income tax computation corporate taxpayer 1. 2 what is a corporation? corporation – is an...
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Income Tax Computation
Corporate Taxpayer
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What is a corporation?What is a corporation?
Corporation – is an artificial being created by law, having the rights of succession and the powers, attributes and properties authorized by law or incident to its existence.
For taxation purposes, corporation shall include – Partnerships
Joint-stock companies
Joint accounts
Associations
Insurance companies
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A corporation does not include –
•General Professional Partnership
•Joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating or consortium agreement under a service contract with the government
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Classification of CorporationClassification of Corporation
Domestic corporation Foreign corporation
Resident Foreign – engaged in trade or business within the Phil. Generally, it establishes branch or an office for the purpose of doing business or trade.
Non-Resident Foreign – not engaged in trade or business within the Philippines.
Tax Rate Effectivity Basis
34%
33%
32%
35%
30%
Jan 1, 1998
Jan 1, 1999
Jan 1, 2000
Nov 1, 2005
Jan 1, 2009
RA 8424
RA 8424
RA 8424
RA 9337
RA 9337
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Evolution of Corporate Income Tax RateEvolution of Corporate Income Tax Rate
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Taxability of Corporations (RA 9337)
Income In General Domestic Resident Foreign
Non-Res. Foreign
All income derived from sources within or outside the Phils.
30% (Net
Taxable Income)
-- --
All income derived from sources within the Phils.
30%(Net Taxable
Income)
30%(Gross
Income)
Optional Corporate Tax Rate
15%(Gross
Income)
15%(Gross
Income) ---
Minimum Corporate Income Tax (MCIT)
2%(Gross
Income)
2%(Gross
Income)--
Taxability of Corporations
Domestic corporationsIn general
Taxable on all incomeDerived from sourcesWithin and without the Phil. 30%
Optional corporate tax rate(based on gross income) 15%
Minimum Corporate Income Tax(MCIT) 2%
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Taxability of Corporations
Domestic corporationsProprietary educational institutions
& hospitals (non-profit) 10%GOCCs (except GSIS, SSS, PHIC
and PCSO) 30%Improperly accumulated earnings 10% Passive income
Interest 20%Interest income from FCDU 7.5%Royalties 20%
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Taxability of Corporations
Domestic corporationsCapital gains from sale of shares of
Stocks not traded in the SE -Not over P100,000 5%- In excess of P100,000 10%
Income from foreign currency loansGranted by depository bank under FCDU 10%
Intercorporate dividends exempt Capital gains from sale of land
and building 6%9
Taxability of Corporations
Resident Foreign corporationsIn general
Taxable on all income derivedfrom sources within the Phil. 30%
Optional corporate tax rate(based on gross income) 15%
Minimum Corporate Income Tax(MCIT) 2%
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Taxability of Corporations
Resident Foreign corporationsGross Philippine Billings
International air carrier2.5%
International shipping2.5%
Interest income on foreign currencyLoans granted by OBU 10%
Branch profit remittance 15% Regional or area headquarters exempt Regional operating headquarters 10%
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Taxability of CorporationsResident Foreign corporationsPassive income
Interest 20% Interest income from FCDU 7.5% Royalties 20%
Income from foreign currency loansGranted by depository bank under FCDU 10%
Capital gains from sale of shares ofStocks not trade in the SE Not over P100,000 5% In excess of P100,000 10%
Intercorporate dividends exempt
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Taxability of Corporations
Non-resident Foreign corporationsIn general
On gross income received from all
sources within the Phils. 30%Cinematographic film owner, lessor,
or distributor 25%Owner/lessor of vessels chartered by
Phil. Nationals 4.5%Owner/lessor of aircraft, machineries
& other equipment 7.5%
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Taxability of Corporations
Non-resident Foreign corporationsInterest on foreign loans 20%Intercorporate dividends 15%Capital gains from sale of shares of
stocks not traded in the SE Not over P100,000 5%In excess of P100,000 10%
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The Normal Corporate Income Tax BIR Form 1702 (General Format for Income tax computation on business income)
Sales/ Revenues/ Fees from within and without P xxx
Less: Sales returns, allow., and disc. (if any) P xxx
Cost of Sales xxx xxx
Gross Income from operation P xxx
Add: Non-operating and other income not subjected to final tax or capital gains tax
xxx
Gross Income xxx
Less: Allowable itemized business deductions/ OSD xxx
Net Taxable Income xxx
Multiply by Normal Corporate Income Tax Rate 30%
Normal Corporate Income Tax xxx ===
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MINIMUM CORPORATE INCOME TAX
(MCIT)RR No. 9-98, as amended by RR no. 12-07
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Sec. 27(E) and 28 (A)(2) of the NIRCImposed on:
Domestic & Resident Foreign
2% on Gross Income
if: - in the 4th year of operation - net loss/zero taxable income/ MCIT is greater than NCIT
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Gross income
Include all items of gross income enumerated under Section 32(A) of the Tax Code, as amended, except income exempt from income tax and income subject to final. withholding tax.
