CORPORATE INCOME

TAXATION

CHAPTER 2
 Learning Objectives
▪ Classify non-individual taxpayers
▪ Compute the appropriate income tax due of the corporate
tax payers (RCIT and MCIT)
▪ Fill out the appropriate income tax returns
 Non- individual Tax Payers
❑ Estates and Trusts engaged in trade or business
* Computed in the same manner as and on the s
❑ Corporations including partnerships no matter how
created or organized
❑ Domestic corporations receiving income from sources
within and outside the Philippines
❑ Foreign Corporations receiving income from sources
within the Philippines
Corporations
RA 11232 (Revised Corporation Code)

Artificial being created by operation of law,

having the right of succession and the powers,
attributes and properties expressly authorized by
law or incidental to its existence
 Corporations
INCLUDES….
▪ one person corporations (OPCs)
▪ partnerships no matter how created or organized
▪ joint stock companies
▪ joint accounts
▪ associations
▪ insurance companies
Excludes …..
▪ general professional partnerships (GPP)
▪ joint ventures for the purpose of construction projects
▪ Joint ventures o engaged in petroleum, coal, geothermal, and
other energy operations pursuant to an operating consortium
agreement under service contract with the government
Classifications of Corporate Taxpayers
A. Domestic Corporation (DC)- created and organized in
the Philippines under its law

B. Foreign Corporation
Resident Foreign Corporation (RFC)- created and
organized in a foreign country under its laws and engaged
in business in the Philippines
Non-resident Foreign Corporation (NRFC)- created
and organized in a foreign country under its laws and is
not engaged in trade or business in the Philippines.
A. .
 Domestic Corporations
❑ Domestic corporations in general including OPC
❑ Government-owned and controlled corporations
❑ Taxable Partnerships
❑ Proprietary Educational Institution
❑ Non- profit Hospitals
 Corporations May be Classified
Further Into:
A. Ordinary Corporations – subject to regular corporate
income tax (RCIT) also known as normal tax or basic
tax at rate either 20% for domestic corporations
classified as MSME’s or 25% for domestic corporations
other than MSME’s and foreign corporation.
Under TRAIN LAW (from Jan. 1, 2018 – July 1, 2020) the RCIT rate was
30%

B. Special Corporations – subject to income tax rate

which is lower than the regular corporate income tax
(RCIT) rate of 20% or 25 % as the case maybe.
 Micro Small and Medium Enterprises
(MSME) for Domestic Corporation
• Domestic corporations with total assets of P 100 million
and below and Net Income of P 5million and below

• Total assets excludes the land on which the particular

business entity’s office, plant and equipment are
situated during the taxable year for which the tax is
imposed
 Minimum Corporate Income Tax
(MCIT)
• Tax base is Gross income
• MCIT Gross Income
Sale of Goods = Gross sales less sales returns, discounts,
allowances and COGS
Sale of Service= Gross receipts less sales returns,
allowances, discounts and cost of services
• Imposed beginning on the 4th taxable year immediately following the
year in which the corporation commenced its operations when
MCIT is greater than RCIT
• Imposed if the corporation has zero taxable income or has negative
taxable income
• Excess in MCIT can be carried over and credited to the RCIT for
the next three immediately succeeding years
• Applies only to Domestic and resident corporation
• Excludes entities enjoying preferential rates
• Also applies on Quarterly Income tax returns
Relief from MCIT
The imposition of Minimum Corporate Income Tax
maybe suspended due to :
❑ Prolonged labour disputes
❑ Force majeure
❑ Legitimate business reverses

Corporations Exempt From MCIT

1. Special corporations- proprietary educational
institutions and hospitals, international carrier
2. Non-resident foreign corporations
3. Regional or area headquarters (exempt under law)
4. Firms that are taxed under special tax regime (PEZA
law and Bases Convention Development Act)
 Exempt Corporations

▪ Section 30, RA 8424 ; National Internal Revenue Code

Government Owned or Controlled Corporations (GOCCs)

▪ General rule : All corporations, agencies, or instrumentalities
owned or controlled by the government are subject to 20% or 25%
(old rate 30%) RCIT on their taxable income.
EXCEPTIONS :
a. Government Service Insurance System (GSIS)
b. Social Security System
c. Philippine Health and Insurance Corporation
d. Local Water District
Note : HDMF or Pag ibig is exempt from tax upon the effectivity of CREATE
LAW on April 11, 2011
PCSO and PAGCOR are taxable GOCCs
Categories of Income of
Corporation
• Business Income
• Passive Income
Domestic Corporation
Net Sales P xxxx
Cost of sales (xxx)
Gross Profit xxxx
Other Income xxxx
Gross Income xxxx
Deductions (xxxx) either allowable or OSD
Taxable Income xxxx
RCIT rate xx%
Tax due RCIT xxxx

Gross Income P xxxx

MCIT rate xx%
Tax due- MCIT P xxxx
Which ever is higher
Foreign Corporation
Sources Tax base Tax rates

