Corporation Definitions & Tax Classifications
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Questions and Answers

Which entities are classified as corporations under the Tax Code?

  • Joint ventures formed for construction
  • One person corporations (correct)
  • Sole proprietorships
  • General professional partnerships

    • What is a characteristic of a one person corporation as defined in the CREATE Act?

  • Must have multiple stockholders
  • Is required to engage in trade or business
  • Can operate as a general partnership
  • Only a natural person, trust, or estate can form it (correct)

    • What is NOT included in the term corporation for income tax purposes?

  • Joint stock companies
  • Associations
  • One person corporations
  • General professional partnerships (correct)

    • Which statement best describes joint ventures?

    <p>They relate to a single lot of goods or a single project</p> Signup and view all the answers

    What defines general professional partnerships according to the provided content?

    <p>Partnerships formed for the purpose of a common profession</p> Signup and view all the answers

    Which of the following does not constitute a corporation under the Corporation Code?

    <p>Natural persons</p> Signup and view all the answers

    In the context of corporation definitions, which term refers to an artificial being created by law?

    <p>Corporation</p> Signup and view all the answers

    Why are joint ventures excluded from the definition of a corporation?

    <p>They do not have the right of succession</p> Signup and view all the answers

    What happens to the excess estimated quarterly income taxes paid by a corporation?

    <p>It can be carried over to offset future tax liabilities.</p> Signup and view all the answers

    Once a corporation opts to carry over excess tax payments, what is the nature of this decision?

    <p>It is considered irrevocable for that taxable period.</p> Signup and view all the answers

    Which of the following organizations is exempt from corporation tax on income received?

    <p>A mutual savings bank organized for mutual purposes.</p> Signup and view all the answers

    What is a key requirement for organizations to qualify for tax exemption under Sec. 30?

    <p>They must operate exclusively for specified non-profit purposes.</p> Signup and view all the answers

    What constitutes a violation of the operational test for tax-exempt organizations?

    <p>Conducting activities that primarily generate profits.</p> Signup and view all the answers

    How should corporations file their income tax returns?

    <p>With any authorized agent banks or designated officials.</p> Signup and view all the answers

    What type of organization must be exclusively organized for mutual purposes to avoid taxation?

    <p>A mutual insurance company.</p> Signup and view all the answers

    What is the effect of owed income tax when a corporation files its tax declaration?

    <p>It must be paid at the time the declaration is filed.</p> Signup and view all the answers

    Which type of organization is specifically mentioned as not being organized for profit?

    <p>Fraternal organization operating under a lodge system.</p> Signup and view all the answers

    What type of corporation would not be tax-exempt under the organizational test?

    <p>An organization engaging in profit-driven activities.</p> Signup and view all the answers

    What should Gross Philippine Billings include for international flights originating from the Philippines?

    <p>Total net fare for all class types</p> Signup and view all the answers

    Which of the following is NOT included in the computation of Gross Philippine Billings?

    <p>Non-revenue passengers</p> Signup and view all the answers

    How is Gross Philippine Billings calculated for sea carriers?

    <p>Total gross revenue from Philippine-originating services</p> Signup and view all the answers

    What defines a Regional Operating Headquarters?

    <p>A branch established for administrative and marketing functions</p> Signup and view all the answers

    What is the tax rate for nonresident owners of aircraft, machinery, and other equipment in the Philippines?

    <p>7.5%</p> Signup and view all the answers

    What type of tax incentive do PEZA-registered enterprises may qualify for?

    <p>Income Tax Holiday</p> Signup and view all the answers

    What are income tax exemptions for PEZA-registered enterprises focused on?

    <p>Except for real property taxes</p> Signup and view all the answers

    What must be considered when computing Gross Philippine Billings for a flight that involves transshipment?

    <p>Revenue only up to the point of transshipment</p> Signup and view all the answers

    Which of the following services does NOT fall under the definition of Regional Operating Headquarters?

    <p>Local sales and operations</p> Signup and view all the answers

    What happens to the portion of revenue from a passenger's return trip to the Philippines?

    <p>It is excluded from Gross Philippine Billings.</p> Signup and view all the answers

    Which of the following describes an Offshore Banking Unit?

    <p>A branch of a foreign bank authorized for offshore banking in the Philippines</p> Signup and view all the answers

    For what duration can new registered pioneer firms enjoy Income Tax Holiday?

