Section 28

Rates of Income Tax on

Foreign Corporations.
REPORTERS:
ASENJO, LLIDO, MANIQUE, SERENIO
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TOPICS
(A) Tax on Resident Foreign Corporations.
In General
Minimum Corporate Income Tax on Resident Foreign Corporations.
International Carrier.(NIRC)
Offshore Banking Units (NIRC)
Tax on Branch Profits Remittances.
Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies.
Tax on Certain Incomes Received by a Resident Foreign Corporation

(B) Tax on Nonresident Foreign Corporation.

In General.
Nonresident Cinematographic Film Owner, Lessor or Distributor (NIRC)
Nonresident Owner or Lessor of Vessels Chartered by Philippine Nationals. (NIRC)
Nonresident Owner or Lessor of Aircraft, Machineries and Other Equipment (NIRC)
Tax on Certain Incomes Received by a Nonresident Foreign Corporation.

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TAX ON RESIDENT FOREIGN CORPORATIONS.
 TRAIN LAW
(1) In General. – Except as otherwise provided in this Code, a corporation organized,
authorized, or existing under the laws of any foreign country, engaged in trade or business
within the Philippines, shall be subject to an income tax equivalent to thirty-five percent
(35%) of the taxable income derived in the preceding taxable year from all sources within
the Philippines: Provided, That effective January 1, 2009, the rate of income tax shall be
thirty percent (30%).

In the case of corporations adopting the fiscal-year accounting period, the taxable income
shall be computed without regard to the specific date when sales, purchases and other
transactions occur. Their income and expenses for the fiscal year shall be deemed to have
been earned and spent equally for each month of the period.

The corporate income tax rate shall be applied on the amount computed by multiplying
the number of months covered by the new rate within the fiscal year by the taxable
income of the corporation for the period, divided by twelve. Provided, however, That a
resident foreign corporation shall be granted the option to be taxed at fifteen percent
(15%) on gross income under the same conditions, as provided in Section 27(A)
CREATE LAW
“(1) In General - Except as otherwise provided in this Code, a corporation
organized, authorized, existing under the laws of anyforeign country, engaged in
trade or business within the Philippines, shall be subject to an income tax
equivalent to twenty-five percent (25%) of the taxable income derived in the
preceding taxable year from all sources within the Philippines effective July 1,
2020

In the case of corporations adopting the fiscal-year accounting peroid, the taxable
incoe shall be computed without regard to the specific date when saled, purchases
and other transaction occur. Their income ansd expense for the fiscal year shall be
deemed to have been earned andspent equally for each month of the period.

The corporate income tax rate shall be applied on the amount computed by
multiplying the numbers of months covered by the new rate within the fiscal year
by the taxable income of the corporation for the period, divided by twelve.
 TRAIN LAW
“(2) Minimum Corporate Income Tax on Resident Foreign Corporation - A minimum
corporate income tax of two percent (2%) of gross income ,as prescribed under section 27 of
this code, shall be imposed , under the same condition , on a resident foreign corporation
taxable under paragraph (1) of this Subsection .

“(3) International Carrier - An international carrier doing business in the Philippines

shall pay a tax of two and one-half percent (2 1/2% ) on its Gross Philippine Billings as
defined hereunder:

a: International Air Carrier - Gross Philippines Billings refers to the amount of gross
revenue derived from carriage of person , excess baggage , cargo and mail originating from
the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or
issue and the place of payments of the ticket or passage documents.

b: International Shipping - Gross Philippines Billings means the gross revenue whether
for passenger, cargo or mail originating from the Philippines up to the final destination .
 TRAIN LAW
“(4) Offshore Banking Units - The provision of any law to the contrary not
withstanding , income derived by the offshore banking units authorized by the Banko
Sentral ng Pilipinas (BSP), from foreign currency transaction with local commercial
banks ,including branches of foreign banks that may be authorized by the Bangko
Sentral ng Pilipinas (BSP) to transact business with offshore banking units, including
any interest income derived from foreign currency loans granted to residents, shall
be subject to a final income tax at the rate of ten percent (10%) of such income

