LECTURE 11: Taxation for Corporations

TAX 301: INCOME TAXATION

College of Accountancy, Business & Economics
Learning Objectives:
1. Understand the nature of corporation;
2. Learn and compute regular corporate income tax; and
3. Learn and compute minimum corporate income tax.
 CREATE Law
• Tax Corporate Recovery and Tax Incentives for
Enterprises Act (CREATE Law) was passed into law on
March 26, 2021 and took effect on April 11, 2021.
• The Act’s purpose is to grant tax relief for companies
in financial need, provide transparent tax provisions,
and further increase the competitiveness of the
Philippines.
 What is CORPORATION?
• Corporation is defined under Sec. 22 of the Tax Code
(RA 8424), as amended under RA 11534 or CREATE
as follows:
❑ One Person Corporation
❑ Partnerships, no matter how created or organized
❑ Joint Stock
❑ Joint Accounts
❑ Associations
❑ Insurance Companies
 TYPES OF CORPORATIONS
• Domestic Corporations –corporations organized in
the Philippines and created under Philippine law
• Resident Foreign Corporations-corporations
operating in the Philippines but incorporated abroad
• Nonresident Foreign Corporations - one which
does not have any presence in the Philippines but
derives income in the Philippines
TYPES OF CORPORATION

Sources of
Basis of Income
Type of Corporation Income Subject
Subject to Tax
to Tax
Philippines and
Domestic Corporation Net Income
Abroad
Resident Foreign
Philippines Net Income
Corporation
Non-resident Foreign
Philippines Gross Income
Corporation
TYPES OF CORPORATION AND
APPLICABLE TAXES
Types of Income
Type of Corporation Ordinary
Passive Income Capital Gains Tax
Income
20% of RCIT for FWT: Interest Income 20%;
Real Property Tax - 6%;
Domestic Corporation MSME; 25% for FCDU 15%; Royalties: 20%;
Shares of Stock -15%
non-MSME Dividend exempt
FWT: Interest Income 20%;
Resident Foreign
25% RCIT FCDU 15%; Royalties: 20%; Shares of Stock - 15%
Corporation
Dividend exempt

Non-resident Foreign 25% Final

FWT: 25%; FCDU exempt Shares of Stock - 15%
Corporation Withholding Tax

• MSME (Micro Small and Medium Enterprise )- Assets not exceeding P100,000,000 and
annual net income not exceeding P5,000,000
• MSME classification applies only to domestic corporation
 REGULAR CORPORATE INCOME
TAX (RCIT)
TRAIN LAW
CREATE LAW (New Law)
(Old Law)
Non-
Resident
All corporations Domestic Corporation resident
Foreign
Foreign
Corporation
MSME Non-MSME Corporation
Gross Income P xxx P xxx P xxx P xxx P xxx
Allowable Deductions (xxx) (xxx) (xxx) (xxx) N/A
Taxable Income P xxx P xxx P xxx P xxx P xxx
Rate 30% 20% 25% 25% 25%
RCIT/FWT P xxx P xxx P xxx P xxx P xxx

• CREATE Law took effect on April 11, 2021. Some of its provisions took effect before April 11,
2021. The Revised RCIT rates on domestic corporation and resident foreign corporation took
effect on July 1, 2020. While the Revised RCIT rate on non-resident foreign corporation took
effect on January 1, 2021.
 MICRO, SMALL AND MEDIUM
ENTERPRISES (MSMEs)
• Beginning July 1, 2020, the applicable RCIT rate of
domestic corporations with total assets of P100M and
below AND with net taxable income of 5M and below shall
be 20%. (This will applicable only to domestic corporation
and will not apply to foreign corporation).

• The 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 was imposed.
 ILLUSTRATION:
• Assume the following data for Stardust Corporation,
classified as domestic corporation and MSME
provided the following information for 2022 taxable
year:
Gross Income, Philippines P 6,000,000
Expenses, Philippines P 3,500,000
Gross Income, Japan P 4,000,000
Expenses, Japan P 1,500,000
Interest on bank deposit P 500,000
Capital gain on shares of DC P 300,000
 ILLUSTRATION:
• How much is the income tax due of Stardust
Corporation classified as MSME?

Answer and Solutions: Philippines Abroad Total

Gross income ₱ 6,000,000 ₱4,000,000 ₱ 10,000,000
Less: Operating expenses -₱ 3,500,000 -₱1,500,000 -₱ 5,000,000
Net Taxable Income ₱ 2,500,000 ₱2,500,000 ₱ 5,000,000
RCIT 20%
Income Tax Due ₱ 1,000,000
 ILLUSTRATION:
• Assume the following data for Sunbeam Corporation
for 2022:
Gross Income, Philippines P10,000,000
Expenses, Philippines P 4,000,000
Gross Income, Singapore P 8,000,000
Expenses, Singapore P 3,000,000
Interest on bank deposit P 400,000
Capital gain on shares of DC P 900,000
 ILLUSTRATION:
• How much is the income tax due assuming
Sunbeam Corporation is a domestic corporation?