    <p>6 years</p> Signup and view all the answers

    What is the tax rate for nonresident cinematographic film owners on income from Philippine sources?

    <p>25%</p> Signup and view all the answers

    What happens if a taxpayer does not state their intention to elect the OSD in their return?

    <p>It is presumed they have availed the itemized deductions.</p> Signup and view all the answers

    Which type of income is excluded when computing the 40% OSD?

    <p>Passive income definitely taxed at source.</p> Signup and view all the answers

    What is the irrevocability condition of the OSD election in the taxpayer’s return?

    <p>Once elected, it cannot be changed for the taxable year.</p> Signup and view all the answers

    Which type of corporation is subject to a 1% tax rate until June 30, 2023, according to the CREATE Act?

    <p>Proprietary educational institutions.</p> Signup and view all the answers

    What is the consequence if gross income from unrelated trade or business exceeds 50% of total gross income for educational institutions?

    <p>The entire taxable income will be subject to RCIT.</p> Signup and view all the answers

    Which of the following is NOT a tax-exempt government-owned corporation?

    <p>Energy Regulatory Commission (ERC)</p> Signup and view all the answers

    Which entity is now taxed at a rate of 2.5% under the CREATE Act?

    <p>International carriers.</p> Signup and view all the answers

    What defines a 'non-profit' corporation as per regulations?

    <p>All net income must support the institution's purpose.</p> Signup and view all the answers

    How is the tax rate determined for regional operating headquarters of multinationals under the CREATE Act?

    <p>They are subject to regular corporate income tax.</p> Signup and view all the answers

    What is the duration of the income tax holiday (ITH) for firms that have not yet availed of it after the expansion?

    <p>Specified in the terms and conditions of their registration</p> Signup and view all the answers

    What is the tax rate applicable to offshore banking units under the CREATE Act?

    <p>2.5%</p> Signup and view all the answers

    What financial requirement must a corporation claiming OSD submit with its tax return?

    <p>Financial statements as required by the Tax Code.</p> Signup and view all the answers

    Which of the following partnerships is considered non-taxable?

    <p>General professional partnership</p> Signup and view all the answers

    How should a general professional partnership compute its net income?

    <p>In the same manner as a corporation</p> Signup and view all the answers

    What category does the gross Philippine billings for international air carriers include?

    <p>Total gross revenue from all sources.</p> Signup and view all the answers

    What characterizes a joint stock company?

    <p>A group operates a business under a shared corporate name.</p> Signup and view all the answers

    What type of tax do partners in a taxable partnership pay on their share of the net income?

    <p>10% final tax for residents/citizens</p> Signup and view all the answers

    Which of the following describes a joint account?

    <p>Involves sharing profits or losses based on a pre-agreed ratio.</p> Signup and view all the answers

    When will the tax rate revert for proprietary educational institutions after the initial 1% rate?

    <p>June 30, 2023.</p> Signup and view all the answers

    Which of the following options best describes branch profits remittance taxation?

    <p>15% on total profits earmarked for remittance.</p> Signup and view all the answers

    What defines a domestic corporation?

    <p>A corporation organized in the Philippines or under its laws.</p> Signup and view all the answers

    Which of the following is a requirement for tax-exempt joint ventures undertaking construction projects?

    <p>Involvement of licensed local contractors</p> Signup and view all the answers

    What tax rate applies to income payments to partners in a general professional partnership if their total payments exceed ₱720,000?

    <p>15% creditable withholding tax</p> Signup and view all the answers

    What distinguishes a resident foreign corporation (RFC) from a non-resident foreign corporation (NRFC)?

    <p>RFCs engage in trade within the Philippines, while NRFCs do not.</p> Signup and view all the answers

    Which of the following correctly describes a taxable joint venture?

    <p>Subject to tax unless specifically exempted</p> Signup and view all the answers

    What is the tax base for domestic corporations under the CREATE Act?

    <p>Net taxable income from both domestic and foreign sources.</p> Signup and view all the answers

    What type of tax implication does a partnership engaged in business face, regardless of how it is created?

    <p>It is required to file a cumulative declaration and annual return</p> Signup and view all the answers

    When did the income tax rate for resident foreign corporations change to 25%?

    <p>July 1, 2020.</p> Signup and view all the answers

    What classification of joint ventures is exempt based on an operating consortium agreement?

