Income Taxation of Corporations in the Philippines
Corporations are categorized depending on its business activities. And with that, the tax percentage is determined.
What is a corporation?
As defined in the Corporation Code of the Philippines, a corporation is “an 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.”
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While the National Internal Revenue Code (NIRC) defined a corporation as “a corporation shall included partnerships, no matter how created or organized, joint-stock companies, joint accounts (cuentas en participación), association, or insurance companies, but does not include general professional partnerships and joint venture or consortium formed for the purpose of undertaking construction project or engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating consortium agreement under a service contract with the government.”
For tax purposes, the term corporation is much broader. It does not only include corporations but also partnerships, associations and other juridical entities.
four types of taxable corporations
Domestic Corporation
It is created or organized in the Philippines under Philippine laws. It can only engage in such business operations stated in the primary purpose and or secondary purpose of its Articles of Incorporation. A domestic corporation has an income tax rate of 30%.
Resident Foreign Corporation
It is created or organized other than Philippines laws; engaged in trade or business within the Philippines. A resident foreign corporation has an income tax rate for the following transactions:
Income of international carriers on their gross Philippine billings
INCOME
CIT RATE (%)
2.5%
Interest income from foreign currency loans granted to residents other than offshore business units (OBUs) or local commercial banks
10%
Income of OBUs and foreign currency deposit units (FCDUs) of depository banks from foreign currency transactions with non-residents, other OBUs or FCDUs, and local commercial banks (including branches of foreign banks) authorized by the Bangko Sentral ng Pilipinas to transact business with OBUs and FCUs
Exempt
Regional operating headquarters (ROHQs) earning income from the Philippines
10%
Regional or area headquarters of multinational corporations that do not earn or derive income from the Philippines, and that act as supervisory, communications, and coordinating centres for their affiliates, subsidiaries, or branches in the Asia-Pacific region and other foreign markets
Exempt
Non-resident Foreign Corporation
It is created or organized other than Philippines laws; not engaged in trade or business within the Philippines. A non-resident foreign corporation has an income tax rate of 30% since they are treated as a domestic corporation.
Special Corporation
Two type of Special Corporation are Educational Corporations and Religious Corporations.
