Corporate Income Tax Overview

Study Notes

Corporations with net taxable income not exceeding P5,000,000 and total assets not exceeding P100,000,000, excluding land where the business operates, are taxed at 20%.
For corporations using fiscal-year accounting, income and expenses are deemed equal for each month within the fiscal year. The tax rate is applied based on the number of months covered by the new rate within the fiscal year.
Proprietary educational institutions and hospitals that are nonprofit pay a 10% tax on their taxable income, except for those specified in Subsection (D).
From July 1, 2020, to June 30, 2023, the tax rate for proprietary educational institutions and hospitals was reduced to 1%.
If gross income from "unrelated trade, business or other activity" exceeds 50% of total gross income for educational institutions or hospitals, the tax prescribed in Subsection (A) is imposed on the entire taxable income.
"Unrelated trade, business or other activity" refers to any activity not substantially related to the institution's or hospital's primary function.
"Proprietary" means a private hospital or school maintained and administered by private individuals or groups with a permit from DepEd, CHED, or TESDA.

Self-employed individuals and professionals have the option to pay an 8% tax on gross sales or gross receipts and other non-operating income exceeding P250,000 in lieu of the graduated income tax rates and the percentage tax under Section 116.

Taxpayers earning both compensation income and income from business or the practice of a profession are subject to specific tax rates:
- All Income from Compensation: The rate prescribed under Subsection (A)(2)(a).
- All Income from Business or Practice of Profession:
  - Gross sales and/or gross receipts and other non-operating income do not exceed the VAT threshold: The rates prescribed under Subsection (A)(2)(a) are applied, or an 8% income tax based on gross sales or gross receipts and other non-operating income in lieu of the graduated income tax rates and the percentage tax under Section 116.
  - Gross sales and/or gross receipts and other non-operating income exceed the VAT threshold: The rates prescribed under Subsection (A)(2)(a) are applied.

Interest, Royalties, Prizes, and Other Winnings: Government-owned or controlled corporations, except the GSIS, SSS, HDMF, PHIC, and local water districts, pay the same tax rates as corporations engaged in similar businesses.
Interest from Deposits and Yield or any other Monetary Benefit from Deposit Substitutes and from Trust Funds and Similar Arrangements, and Royalties: A final tax of 20% is imposed on interest on currency bank deposits, yield or any other monetary benefit from deposit substitutes and from trust funds, and royalties received by domestic corporations within the Philippines. Interest income derived from a depository bank under the expanded foreign currency deposit system is subject to a final income tax of 15%.
Capital Gains from the Sale of Shares of Stock Not Traded in the Stock Exchange: A final tax of 15% is imposed on net capital gains realized during the taxable year from the sale, exchange or other disposition of shares of stock in a domestic corporation, except shares sold or disposed of through the stock exchange.

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