Corporation Definitions & Tax Classifications

A legal entity created by law, distinct from its owners, with a right to exist after its owners change and only the powers granted by law.

A corporation that has only one shareholder, who can be a natural person, trust, or estate.

A group of people who come together for a specific business venture, but their liability is limited to their investment.

A partnership created by professionals to practice their profession, where income comes solely from professional services.

A business structure where two or more individuals agree to share profits and losses, but their liability is not limited to their investment.

A formal agreement between multiple parties to undertake a large project, typically in areas like construction or energy.

Businesses or organizations that are not classified as corporations for tax purposes, such as general professional partnerships and specific types of joint ventures.

A corporation is a legal entity created by law, while a partnership is a voluntary agreement between individuals.

A business enterprise formed by a group of individuals acting jointly, with invested capital divided into transferable shares, an elected board of directors, and other corporate characteristics, but operating without formal governmental authority.

An arrangement where one person contributes capital to another's business and shares in the profits or losses according to an agreement.

A broad term encompassing organizations exhibiting key corporate features and considered taxable entities, like corporations.

A privately owned and operated school with a permit from the Department of Education (DEPED), Commission on Higher Education (CHED), or Technical Education and Skills Development Authority (TESDA) to operate.

Any private hospital maintained and operated by private individuals or groups, typically non-profit.

A corporation created or organized under the laws of the Philippines.

A corporation not formed under Philippine laws.

A foreign corporation actively engaged in trade or business within the Philippines.

A foreign corporation not engaged in trade or business within the Philippines.

The net taxable income for regular corporate income tax (RCIT) and the gross income for minimum corporate income tax (MCIT) for domestic corporations.

The current income tax rate for domestic corporations, effective July 1, 2020.

The net taxable income for RCIT and the gross income for MCIT for resident foreign corporations.

The current income tax rate for resident foreign corporations, effective July 1, 2020.

The gross income from within the Philippines for non-resident foreign corporations.

The current income tax rate for non-resident foreign corporations, effective January 1, 2021.

Taxes imposed by local government units in the Philippines, including business, real estate, and other fees.

A period of time where existing incentives continue to apply before new rules take effect.

A tax holiday granted to companies for a specific period, allowing them to operate without paying income taxes.

A tax rate of 5% applied to gross income earned by businesses after the income tax holiday period ends.

A partnership formed for professional services, where partners are taxed individually, not as a partnership.

A partnership focused on trade or business, where income is taxed at the partnership level and then distributed to the individual partners.

A form of collaboration where two or more parties contribute resources to a common project.

A joint venture exempt from taxes when undertaking construction projects under a government service contract.

A joint venture in the Philippines that involves foreign contractors and is exempt from taxes under specific conditions.

The final tax rate applied to the income of partners in a taxable partnership, depending on their residency status.

The requirement for taxable partnerships to file both quarterly and annual tax returns.

A joint venture engaged in petroleum, coal, geothermal, or other energy operations under a government service contract.

The requirement for general professional partnerships to file an income tax return, listing partners' information and their shares in the income.

The method of calculating net income in a general professional partnership, similar to how a corporation calculates its net income.

The income each partner in a general professional partnership receives from the business, subject to individual income tax.

A special type of domestic corporation, such as a proprietary educational institution or a non-profit hospital, that enjoys reduced corporate income tax rates under certain conditions.

The income subject to tax. For special domestic corporations, it's the net taxable income earned both within and outside the Philippines.

The rate at which tax is applied to the tax base. For special domestic corporations, it's 1% on their taxable income from July 1, 2020, to June 30, 2023, and then reverts to 10%.

A type of special corporation that enjoys tax-exempt status. Examples include the GSIS, SSS, HDMF, PHIC, and Local Water Districts.

A foreign corporation established in the Philippines with a specific purpose. They enjoy special tax rates or exemptions.

A category of Special Resident Foreign Corporations that primarily deals with international air transportation services. They have special tax rate privileges.

The total income earned by an international carrier from transportation services within the Philippines. It's the basis for calculating tax obligations.

A foreign airline corporation with landing rights in the Philippines, providing international air transportation services.

A foreign shipping corporation carrying goods between the Philippines and other countries.

A type of special resident foreign corporation that earns income from offshore banking units (OBUs).

A type of special resident foreign corporation that serves as a regional headquarters for multinational companies. They enjoy tax exemptions.

A type of special resident foreign corporation that is responsible for operating and coordinating regional activities for multinational companies.

A special resident foreign corporation that can be subject to a 15% tax on the profits they remit to their parent companies.

The tax rate of 2.5% applied to the gross Philippine billings of international carriers. This preferential rate is granted based on reciprocity or existing tax treaties.

A type of international carrier service that involves flights originating from and ending in the Philippines.

A type of international carrier service that does not involve direct flights to and from the Philippines.

