Deductible Expenses for Corporations in the Philippines

When establishing or doing business in the Philippines, you must be aware and knowledgeable of the allowable deductible expenses that you may use or claim for your income taxes. 

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list of allowable deductible expenses

In computing taxable income subject to income tax under Sections 24(A); 25(A); 26; 27 (A) (B) and (C); and 28(A)(1)

Expenses

Expenses which are all ordinary and necessary, paid or incurred during the taxable year in carrying on or which are directly attributable to the development, management, operation and/or conduct of the trade, business or exercise of a profession.

Interest

The amount of interest paid or incurred within a taxable year on indebtedness in connection with the taxpayer’s profession, trade or business shall be allowed as deduction from gross income. Provided, however, that the taxpayer’s otherwise allowable deduction for interest expense shall be reduced by thirty-three percent (33%) of the interest income subject to final tax starting January 1, 2009.

Taxes

Taxes paid or incurred within the taxable year in connection with the taxpayer’s profession, trade or business, shall be allowed as deduction except:


                > The income tax paid
                > Income taxes imposed by authority of any foreign country
                > Estate and donor’s taxes
                > Taxes assessed against local benefits of a kind tending to increase the value of the property assessed

Losses

Losses sustained during the taxable year and not compensated for by insurance or other forms of indemnity shall be allowed as deductions.

Bad Debts

Bad debts due to the taxpayer actually ascertained to be worthless and charged off within the taxable year except those not connected with profession, trade or business and those sustained in a transaction entered into between parties, provided, that recovery of bad debts previously allowed as deduction in the preceding years shall be included as part of the gross income of recovery to the extent of the income tax benefit of said deduction.

Depreciation

There shall be allowed as a depreciation deduction a reasonable allowance for the exhaustion, wear and tear (including reasonable allowance for obsolescence) of property used in the trade or business.

Depletion of Oil and Gas Wells and Mines

A reasonable allowance for depletion or amortization computed in accordance with the cost-depletion method shall be granted under rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner.

Charitable and Other Contributions

The deduction for charitable contributions ordinarily may not exceed 5% of taxable income as per the tax code. However, contributions to certain institutions are 100% deductible, subject to certain conditions.

Research and Development

A taxpayer may treat research or development expenditures which are paid or incurred by him during the taxable year in connection with his trade, business or profession as ordinary and necessary expenses which are not chargeable to capital account.

Pension Trusts

An employer establishing or maintaining a pension trust to provide for the payment of reasonable pensions to his employees shall be allowed as deduction (in addition to the contributions to such trust during the taxable year to cover the pension liability accruing during the year)

Source: National Internal Revenue Code under Sections 24(A); 25(A); 26; 27 (A) (B) and (C); and 28(A)(1)

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