For Sale of goods
“Gross sales” Include only sales contributory to income taxable under Sec. 27(A) of the Code.
“Cost of goods sold” Include all business expenses directly incurred to produce the merchandise to bring them to their present location and use.
Gross sales – (cost of goods sold + sales returns + discounts+ allowances)
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For sale of services
“Gross Revenues” Include income from sale of services, likewise, taxable under Sec. 27(A)
“Cost of services or Direct cost of Services”Include all business expenses directly incurred or related to the gross revenue from rendition of services.
Gross revenue – (cost of services/direct cost + sales returns + discounts + allowances)
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Illustration
Gross sales/ revenues 1,000,000.00 Less: Sales Ret., Disc & Allow. 25,000.00 Cost of Goods Sold/ services 500,000.00 Gross Income from operation 475,000.00 Add: Other Income not subject to Final Tax or Capital Gains Tax 100,000.00 Total Gross Income subject to MCIT 575,000.00 ========
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• Excess of MCIT over normal income tax shall be carried forward on an annual basis and credited against the normal income tax for the 3 immediately succeeding taxable years.
• Excess MCIT can only be credited against the income tax due if the normal income tax is higher than the MCIT
Carry forward of Excess MCIT
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• Excess MCIT which has not or cannot be so credited against the normal income tax due for the 3-year period shall lose its credibility.
• Excess MCIT cannot be claimed as a credit against the MCIT itself or against any other losses
Carry forward of Excess MCIT
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Carry forward of Excess MCIT
• The final comparison between the normal income tax payable and the MCIT shall be made at the end of the taxable year.
• The payable or excess payment in the Annual Income Tax Return shall be computed taking into consideration income tax payment made at the time of filing of quarterly income tax returns whether this be MCIT or normal income tax
NIT is higher than MCIT
MCIT is higher than Normal
Income Tax
Excess MCIT from prior year can be deducted from the NIT due
Excess withholding tax from prior year can be deducted from the NIT due
Excess MCIT from prior years cannot be deducted from the MCIT due
Excess withholding tax from prior year can be deducted from the MCIT due
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Rules on crediting of tax payments & taxes withheldAnnual Computation
NIT is higher than MCIT
MCIT is higher than Normal Income Tax
Quarterly taxes withheld can be credited from the NIT due
Quarterly income tax payments whether Normal Income Tax or MCIT can be deducted from the NIT due
Quarterly taxes withheld can be credited from the MCIT due
Quarterly income tax payments whether MCIT or Normal Income Tax can be deducted from the MCIT due
25Note: The final comparison between the NIT and MCIT shall be made at the end of te taxable year
Rules on crediting of tax payments & taxes withheldAnnual Computation
NITis higher than MCIT
MCIT is higher than Normal Income Tax
Excess MCIT from prior year can be deducted from the quarterly NIT due
Excess withholding tax from prior year can be deducted from the quarterly NIT due
MCIT from prior year cannot be deducted from the quarterly MCIT due
Excess withholding tax from prior year can be deducted from the quarterly MCIT due
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Rules on crediting of tax payments & taxes withheldAnnual Computation
NITis higher than MCIT
MCIT is higher than Normal Income Tax
Quarterly taxes withheld can be credited from the quarterly NIT due
Payment from previous quarters of the taxable year can be deducted from the cumulative tax due
Quarterly taxes withheld can be credited from the quarterly MCIT due
Payment from previous quarters of the taxable year can be deducted from the cumulative tax due
27Note: Quarterly comparison to determine whichever is higher between the NIT and MCIT shall be done on a cumulative basis
Rules on crediting of tax payments & taxes withheldAnnual Computation
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Suspension of MCIT
• Instances when MCIT may be suspended Substantial losses on account of –
Prolonged labor dispute Force majeure Legitimate business reverses
• Who may suspend Secretary of Finance upon recommendation of the CIR
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• Required documentation Submission of proof by the corporation Duly verified by the CIR’s duly authorized representative
Suspension of MCIT
IMPROPERLY ACCUMULATED
EARNINGS TAX (IAET)RA 8424/ RR No. 2-2001/RMC 35-2011
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CONCEPT OF IAETCONCEPT OF IAET
• Taxpayer is a corporation• Improper accumulation of taxable income beyond