    <p>Joint venture undertaking construction projects</p> Signup and view all the answers

    How is gross income defined for sellers of services?

    <p>Gross income minus the cost of services provided.</p> Signup and view all the answers

    What happens to the minimum corporate income tax (MCIT) rate on gross income effective July 1, 2020?

    <p>It is reduced from 2% to 1%.</p> Signup and view all the answers

    What is the basis for a partner's reportable gross income in a general professional partnership?

    <p>The partner's share in the partnership net income</p> Signup and view all the answers

    What defines a proprietary educational institution?

    <p>A private educational establishment with proper permits.</p> Signup and view all the answers

    Which of the following statements about taxable domestic partnerships is accurate?

    <p>They share the same income tax base as domestic corporations.</p> Signup and view all the answers

    What must a partnership engaged in business file yearly?

    <p>Quarterly declarations and a final return</p> Signup and view all the answers

    What is required for an organization to be classified as an association for taxation purposes?

    <p>Must have similar features of a corporation.</p> Signup and view all the answers

    What happens to the 5% tax on Gross Income Earned (GIE) after the income tax holiday expires?

    <p>It is maintained for 10 years if eligible</p> Signup and view all the answers

    What is the primary distinction of a foreign corporation?

    <p>It is not organized under Philippine laws.</p> Signup and view all the answers

    What kind of projects must a joint venture undertake to possibly qualify for a tax exemption?

    <p>Construction projects certified by the appropriate government agency</p> Signup and view all the answers

    How is the optional standard deduction (OSD) amount determined for corporate taxpayers?

    <p>It cannot exceed 40% of their gross income.</p> Signup and view all the answers

    What is generally true regarding the tax liability for corporations under the CREATE Act?

    <p>They must pay either the RCIT or MCIT, whichever is higher.</p> Signup and view all the answers

    What tax treatment applies to the share of net income from a taxable joint venture for individual co-venturers?

    <p>Subject to 10% final tax</p> Signup and view all the answers

    Under what conditions can co-owners be considered as taxed as a corporation?

    <p>When income is invested in business or income-producing properties</p> Signup and view all the answers

    When are co-owners NOT automatically considered partners for tax purposes?

    <p>When they own inherited properties</p> Signup and view all the answers

    What constitutes an unregistered partnership for inherited property held undivided?

    <p>If it remains undivided for more than 10 years without administration proceedings</p> Signup and view all the answers

    What is the maximum number of pages allowed for a corporate income tax return?

    <p>Four pages</p> Signup and view all the answers

    Who is responsible for filing the corporate tax return?

    <p>The president or principal officer</p> Signup and view all the answers

    What must a corporation obtain before dissolution or reorganization?

    <p>Certificate of tax clearance</p> Signup and view all the answers

    What is the deadline to file the final adjustment return after the taxable year closes?

    <p>On or before the 15th day of the 4th month following the year-end</p> Signup and view all the answers

    What happens if the cumulative quarterly tax payments do not equate to the total tax due for the year?

    <p>The corporation must either pay the balance or be refunded</p> Signup and view all the answers

    What must be included in the contents of the corporate income tax return?

    <p>Allowable deductions under the tax code</p> Signup and view all the answers

    How can a corporation change its accounting period for the tax return?

    <p>With prior approval from the Commissioner</p> Signup and view all the answers

    What is the general tax treatment of co-ownership activities?

    <p>They are not taxable</p> Signup and view all the answers

    What principle applies regarding the sharing of gross returns among co-owners?

    <p>It does not establish a partnership by itself</p> Signup and view all the answers

    What document requires verification for a corporation intending to dissolve?

    <p>Return for dissolution plan</p> Signup and view all the answers

    Study Notes

    Corporation Definitions and Classifications

    • Corporation (Tax Code): Includes one-person corporations, partnerships, joint-stock companies, joint accounts, associations, and insurance companies. Excludes general professional partnerships and joint ventures/consortia for construction or energy projects under government service contracts.

    • One-Person Corporation (OPC): A corporation with a single stockholder, restricted to natural persons, trusts, or estates.

    • Corporation (Corporation Code): An artificial entity created by law with succession rights and powers defined by law.

    • Taxable Corporations (Income Tax): Includes OPCs, all partnerships (except general professional partnerships), joint-stock companies, joint accounts, and associations/insurance companies.