“(5) Tax on 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 remittance without any deduction for the
tax component thereof (except those activities which are registered with the
Philippine Economic Zone Authority).
 TRAIN LAW
“(6) Regional or Area Headquarters and Regional Operating Headquarters of
Multinational Companies. -

"(a) Regional or area headquarters as defined in Section 22(DD) shall not be subject to
income tax. "

(b) Regional operating headquarters as defined in Section 22(EE) shall pay a tax of ten
percent (10%) of their taxable income. - A minimum corporate income tax of two percent (2%)
of gross income, as prescribed under Section 27(E) of this Code, shall be imposed, under the
same conditions, on a resident foreign corporation taxable under paragraph (1) of this
Subsection.
CREATE LAW
(2)Minimum Corporate Income Tax of Resident Foreign Corporation - A minimum
corporate income tax of two percent (2%) of gross income ,as prescribed under
section 27 (E) of this CODE , shall be imposed , under the same conditions on a
resident foreign corporation taxable under paragraph (1) of this subsection :
Provided That effective July 1, 2020 until June 30, 2023 the rates shall be one
percent (1%)

(3) X X X

(4) Tax on Branch Remittance

CREATE LAW
(5) Regional or Area headquarter and Regional Operating headquarter of
multinational companies

a: Regional or area headquarters and regional in section 22 (DD) shall not

be subject to income tax .

b: Regional operating headquarter as defined in section 22 (EE) shall pay a

tax of ten percent (10%) of their taxable income : Provided , That effective
January 1 2022 regional operating headquarter shall be subject to the regular
corporate income tax
(a) Interest Funds and Similar Arrangements and Royalties. - Interest from any currency
bank deposit and yield or any other monetary benefit from deposit substitutes and from
trust funds and similar arrangements and royalties derived from sources within the
Philippines shall be subject to a final income tax at the rate of twenty percent (20%) of such
interest: Provided, however, That interest income derived by a resident foreign corporation
from a depository bank under the expanded foreign currency deposit system shall be
subject to a final income tax at the rate of seven and one-half percent (7 1/2%) of such
interest income.

(b) Income Derived under the Expanded Foreign Currency Deposit System. - Income
derived by a depository bank under the expanded foreign currency deposit system from
foreign currency transactions with local commercial banks including branches of foreign
banks that may be authorized by the Bangko Sentral ng Pilipinas (BSP) to transact business
with foreign currency deposit system units and other depository banks under the expanded
foreign currency deposit system, including interest income from foreign currency loans
granted by such depository banks under said expanded foreign currency deposit system to
residents, shall be subject to a final income tax at the rate of ten percent (10%) of such
income.
“ Any income of nonresidents, whether individuals or corporations, from transactions with
depository banks under the expanded system shall be exempt from income tax. “

(c) Capital Gains from Sale of Shares of Stock Not Traded in the Stock Exchange. - A
final tax at the rates prescribed below is hereby imposed upon the net capital 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 P100,000 10%

(d) Intercorporate Dividends. - Dividends received by a resident foreign corporation

from a domestic corporation liable to tax under this Code shall not be subject to tax
under this Title.
TAX ON NONRESIDENT FOREIGN CORPORATION.
TRAIN LAW
‘(1) In General. – Except as otherwise provided in this Code, a foreign
corporation not engaged in trade or business in the Philippines shall pay a tax
equal to thirty-five percent (35%) of the gross income received during each
taxable year from all sources within the Philippines, such as interests, dividends,
rents, royalties, salaries, premiums (except reinsurance premiums), annuities,
emoluments or other fixed or determinable annual, periodic or casual gains,
profits and income, and capital gains, except capital gains subject to tax under
subparagraph 5(c): Provided, That effective January 1, 2009, the rate of income
tax shall be thirty percent (30%)
CREATE LAW
“(1) In General. – Except as otherwise provided in this Code, a foreign
corporation not engaged in trade or business in the Philippines, effective January
1, 2021, shall pay tax equal to twenty-five (25%) of the gross income received
during the taxable year from all sources within the Philippines, such as interests,
dividends, rents, royalties, salaries, premiums (except reinsurance premiums),
annuities, emoluments or other fixed or determinable annual, periodic or casual
gains, profits and income, and capital gains, except capital gains subject to tax
under subparagraph 5(c):
 TRAIN LAW
“(2) Non-resident Cinematographic Film Owner, Lessor or Distributor. – A
cinematographic film owner, lessor, or distributor shall pay a tax of twenty-five percent
(25%) of its gross income from all sources within the Philippines.

