayer. For domestic and resident foreign corporations, in
genera; and other corporations from whose gross income deductions are
allowed:

22. PRO-FORMA COMPUTATION
Sales/Revenues/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

23. 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 x%
Tax Due xxx

24. CORPORATIONS EXEMPT FROM INCOME TAX (Sec. 30, NIRC)
GENERALLY , CORPORATIONS ESTABLISHED NOT FOR PROFIT ARE EXEMPTED FROM
INCOME TAX. PLEASE REFER TO PAGE 3-14 – 3-17

25. 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 THESE COOPRATIVES ARE LIABLE.
Cooperatives with accumulated reserves and undivided net savings of more than
TEN MILLION PESOS (P10M) – please refer to page 3-19-20

26. 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.

27. 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 15th 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.

28. ILLUSTRATION
The result of operations of a corporation for 2010 whose taxable year in on a calendar basis is as
follows:
Gross Income Deductions Net Income
1st Quarter (Jan-March) 500,000.00 300,000.00 200,000.00
2nd Quarter (April-June) 600,000.00 350,000.00 250,000.00
3rd Quarter (July-Sept.) 700,000.00 400,000.00 300,000.00
4th Quarter (Oct.-Dec.) 800,000.00 450,000.00 350,000.00
2,600,000.00 1,500,000.00 1,100,000.00
Tax credit for overpaid income tax for the preceding year is P50,000.

29. 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter TOTAL
Gross Income
this quarter 500,000.00 600,000.00 700,000.00 800,000.00 2,600,000.00
previous quarter/s 500,000.00 1,100,000.00 1,800,000.00
Total Gross Income 500,000.00 1,100,000.00 1,800,000.00 2,600,000.00 2,600,000.00
Less: Deductions
this quarter 300,000.00 350,000.00 400,000.00 450,000.00
previous quarter/s 300,000.00 650,000.00 1,050,000.00
Total Deductions 300,000.00 650,000.00 1,050,000.00 1,500,000.00 1,500,000.00
Taxable Income 200,000.00 450,000.00 750,000.00 1,100,000.00 1,100,000.00
Tax Rate 30% 30% 30% 30% 30%
Tax Due 60,000.00 135,000.00 225,000.00 330,000.00 330,000.00
Less: Previous Tax Payments/Credits 50,000.00 60,000.00 135,000.00 225,000.00 225,000.00
Tax Still Due 10,000.00 75,000.00 90,000.00 105,000.00 105,000.00

30. CHAPTER IV – MINIMUM CORPORATE INCOME
TAX, IAET AND GIT
MINIMUM CORPORATE INCOME TAX (MCIT)
Two percent (2%) of the gross income as of the end of the taxable year is imposed upon any domestic
corporation beginning the fourth (4th) taxable year (whether calendar or fiscal yea, depending on the
accounting periodemployed) immediately following the taxable year in which such corporation
commenced its business operations. The MCIT shall be imposed whenever:
a. Such corporation has zero or negative taxable income; or
b. The amount of minimum corporateincome taxis greater than the normal income tax due from such
corporation.
Relief from MCIT under Certain Conditions
The Secretary of Finance, upon recommendation of the Commissioner,may suspend the imposition of MCIT
upon submission of proof by the applicant-corporation, duly verified by the Commissioner’s authorized
representative, that the corporation sustained substantial losses on account of a prolonged labor
dispute or because of “force majeure” or because of legitimate business reverses.