the reasonable needs of the business• Non-distribution of earnings/profits to stockholders• The purpose of accumulation is to avoid the
payment of the income tax• Imposition of tax equivalent to 10% of the
improperly accumulated taxable income• The tax imposed is in the nature of penalty to a
corporation for improper accumulation of earnings beyond the reasonable needs of the business
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EVIDENCE OF PURPOSE TO AVOID EVIDENCE OF PURPOSE TO AVOID THE TAXTHE TAX
• The corporation is a mere holding or investment company
• Earnings or profits are permitted to accumulate beyond the reasonable needs of the business
Reasonable vs. Unreasonable Accumulation
Reasonable Needs of Business: Immediate needs of business, including
reasonably anticipated needs (Immediacy Test)
Unreasonable Accumulation Not necessary for the purpose of the
business considering all circumstances of the case
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Reasonable Needs of Business
100% of the paid up capital or the amount contributed to the corporation representing the par value of the shares of stock, hence, any excess capital over & above the par shall be excluded (RMC 35-2011).
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Reasonable Needs of Business
Earnings Reserved for definite corporate expansion projects for building, plant or equipment acquisition for compliance with loan covenant or pre-
existing obligation established under a legitimate business agreement.
Required by law to be retained or with legal prohibition
In case of foreign corporation subsidiaries, intended for investments within the Philippines
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Unreasonable accumulation of Profits
Investment of substantial earnings and profits of the corporation in unrelated business or in stock or securities of unrelated business;
Investment in bonds and other long term securities; and
Accumulation of earnings in excess of 100% of paid-up capital or contribution representing the par value of the shares of stock.
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Corporation Exempt from IAET
Banks and non-bank financial intermediaries Insurance companies Publicly held corporations Taxable partnerships GPP Non-taxable joint ventures Firms registered under RA 7916, 7227, and other
special ecozones
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IMPOSITION OF IAETIMPOSITION OF IAET
Tax rate 10%
Corporations liable Closely-held domesticcorporations
Deadline 15th day after the end of he year following the close of the taxable year
Closely-held corporations:
are corporations at least 50% in value of the outstanding capital stock or at least 50% of the total combined voting power of all classes of stocks entitled to vote is owned directly or indirectly by or for not more than 20 individuals
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TAX BASE OF IAET TAX BASE OF IAET (Improperly Accumulated Taxable Income)(Improperly Accumulated Taxable Income)
Taxable income P xxxAdd: (a)Income subject to final tax Pxxx(b)NOLCO xxx(c)Income exempt from tax xxx(d)Income excluded from gross income xxx xxxTotal P xxxLess: Income tax paid for the year xxx
Div. actually or const. paid/issued xxx xxxTotal xxxLess : Amount that can be retained xxx
IATI Pxxx ===
Payment of IAET
Dividend must be declared and paid not later than one year following the close of the taxable year
Otherwise, IAET should be paid within 15 days thereafter
Once the profit has been subjected to IAET, the same shall no longer be subjected to IAET in later years, even if not declared as dividend.
Once the profit has been subjected to IAET, the same shall no longer be subjected to IAET in later years, even if not declared as dividend.
Profits subjected to IAET, when finally declared as dividends, shall be nevertheless be subject to 10% final withholding taxProfits subjected to IAET, when finally declared as dividends, shall be nevertheless be subject to 10% final withholding tax
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Proprietary Educational Institution
Any private school created and organized as domestic corporation and which is maintained and administered by private individuals or groups with an issued permit to operated from DECS, CHED or the TESDA, as the case may be, in accordance with existing laws and regulations.
TaxabilityIn general 10%
If gross income from unrelated trade,business or other activity exceeds 50%of the total gross income 30%
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Non-Profit Hospital
A non-stock and non-profit domestic corporation organized and created to maintain and administer a hospital without a capital stock divided into shares, and no part of the income of which is distributable as dividends to its members, trustees or officers, but are used only for the furtherance of the said purpose. Hospital means an institution for the reception and care of sick, wounded, infirm or aged persons. It does not include hospitals for the care of animals.