    • Non-taxable Corporations: General professional partnerships and joint ventures/consortia for construction or energy projects under government service contracts.

    Definitions of Specific Terms

    • General Professional Partnership: Partnerships formed for the practice of a profession where no part of income comes from trade/business. Partners are taxed individually.

    • Joint Venture: A commercial undertaking by two or more parties focused on a single project or goods sale.

    • Joint Stock Company: Individuals form a business with a common name, divided capital stock, directors, and corporate characteristics (but without formal government authorization).

    • Joint Accounts ("Cuentas en Participación"): One party invests capital in another's business, sharing profits/losses as agreed. No required formalities.

    • Associations: Organizations similar to corporations for tax purposes.

    • Proprietary Educational Institution: Private schools with permits from DepED, CHED, or TESDA, adhering to relevant laws/regulations.

    • Proprietary Hospital: Private, non-profit hospitals run by individuals/groups.

    Corporation Classifications

    • Domestic Corporation (DC): Created/organized in the Philippines under its laws.

    • Foreign Corporation: Any corporation not domestic.

      • Resident Foreign Corporation (RFC): Foreign corporations engaged in trade/business in the Philippines.

      • Non-Resident Foreign Corporation (NRFC): Foreign corporations not engaged in trade/business in the Philippines.

    Tax Base and Rates

    • Corporate Income Tax (CREATE Act):

      • Domestic Corporations: Taxed on net taxable income from sources within and outside the Philippines. Calculation of taxable income considers total assets without land value for the specific business entity’s office, plant, and equipment. Fiscal-year adopters calculate income evenly across all months.

      • Resident Foreign Corporations: Taxed on net taxable income from sources within the Philippines. The income tax rates have been amended to 25%.

      • Non-Resident Foreign Corporations: Taxed on gross income from sources within the Philippines. At 25%, MCIT does not apply.

      • Taxable Partnerships/Joint Ventures: Taxed similarly to domestic corporations.

      • PEZA-Registered Enterprises: Taxed based on specific incentives—certain incentives granted prior to CREATE Act have transitory periods.

    • Optional Standard Deductions (OSD):

      • Maximum 40% of gross income.
      • Gross income, calculated differently for sales and service providers, is determined according to specific tax code provisions.
      • Passive income subject to final tax is excluded from gross income for OSD calculations.
      • Election of OSD is irrevocable..

    Special Corporations

    • Special Domestic Corporations: Certain types of domestic corporations, such as specific educational institutions and hospitals, have special tax rates and bases.

    • Proprietary Educational Institutions and Nonprofit Hospitals: 1% on taxable income (effective for a time frame specified in the text).

    • Activities not substantially related to core functions: If unrelated trade, business, or other activity exceeds 50% of total gross income, entire taxable income is subject to regular corporate income tax.

    • Special Non-resident Foreign Corporations (NRFCs):

    • Cinematographic Film Owners/Lessors/Distributors: 25% tax rate on income from Philippine sources.

    • Aircraft/Machinery/Equipment Owners/Lessors: 7.5% tax rate on gross rentals/fees from within the Philippines.

    • Vessel Owners/Lessors: 4.5% tax rate on gross rentals/lease or charter fees from leases/charters to Filipino citizens/corporations.

    Corporate returns, payments, and exemptions

    • Corporate Returns: Corporations (except NRFCs) file quarterly income tax returns. Returns include corporate information, gross income (excluding final tax income), deductions, taxable income, and tax due. Presumed to use itemized deductions unless specified otherwise. The return is filed by a principal officer.

    • Taxable Year: Corporations can use either the calendar or fiscal year.

    • Dissolution/Reorganization: Corporations facing dissolution or reorganization need to file a detailed return with the Bureau of Internal Revenue before the SEC certificate is issued.

    • Return Extensions: The Commissioner can grant extensions in meritorious cases.

    • Quarterly/Final Returns: Requirements for filing quarterly declarations and final adjustment returns.

    • Exemption: Several organisations are exempt from corporate income tax based on organizational and operational tests.

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    Description

    Test your knowledge on various corporation definitions and classifications according to tax codes and legal frameworks. This quiz covers concepts such as one-person corporations, taxable and non-taxable entities, and distinctions within corporate law. Perfect for students and professionals in business and law.

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