Resident Foreign Within Net Income RCIT or MCIT

Corporation

Non- resident Within Gross Income 25% FWT

foreign
Corporation
Resident Foreign Corporation
Net Sales P xxxx
Cost of sales (xxx)
Gross Profit xxxx
Other Income xxxx
Gross Income xxxx
Deductions (xxxx) either allowable or OSD
Taxable Income xxxx
RCIT rate xx%
Tax due RCIT xxxx

Gross Income P xxxx

MCIT rate xx%
Tax due- MCIT P xxxx
Which ever is higher
Non-resident Foreign Corporation
Net Sales P xxxx
Cost of sales (xxx)
Gross Income xxxx
Passive income xxxx
Total Taxable Income xxxx
Final Tax rate 25%
Final withholding tax xxxx
Corporate Taxes
TYPE OF TAX RATE TAX BASE SOURCE OF
TAX INCOME
Domestic a. RCIT 30% to 25% Taxable
Corporation or 20% Income Within and
(DC) b. MCIT 2% to 1.5% to Gross Income without
1%
Resident a. RCIT 30% to 25% Taxable
Foreign Income Within
Corporation b. MCIT 2% to 1.5% to Gross Income
1%
(RFC)

Non- a. Final Tax 30% to 25% Gross Income Within

Resident
Foreign N/A N/A N/A N/A
Corporation
 CREATE LAW
• Published on March 27, 2021
• Took effect on April 11, 2021
• Although CREATE LAW took effect on April 11, 2021
there are certain provisions in the law with specific
effectivity dates which are earlier than April 11, 2021 such
as revised RCIT rates for DCs and RFCs as well as the
revised rate for NRFCs
 Summary of Revised Tax Rates Under
CREATE LAW
TYPE OF CORPORATION The Higher Between The RCIT and MCIT

Regular Corporate Minimum Corporate Income

Income Tax (RCIT) Tax (MCIT)
Domestic Corporation Rate Effectivity Rate Effectivity

Domestic Corporation in General 25% July 1, 2020 1% July 1, 2020 to June

Note: 30% old rate January 1, 1998 to June 30, 2023
30,2020 (RCIT)
2% ( MCIT ) January 1, 1998 to June 30, 2% July 1, 2023 onwards
2020

For corporation with net taxable income 20% July 1, 2020 1% July 1, 2020 to June
not exceeding P 5,000,000 and total 30, 2023
assets not exceeding P 100,000,000
excluding the land on which the particular 2% July 1, 2023 onwards
business entity’s office , plant and
equipment are situated
Proprietary Educational Institutions and 1% July 1, 2020
Hospitals to June 30, Not Applicable
10% 2023
July 1,2023
 Summary of Revised Tax Rates Under
CREATE LAW
TYPE OF CORPORATION The Higher Between The RCIT and MCIT

Foreign Corporation- on taxable income Regular Corporate Minimum Corporate Income

(net or gross income) from all sources Income Tax (RCIT) Tax (MCIT)
within the Philippines
Rate Effectivity Rate Effectivity

25% July 1, 2020 1% Upon effectivity of

Resident Foreign Corporation CREATE LAW until
Note: 30% RCIT and 2% MCIT (January June 30, 2023
1, 1998 to June 30,2020)
2% July 1, 2023 onwards

Offshore banking unit 10% January 1, N/A N/A

OLD 1998 to
April 10,
Note : OBUs shall now be taxed as resident 25% 2021 1% Upon effectivity of
foreign corporation upon effectivity of create Upon CREATE LAW
law effectivity of
CREATE 2% July 1, 2023 onwards
LAW
 Summary of Revised Tax Rates Under
CREATE LAW
TYPE OF CORPORATION The Higher Between The RCIT and MCIT

Foreign Corporation- on taxable Regular Corporate Minimum Corporate Income

Income Tax (RCIT) Tax (MCIT)
income (net or gross income)
from all sources within the
Philippines
Rate Effectivity Rate Effectivity

Regional Operating Head 10% January 1, N/A N/A

OLD 1998 to Dec.
quarters (ROHQ) 31, 2021
25% January 1, 1% January 1, 2022 to
2022 June 30, 2023