Answer and Solutions: Philippines Abroad Total

Gross income ₱ 10,000,000 ₱ 8,000,000 ₱ 18,000,000
Less: Operating expenses -₱ 4,000,000 -₱ 3,000,000 -₱ 7,000,000
Net Taxable Income ₱ 6,000,000 ₱ 5,000,000 ₱ 11,000,000
RCIT 25%
Income Tax Due ₱ 2,750,000
 ILLUSTRATION:
• How much is the income tax due assuming
Sunbeam Corporation is a resident foreign
corporation?
Answer and Solutions: Philippines Abroad Total
Gross income ₱ 10,000,000 ₱ 10,000,000
Less: Operating expenses -₱ 4,000,000 -₱ 4,000,000
Net Taxable Income ₱ 6,000,000 ₱ 6,000,000
RCIT 25%
Income Tax Due ₱ 1,500,000
 ILLUSTRATION:
• How much is the income tax due assuming
Sunbeam Corporation is a nonresident foreign
corporation?
Answer and Solutions: Philippines Abroad Total
Gross income ₱ 10,000,000 ₱ 10,000,000
Operating expenses
Interest Income on bank deposit ₱ 400,000 ₱ 400,000
Net Taxable Income ₱ 10,400,000 ₱ 10,400,000
FWT 25%
Income Tax Due ₱ 2,600,000
MINIMUM CORPORATE INCOME TAX
• Section 27(E) (1) and Section 28 (2) [for domestic corporations and
resident foreign corporations, respectively], as amended, under
CREATE Law, provide:

• A Minimum Corporate Income Tax of two percent (2%) of the gross

income as of the end of the taxable year 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, when the MCIT is
greater than RCIT, Provided: that effective July 1, 2020 until June 30,
2023, the rate shall be one percent (1%).
 MCIT RATES
• On or before June 30, 2020 – 2%
• July 1, 2020 to June 30, 2023 – 1%
• Beginning July 1, 2023 – 2%
 MCIT shall be imposed whenever:
• When the corporation has zero income

• The corporation has negative taxable income

• Whenever MCIT is greater than RCIT

 Carry-over of Excess MCIT

• 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 MCIT

• Prolonged Labor Dispute

• Force Majeure

• Legitimate Business Reverses

 Prolonged Labor Dispute
• Substantial losses from a “prolonged labor dispute” means losses
arising from a strike staged by the employees that lasted for
more than six (6) months within a taxable period and the strike
resulted to a temporary shutdown of business operation.
CORPORATIONS EXEMPT FROM MCIT

1. Special corporations
2. Non-resident foreign corporations
3. Corporations exempt from income tax
4. Firms that are taxed under special tax regime
 ILLUSTRATION

• Assume the following data for Stardust Corporation,

classified as domestic corporation and MSME provided the
following information for 2022 taxable year:
Gross Income, Philippines P 6,000,000
Expenses, Philippines P 3,500,000
Gross Income, Japan P 4,000,000
Expenses, Japan P 1,500,000
Interest on bank deposit P 500,000
Capital gain on shares of DC P 300,000
 How much is the income tax due assuming Stardust
Corporation is a domestic corporation and MSME?
Answer and Solutions: Philippines Abroad Total
Gross income ₱ 6,000,000 ₱4,000,000 ₱ 10,000,000
Less: Operating expenses -₱ 3,500,000 -₱1,500,000 -₱ 5,000,000
Net Taxable Income ₱ 2,500,000 ₱2,500,000 ₱ 5,000,000

RCIT (P5M x 20%) ₱ 1,000,000

MCIT (P10M x 1%) ₱ 100,000

Income Tax Due (Higher) ₱ 1,000,000

 ILLUSTRATION

• Sunbeam Corporation, domestic corporation on its 4th year of

business operations, provided the following data in 2022:

Gross Income, Philippines P10,000,000

Expenses, Philippines P 4,000,000
Gross Income, Singapore P 8,000,000
Expenses, Singapore P 3,000,000
Interest on bank deposit P 400,000
Capital gain on shares of DC P 900,000
How much is the income tax due assuming
Sunbeam Corporation is a domestic corporation?

Answer and Solutions: Philippines Abroad Total

Gross income ₱ 10,000,000 ₱8,000,000 ₱ 18,000,000
Less: Operating expenses -₱ 4,000,000 -₱3,000,000 -₱ 7,000,000
Net Taxable Income ₱ 6,000,000 ₱5,000,000 ₱ 11,000,000

RCIT (P11M x 25%) ₱ 2,750,000

MCIT (P18M x 1%) ₱ 180,000

Income Tax Due (Higher) ₱ 2,750,000

How much is the income tax due assuming
Sunbeam Corporation is a domestic corporation
assuming 2023 taxable year?
Answer and Solutions: Philippines Abroad Total
Gross income ₱ 10,000,000 ₱8,000,000 ₱ 18,000,000
Less: Operating expenses -₱ 4,000,000 -₱3,000,000 -₱ 7,000,000
Net Taxable Income ₱ 6,000,000 ₱5,000,000 ₱ 11,000,000

RCIT (P11M x 27.50%) ₱ 3,025,000

MCIT (P18M x 1.50%) ₱ 270,000

Income Tax Due (Higher) ₱ 3,025,000

 THANK YOU! ☺
• References: Income Taxation by E. Tabag & R. Garcia
• Income Taxation by Nick Aduana
• Income Taxation Laws Principles and Applications by R. Banggawan, CPA, MBA