Income Tax of Corporations

INCOME TAX OF
CORPORATIONS
FINAL TAXES on Income and Capital Gain
TAX
 In addition to regular corporate income tax or minimum corporate income tax a
corporation may be subjected to:
1. final tax on passive income
2. Capital gains tax (CGT)
3. Improperly accumulated earnings tax (IAET)
CERTAIN INCOMEs SUBJECTED TO
FINAL TAX
A. CERTAIN PASSIVE INCOME DC AND RCF NRFC DC RCF NRCF
DERIVED FROM PHILIPPINE (OLD) (OLD) (NEW) (NEW) (NEW)
SOURCES SUBJECTED TO
FINAL TAX
1. Interest in any currency bank 20% Normal corporate 20% 20% 30%
deposit. income tax
2. Yield / monetary benefit from 20% Normal corporate tax 20% 20% 30%
deposit substitute, trust funds and
similar arrangements.
3. Royalties 20% Normal corporate tax 20% 20% 30%
4. Interest income derived from 7.5% Tax exempt 15% 7.5% Tax exempt
depository bank under expanded
foreign currency deposit system.
5. Inter-coporate dividends received Exempt Exempt 15%/ 30%
from domestic corporation
 With tax sparing: 15 % - if the country where the NRFC is domiciled allows a credit
against the tax due from the NRFC representing deemed paid in the Philippines equivalent
to 15%
 Without tax sparing: 30%-
illustration
 Golden corporation has the following passive income for the year 201A.
 1. interest from depository bank under expanded FCDS at P120,000.
 2. royalties of P300,000.
 3. yield deposits substitutes and trust fund at P180,000.
 4. interest on currency bank deposit at P50,000.
• Requirements:
• Compute the passive income taxes of golden corporation assuming that the corporation is a
• (a) Domestic Corporation
• (b) Resident Foreign Corporation;
• (c) non resident foreign corporation.
Capital Gain Within Domestic Resident Foreign Nonresident Foreign
1.Capital Gain on sales of shares of
stock not traded in the local stock
exchange. Net Capital Gain
5%
Not over P100,000 5% 5%
10%
Excess of P100,000 10% 10%
2.Percentage tax on sale of share of

stock traded in local exchange. Base on
½ of 1%* ½ of 1%* ½ of 1%*
selling price.
3.Capital Gain on sale 0r exchange or 6% of selling price of FMV, which ever Same as Domestic Corp 30% of final withholding tax
disposition of land or buildings located is higher
in the Philippines.
4.Net capital Gain on sale 0r exchange 30% Not Taxable Not Taxable
or disposition of land and/ or buildings
located outside the Philippines.
Illustration
Diamond Corp has the ff. capital asset transactions for the year
2019
 Sold 10,000 common share of stock not trade in local exchange; P1,200,000
 Sold preferred shares of preferred stocks trade in local stock exchange; P1,800,000
 Sold land located in the Phil.; P6,000,000 . Cost: P3,000,000 . FV: P6,000,000
 Sold land located in Japan for P5,000,000, Cost: P4,000,000
Other Passive income of Domestic and
Resident Foreign Corporations
 1. The income of domestic Banks under the Expanded Foreign currency deposit system is
system is subject to a final tax 10%.
 A. income derived by a depository bank from foreign currency transactions with local
commercial banks including branches of foreign banks, other depository banks and
residents.
 B. interests income from foreign currency loans granted to residents.
 2. inter- corporate dividends
 A. received by a domestic corporation from another domestic corporation= tax exempt.
 B. received by a resident foreign corporation from a corporation liable to tax under
Philippine Tax Code= Tax exempt.
Illustration
 A Philippine Bank has been authorized to operate a foreign currency deposit unit by the
Bangko Sentral ng Pilipinas and has the following revenue and expenses:
 A. dividend income from San Miguel Corporation amounting to P3,000,000.
 B. interest income on US dollar deposit with local bank authorized to operate a FDCU at
$20,000.
 C. interest income on US dollar loans from resident borrowers at $5,000.
 D. interest on Philippine peso loans from borrowers at P3,000,000.
 E. interest on US dollar loans to non resident borrowers at $30,000.
 F. interest on US dollar deposit in Hongkong at $10000.
 G. operating expenses of P2000000. Exchange rate: one Us dollar is P50.
Other Passive income of Nonresident Foreign
Corporation
 1. interest income on foreign loans contracted on or after August 1, 1986 is subject to 20%
Final withholding tax.
2. Tax sparing Rule-With tax sparing: 15 % - if the country where the NRFC is domiciled
allows a credit against the tax due from the NRFC representing deemed paid in the
Philippines equivalent to 15%
 Without tax sparing: 30%
Illustration
 1. World Company, a non resident foreign corporation, received P100,000 worth of

dividends for the taxable year. Compute the taxes on the dividends assuming that the a)
foreign law allows taxpayer clause, and b) foreign law does not allow tax payer clause.
Special Domestic Corporations
Classification Applicable tax
Proprietary educational institutions 10% of net taxable income
(Except those whose gross income
from unrelated source exceeds 50%
of their total gross income)
Nonprofit Hospitals 10% of net taxable income
Government owned and controlled Normal corporate income tax
corporation
Exempt government organizations Tax exempt
(GSIS, SSS, PHIC, PCSO)
DOMESTIC PRIVATE EDUCATIONAL
INSTITUTION AND HOSPITALS
 Which are nonprofit shall pay a tax of 10% on their net taxable income.
 However, if their business income from unrelated business activities exceeds 50% of the
total gross income from all sources , the regular tax rate for domestic corporation shall be
applied.
The following data were reported for 200A
business activities of Western University (WU) a
private educational institution
Tuition fees P 3,000,000

Miscellaneous Fees P 200,000
Rent Income, net of 5% P 475,000
withholding tax
Cash dividend (Domestic), P 200,000
tax-exempt
Interest income, net 20% P 80,000
final tax
Operating Expenses P 1,200,000
Special Resident Foreign
Corporations
CLASSIFICATION APPLICABLE TAX TRAIN LAW
(OLD LAW)
International carrier 2.5% of the Phil. Gross 2.5 %
billings
Offshore banking units 10% gross income --
Branch remittances 15% of remittance --
Regional area headquarters Tax exempt --
Regional Operating 10% taxable income 10%
Headquarters
Dragon fly has the following
records of income for the period:
A. Continuous flight from Manila to Beijing = 1,000 tickets at P 3,000 per ticket
B. Ticket sold for flight from Manila to Hongkong: Transfer flight from Hongkong to
Beijing = 2,000 tickets at P 3,000 per ticket.
C. Direct flight from Manila to Hongkong = 3,000 tickets at P 2,000 per ticket.

Income Tax of Corporations

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Income Tax of Corporations

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INCOME TAX OF

2.Percentage tax on sale of share of

 1. World Company, a non resident foreign corporation, received P100,000 worth of

Tuition fees P 3,000,000

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