TaxabilityIn general 10%
If gross income from unrelated trade,business or other activity exceeds 50%of the total gross income 30%
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Exempted Corporations (Sec. 30)
Labor, agricultural or horticultural organizations not organized principally for profit
Mutual savings bank without capital stock represented by shares and cooperative bank without capital stock organized and operated for mutual purposes and without profit
Beneficiary society, order or association, operating for the exclusive benefit of the members
Cemetery company owned and operated exclusively for the benefit of its members
Non-stock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans.
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Exempted Corporations (Sec. 30)
Business league, chamber of commerce, or board of trade, not organized for profit
Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare
Non-stock, non-profit educational institution Government educational institution Farmer’s or other mutual typhoon or fire insurance co., mutual
ditch or irrigation co., mutual or cooperative telephone co. or like organization of local character
Farmers, fruit growers or like association organized and operated as sales agents of its members and turning back to them the proceeds of sales less the necessary expenses
Income from any of their properties or from any activity conducted for profit shall be subject to tax regardless of disposition.
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Partnership
By the contract of partnership, two (2) or more persons bind themselves to contribute money, property or industry to a common fund with the intention of dividing the profits among themselves.
Types of Partnership
General partnership (Partnership)General Professional partnership (GPP)General Co-ownership
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General Partnership
A partnership other than GPP
It is considered as a corporation for tax purposes
Partners are considered as stockholders thus, profits distributed are considered as dividends
Partners distributive share in the profits of the partnership is not subject to normal income tax
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General Professional Partnership
Partnership formed by persons for the sole purpose of exercising their common profession, no part of the income of which is derived from engaging in any trade or business
Not considered as a corporation
GPP is not subject to income tax
Individual partners shall be liable to income tax on his share in the distributable net income of the GPP
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General Co-Ownership
Activities of the co-owners are limited to the preservation ofthe property and the collection of the income therefrom
Co-ownership is not subject to tax
Co-owner is taxed individually on his distributive share
Co-owners invest the income of the co-ownership in any income producing properties
Will constitute a partnership subject to tax as a corporation
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Income Tax Forms and Due Dates
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Individual
Form No.
Form Name Deadline for Filing No. of Copies
1701Q
Quarterly Income Tax Return
1st – April 152nd – August 153rd – November 15
3 copies
1701 Annual Income Tax Return
Calendar – April 15Fiscal – 15th day of the 4th month ff. the close of the year
3 copies
Form No.
Form Name Deadline for Filing No. of Copies
1702 Annual Income Tax Return(For Corporations, Partnerships and Other Non-individual Taxpayers)
On or before April 15
On or before the 15th day of the 4th month following the close of the fiscal year
3 copies
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Corporations
Form No.
Form Name Deadline for Filing No. of Copies
1702Q Quarterly Income Tax Return
(For Corporations, Partnerships and Other Non-individual Taxpayers)
60 days following the close of the first 3 taxable quarters
3 copies
1704 Improperly Accumulated Earnings Tax Return
On or before the 15th day of the following year following the taxable year
3 copies
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Attachments Required
Account Information Form (AIF) BIR Form 1702-AIF and the Certificate of the Independent CPA (The CPA Cert. is req’d. if the Gross sales, earnings, receipts exceed P150,000.00);
Certificate of income payments not subjected to withholding tax (BIR Form 2304), if applicable;
Certificate of Creditable withholding tax withheld at source (BIR Form 2307, if applicable);
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Summary Alphalist of W/T (SAWT) per RR 2-2006; Duly approved Tax Debit Memo, if applicable; Proof of prior year’s excess credits, if applicable; Proof of Foreign Tax credits, if applicable; For amended return, proof of tax payment and the
return previously filed; For those availing of fiscal incentives, see RMC No.
21-2007
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Deductions from the Income Tax DueDeductions from the Income Tax Due
• Taxes withheld from current year’s income
• Tax credits for foreign taxes paid
• Tax credits (tax credit memo)
• Taxes paid in the first 3 quarters (NIT or MCIT)
• Excess tax payments in the preceding year
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NOTE:
Installment Payments•Applicable to individual taxpayer only and NOT TO CORPORATION
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“Knowing is not enough; we must apply. Willing is not enough; we must do.”
Johann Wolfgang von Goethe
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