Corporate income tax.feb.2011

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Basic corpoarte income tax in the Philippines.

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Corporate income tax.feb.2011

  1. 1. Income Taxation of Corporate Taxpayers (Courtesy: www.philtaxation.blogspot.com )
  2. 2. What is a corporation? <ul><li>It 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 incident to its existence. (Sec. 2, BP No. 68 – Corporation Code) </li></ul>
  3. 3. What is a corporation? <ul><li>Sec. 22(B),NIRC - corporation shall include partnerships, no matter how created or organized, joint-stock companies, joint accounts ( cuentas en participacion ), associations or insurances companies, but does not include: </li></ul><ul><ul><li>General professional partnerships; </li></ul></ul><ul><ul><li>Joint venture & consortium formed for the purpose of undertaking construction projects; or, </li></ul></ul><ul><ul><li>Joint venture & consortium formed for the purpose of engaging petroleum, coal geothermal and other energy operations pursuant to an operating or consortium agreement under a service contract with the Government </li></ul></ul>
  4. 4. Kinds of Corporate Taxpayers <ul><li>Domestic corporation – organized and existing under the laws of the Philippines. </li></ul><ul><li>Foreign corporation – organized and existing under the laws of a foreign country. </li></ul><ul><ul><li>Resident foreign corporation; or </li></ul></ul><ul><ul><li>Non-resident foreign corporation </li></ul></ul>
  5. 5. Foreign corporations <ul><li>Resident foreign corporation – engaged in trade or business in Philippines (Sec. 22(H), NIRC) & normally establishes a branch or an office for the purpose. </li></ul><ul><li>Non-resident foreign corporation – not engaged in trade or business in the Philippines but earns income from within. </li></ul><ul><li>Both are taxable from income within the Philippines only. </li></ul>
  6. 6. Kinds of taxable income <ul><li>Passive income subject to final taxes </li></ul><ul><li>Capital gains subject to capital gains taxes (CGT: shares/real property) </li></ul><ul><li>Ordinary income subject to 32/35/30% </li></ul><ul><li>Special income subject to special rates (e.g. PEZA 5% special tax regime) </li></ul>
  7. 7. Corporate income taxes <ul><li>Ordinary income tax – 30% starting Jan. 1, 2009 </li></ul><ul><li>Minimum Corporate Income tax – 2% of gross income </li></ul><ul><li>Gross income tax – 15% of gross income under certain conditions </li></ul><ul><li>Capital gains tax on shares of stocks and real properties </li></ul><ul><li>Final income tax on certain passive income </li></ul><ul><li>Branch profit remittance tax – 15% </li></ul><ul><li>Improperly accumulated income tax (IAET) </li></ul><ul><li>Fringe benefit tax (FBT) </li></ul>
  8. 8. Formula: Domestic Corp. <ul><li>Gross sales/receipts/ w/n & w/out P xxx </li></ul><ul><li>Less: Sales returns, discounts & allow xxx </li></ul><ul><li>Net sales P xxx </li></ul><ul><li>Less: Cost of sales xxx </li></ul><ul><li>Gross profit P xxx </li></ul><ul><li>Add: Other ordinary income xxx </li></ul><ul><li>Adjusted gross profit/income P xxx </li></ul><ul><li>Less: Allowable deductions or OSD xxx </li></ul><ul><li>Taxable net income P xxx </li></ul><ul><li>Multiply by tax rate 32/35/30% </li></ul><ul><li>Normal income tax due P xxx </li></ul><ul><li>vs. MCIT beginning 4rth year of operation P xxx </li></ul><ul><li>Higher between NCIT & MCIT Pxxx </li></ul><ul><li>Less: Tax Credits xxx </li></ul><ul><li>Tax due & payable P xxx </li></ul>
  9. 9. Minimum Corporate Income Taxation <ul><li>Applicable on the 4 th year of operation </li></ul><ul><li>At a net loss, no taxable income, normal income tax less than MCIT </li></ul><ul><li>Excess MCIT carried over to the next 3 succeeding years </li></ul><ul><li>Now applied quarterly; </li></ul>