2% July 1, 2023 onwards

Non Resident Foreign

25% January 1,
Corporation (NRFC)
Old rate 30% January 1, 1998 to December
2021 N/A
31,2020
Problem 1
Juliebhe Corporation, a domestic corporation and a retailer
of goods has gross sales of P 1,500,000,000 with cost of
sales of P 650,000,000 and allowable deductions of P
170,000,000 for the calendar year 2022. Its total assets of
P200,000,000 as of December 31, 2021 per Audited FS
includes the land costing P 60,000,000 and the building of
P 30,000,000 in which the business entity is situated with
an aggregate amount of P 85,000,000 fixed assets.
How much is the income tax due in 2022?
Solution:
Gross Sales P 1,500,000,000
Cost of sales ( 650,000,000 )
Operating expenses (170,000,000)
Taxable net income P 680,000,000
RCIT rate 25%
Income tax due P 170,000,000
Problem 2
Juliebhe Corporation, a resident corporation and a retailer
of goods has gross sales of P 13,000,000 with cost of
sales of P 6,700,000 and allowable deductions of P
2,400,000 for the calendar year 2022. Its total assets of
P150,000,000 as of December 31, 2021 per Audited FS
includes the land costing P 50,000,000 and the building of
P 25,000,000 in which the business entity is situated with
an aggregate amount of P 75,000,000 fixed assets.
How much is the income tax due in 2022?
Solution:
Gross Sales P 13,000,000
Cost of sales (6,700,000 )
Operating expenses (2,400,000)
Taxable net income P 3,900,000
RCIT rate 25%
Income tax due P 975,000
Problem 3
A domestic corporation has the following income and
expenses for the year:
Philippines Abroad
Gross Sales P 110,000,000 P 60,000,000
Cost of Sales 55,000,000 25,000,000
Operating Expenses 45,000,000 12,500,000

How much is the income tax due assuming taxable year is 2019?
How much is the income tax due assuming taxable year is 2020?
How much is the income tax due assuming the taxable year is 2021?
How much is the income tax due assuming the taxable year is 2021 and it is
resident foreign corporation?
Solution:

How much is the income tax due assuming taxable year is

2019?

Gross Sales P 170,000,000

Cost of sales ( 80,000,000 )
Operating expenses ( 57,500,000 )
Taxable net income P 32,500,000
RCIT rate 30 %
Income tax due P 9,750,000
Solution
How much is the income tax due assuming taxable year is
2020?
Solution:

How much is the income tax due assuming taxable year is

2021?

Gross Sales P 170,000,000

Cost of sales ( 80,000,000 )
Operating expenses ( 57,500,000 )
Taxable net income P 32,500,000
RCIT rate 25 %
Income tax due P 8,125,000
Solution
How much is the income tax due assuming the taxable
year is 2021 and it is resident foreign corporation?
Problem 4
Juliebhe Corporation, a domestic corporation and a retailer
of goods has gross sales of P 1,500,000,000 with cost of
sales of P 650,000,000 and allowable deductions of P
170,000,000 for the calendar year 2021. Its total assets of
P200,000,000 as of December 31, 2021 per Audited FS
includes the land costing P 60,000,000 and the building of
P 30,000,000 in which the business entity is situated with
an aggregate amount of P 85,000,000 fixed assets.
Assuming CY 2021 is the 5th year of operation of Juliebhe
Corporation, compute for the income tax.
Solution:
Gross Sales P 1,500,000,000
Cost of sales ( 650,000,000 )
Operating expenses (170,000,000)
Taxable net income P 680,000,000
RCIT rate 25%
Tax due P 170,000,000

Gross Income P 850,000,000

MCIT rate 1%
Tax due P 8,500,0000

Tax due P 170,000,000 (whichever is higher)

Excess MCIT Carry Over

the excess of the MCIT over the RCIT in any year is a tax
credit that is deductible against any RCIT tax due in the
immediately succeeding three years.
Problem 5
The record of Juliebhe Corporation organized 2010 show
the following :

YEAR RCIT MCIT Excess

2021 P 80,000 P 135,000 55,000
2022 40,000 37,000
2023 30,000 27,000
2024 25,000 28,000 3,000
2025 55,000 40,000

Compute income tax payable each year from 2021 to 2025.

Solution
Net Operating Loss Carry Over
(NOLCO)
Net Operating Loss means the excess of allowable
deduction over gross income of the business in a taxable
year.
Net operating loss for any taxable year shall be carried
over as a deduction from gross income for the next three
consecutive taxable years immediately following the year
of such loss
Under RA 11494 as the Bayanihan Act the NOLCO of
business for taxable year 2020 and 2021 shall be carried
over for the next 5 consecutive taxable year immediately
followng the year of loss
Example
Quarterly Filing of (RCIT and
MCIT)
Juliebhe Corporation’s computed RCIT and MCIT, creditable income
taxes withheld from the 1 st to 4th Quarters and excess MCIT and
excess withholding taxes from prior years are as follows. Compute for
quarterly income tax payable
.
Solutions :
Solutions
Filing of Tax Returns
A. Regular Corporate Income Tax (RCIT) or Basic Income Tax
❖ Quarterly –on or before the 60 th day following the end of the quarter
❖ Annual – on or before April 15 of the succeeding year

B. Final Withholding Taxes

❖ Jan- Nov - 10th day of month following the month the withholding was
made
❖ December - January 15 of the succeeding year
(Manual filing)
C. Capital Gains Tax
❖ Shares of stock - if ordinary return it is 30 days after each transaction ; if
final consolidated return it is on or before April 15 of the following year
❖ Real property – 30 days following each sale of other disposition
References:
Tabag, Enrico D, and Garcia, Earl Jimson R. (2022). Income Taxation (With
Special Topics in Taxation). EDT Book Shop

Tabag, Enrico D (2022). CPA Reviewer in Taxation. EDT Book Publishing

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