“(3) Non-resident Owner or Lessor of Vessels Chartered by Philippine Nationals. – A

non-resident owner or lessor of vessels shall be subject to a tax of four and one-half
percent (4 1/2%) of gross rentals, lease or charter fees from leases or charters to Filipino
citizens or corporations, as approved by the Maritime Industry Authority.
“(4) Non-resident Owner or Lessor of Aircraft, Machineries and Other Equipment. –
Rentals, charters and other fees derived by a non-resident lessor of aircraft,
machineries and other equipment shall be subject to a tax of seven and one-half
percent (7 1/2%) of gross rentals or fees.
 TRAIN LAW
“(5) Tax on Certain Incomes Received by a Non-resident Foreign Corporation. –

(a) Interest on Foreign Loans. – A final withholding tax at the rate of twenty percent (20%) is hereby
imposed on the amount of interest on foreign loans contracted on or after August 1, 1986;

(b) Intercorporate Dividends. – A final withholding tax at the rate of fifteen percent (15%) is hereby
imposed on the amount of cash and/or property dividends received from a domestic corporation,
which shall be collected and paid as provided in Section 57(A) of this Code, subject to 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 deemed to have been paid in the
Philippines equivalent to twenty percent (20%), which represents the difference between the regular
income tax of thirty-five percent (35%) and the fifteen percent (15%) tax on dividends as provided in
this subparagraph: Provided, That effective January 1, 2009, the credit against the tax due shall be
equivalent to fifteen percent (15%), which represents the difference between the regular income tax of
thirty percent (30%) and the fifteen percent (15%) tax on dividends;
CREATE LAW
“(5) Tax on Certain Incomes Received by a Non-resident Foreign Corporation. –

(a) Interest on Foreign Loans. – x x x

(b) Intercorporate Dividends. – A final withholding tax at the rate of fifteen percent
(15%) is hereby imposed on the amount of cash and/or property dividends received from a
domestic corporation, which shall be collected and paid as provided in Section 57(A) of
this Code, subject to 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 deemed to have been paid in the Philippines equivalent to
fifteen percent (15%) , which represents the difference between the regular income tax and
fifteen percent (15%) tax on dividends as provided in this subparagraph: Provided, That
effective July 1, 2020, the credit against the tax due shall be equivalent to the difference
beween the regular income tax rate provided in Section 28 (B)(1) of this Code and the
fifteen percent (15%) tax on dividends
 TRAIN LAW
“(c) Capital Gains from Sale of Shares of Stock not Traded in the
Stock Exchange. – A final tax at the rates prescribed below is hereby
imposed upon the net capital 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 PhP100,000 ................................. 5%

On any amount in excess of PhP100,000..... 10%
CREATE LAW
“(c) Capital Gains from Sale of Shares of Stock not Traded in
the Stock Exchange. – A final tax rate of fifteen percent (15%) is
hereby imposed upon the net capital gains realized during the taxable
year from the sale, barter, exchange or other disposition of shares of
stock in domestic corporation, except shares sold, or disposed of
through the stock echange
Corporate Income Tax (CIT) Reforms under CREATE Act
The corporate income tax (CIT) rates for domestic corporations and resident foreign corporations (RFCs) under
the CREATE Act will be reduced from the current 30% to 25%, retroactive to July 1, 2020. The CIT will be reduced
further by 1% annually in the next six years. And shall eventually reach 20% by 2027 onwards.

Summary of CIT rates and their effectivity under CREATE Act

Changes on rates of certain passive income
THANK YOU
Reference
https://www.pwc.com/ph/en/publications/pdf/pwc-ph-tax-
code-feb-2020.pdf

republic act no. 11534] an act reforming the corporate

income tax and incentives ...