  10. 10. Formula: Domestic Corp. <ul><li>Gross sales/receipts/ w/n & w/out P xxx </li></ul><ul><li>Less: Sales returns, discounts & allow xxx </li></ul><ul><li>Net sales P xxx </li></ul><ul><li>Less: Cost of sales xxx </li></ul><ul><li>Gross profit P xxx </li></ul><ul><li>Add: Other ordinary income xxx </li></ul><ul><li>Adjusted gross profit/income P xxx </li></ul><ul><li>Multiply by 2% MCIT rate 2% </li></ul><ul><li>MCIT P xxx </li></ul>
  11. 11. Optional Gross Income Taxation <ul><li>President’s discretion upon recommendation of Sec. of Finance under the ffg: </li></ul><ul><ul><li>Tax ratio of 20% of GNP; </li></ul></ul><ul><ul><li>40% ratio of income tax collection to total revenues; </li></ul></ul><ul><ul><li>4% VAT effort ratio to GNP </li></ul></ul><ul><ul><li>.9% ratio of Consolidated Public Sector Financial Position (CPSFP) to GNP </li></ul></ul><ul><li>Available to firms if COS do not exceed 45% of Gross sales/receipts </li></ul>
  12. 12. Formula: Domestic Corp. <ul><li>Gross sales/receipts/ w/n & w/out P xxx </li></ul><ul><li>Less: Sales returns, discounts & allow xxx </li></ul><ul><li>Net sales P xxx </li></ul><ul><li>Less: Cost of sales xxx </li></ul><ul><li>Gross profit P xxx </li></ul><ul><li>Add: Other ordinary income xxx </li></ul><ul><li>Adjusted gross profit/income P xxx </li></ul><ul><li>Multiply by 15% GIT rate 15% </li></ul><ul><li>Gross Income Tax P xxx </li></ul>
  13. 13. Improperly Accumulated Earnings Tax (IAET) <ul><li>Imposed as a form of penalty to corporations retaining earnings for more than the reasonable needs of business in order to recoup the lost taxes. </li></ul><ul><li>Does not apply to the following: </li></ul><ul><ul><li>Publicly held corporations; </li></ul></ul><ul><ul><li>Banks and other non-bank financial intermediaries; </li></ul></ul><ul><ul><li>Insurance companies </li></ul></ul>
  14. 14. Summary of corporate applications Income DC RFC NRFC Taxable income W/in & W/out Within Within Cost of sales Yes Yes No Allowable deductions/OSD Yes Yes No MCIT Yes Yes No Foreign tax credits Yes Yes, if w/in n/a Optional GIT 15% 15% n/a IAET 10% 10% n/a
  15. 15. Summary of corporate applications Income DC RFC NRFC CGT-share 5/10% 5/10% 5/10% CGT-RP 6% 6% 30% Stock transaction tax ½ of 1% ½ of 1% ½ of 1% Profit remittance tax n/a 15% n/a Inter corporate dividends Exempt Exempt 15% reciprocity law or 30% Interest on foreign loans 32/35/30% 32/35/30% 20%
  16. 16. Summary of corporate applications Income DC RFC NRFC Interest – Phil bank deposit 20% 20% 32/35/30% <ul><li>EFCDS </li></ul>7.5% 7.5% Exempt <ul><li>Term </li></ul>5/12/20% 5/12/20% 32/35/30% Royalties 20% 20% 32/35/30%
  17. 17. Special Domestic Corporations (Courtesy: www.pinoytaxation.com ) Nature Tax Rate Others Proprietary educational institutions Private schools 10% of TNI, except if unrelated income exceeds 50% Capital expenditure expensed at option Non-profit hospitals hospitals 10% of TNI GOCC’s Public/ privatized NCIT SSS, GSIS, PHIC, PCSO Government institutions Tax exempt
  18. 18. Special Resident Foreign Corps. Nature Tax Rate Others International carrier Shipping/airline 2 ½% of gross Phil. billing Offshore banking units Branch of foreign banks 10% of gross income Regional area headquarters (RAHQ) Phil. Admin office Tax exempt Not allowed to earn income Regional operating headquarters (ROHQ) Local operation in Phils. 10% of gross
  19. 19. Special Non-resident Foreign Corps. Nature Tax Rate Others Cinematographic film rentals 25% gross income Lessor of machinery, equipment, aircraft and others 7.5% gross income Lessor of vessels chartered by Philippine nationals 4.5% gross income Bareboat charter Agreement
  20. 20. <ul><li>“ Taxes affects lives, care for taxes and save lives” (Courtesy:philtaxation.blogspot.com) </li></ul><ul><li>End of slides </li></ul><ul><li>Thank you! </li></ul>

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