The average net fare of all tickets issued for a month, per destination, class of passage (First, Business, Economy), passenger type (Adult, Child, Infant), multiplied by the total passengers flown for the month.

Revenue earned from rerouted or transferred tickets within the Philippines.

Revenue earned from return trips to the Philippines are excluded from Gross Philippine Billings.

Revenue earned from the Philippine leg of a flight, up to the point of transshipment, is included in Gross Philippine Billings.

All revenue earned from passenger, cargo, and mail originating in the Philippines, regardless of where the sale or payment occurred, is included in Gross Philippine Billings.

Free travel for airline staff or other non-paying passengers are excluded from Gross Philippine Billings.

Refunded tickets do not contribute to Gross Philippine Billings.

A branch, subsidiary, or affiliate of a foreign bank authorized by the BSP to conduct offshore banking business in the Philippines.

A branch of a multinational company that acts as a supervisory, communication, and coordinating center for its affiliates in the Asia-Pacific region and other foreign markets, but does not generate income from the Philippines.

A multinational company branch in the Philippines providing services like general administration, business planning, sourcing, finance, marketing, training, logistics, research, technical support, data processing, and business development.

A corporate tax rate of 25% applied to the gross income from Philippine sources for nonresident companies involved in film ownership, leasing, or distribution.

A corporate tax rate of 7.5% on gross rentals or fees derived from leasing aircraft, machinery, and other equipment within the Philippines by nonresident companies.

A corporate tax rate of 4.5% on gross rentals or fees derived from leasing vessels chartered by Philippine nationals to nonresident companies, approved by the Maritime Industry Authority.

Companies registered with the Philippine Economic Zone Authority (PEZA) that enjoy certain tax incentives, but are not eligible for tax holidays.

PEZA-registered enterprises that enjoy a 5% tax on gross income, in lieu of all national and local taxes except real property tax on land owned by developers (5% GIT incentive).

The excess quarterly income tax paid by a corporation can be carried forward and used against future tax liabilities. This option is permanent once made for a specific tax period.

A corporation can file its quarterly income tax declaration and final adjustment returns with authorized banks, the Revenue District Office, a collection agent, or a city/municipal treasurer.

Income tax due for corporations is payable at the time of filing the declaration or return.

Certain organizations are exempt from corporation income tax. This includes labor organizations, agricultural organizations, mutual savings banks, cooperative banks, beneficiary societies, cemetery companies, and specific non-profit organizations.

Non-profit educational institutions, whether government-run or private, are exempt from corporation income tax.

Farmers' associations, fruit growers' associations, and similar local organizations that act as sales agents for their members are also exempt from corporation income tax.

To be considered tax-exempt, a corporation must meet two criteria: their organizational documents must solely focus on the exempt purpose, and their operational activities must exclusively support that purpose.

Even exempt organizations may be subject to tax on income generated from activities conducted for profit, regardless of how they use that income. This income can be from any source, including their real or personal property.

A corporation's activities are considered 'conducted for profit' if a substantial part of its operations generate income for the benefit of members, organizers, officers, or specific persons.

The 1997 Tax Code, as amended, outlines the specific purposes for which organizations can qualify for tax exemption under section 30. This includes charitable, religious, educational, athletic, and cultural purposes.

The share of a taxable joint venture's net income is considered an inter-corporate dividend, typically exempt from income tax. However, individual co-venturers are subject to a final tax of 10%.

The share of a non-taxable joint venture's net income is subject to the regular corporate income tax, or Section 24(A) for individual co-venturers.

Co-ownership is typically not taxable because co-owners mainly focus on preserving and collecting income from jointly owned property.

Each co-owner must report their share of the co-ownership income in their individual income tax returns.

When co-owners invest jointly owned income in a business or other income-generating activity, they become subject to tax as a partnership.

Co-owners of inherited properties that generate income are not automatically considered partners in an unregistered partnership or corporation subject to income tax.

If inherited property remains undivided for over 10 years without division attempts, administration proceedings, or being held in trust, it's treated as owned by an unregistered partnership, with income subject to corporate income tax.

Simply sharing gross returns from a property doesn't automatically constitute a partnership. There must be a clear intention to form a partnership or joint venture.

All corporations subject to income tax, except foreign corporations not operating in the Philippines, must file a true and accurate quarterly income tax return and final or adjustment return.

The corporate tax return must contain information on: corporate profile, gross sales/income, allowable deductions, taxable income, and tax due.

The corporate income tax return is filed by the president, vice-president, or another principal officer, and must be sworn to by that officer and the treasurer or assistant treasurer.

Corporations have the flexibility to choose a calendar or fiscal year as their accounting period for income tax purposes.

Corporations planning to dissolve or reorganize must file a return detailing the plans within 30 days, and obtain a tax clearance certificate before the Securities and Exchange Commission can process the dissolution or reorganization.

The Commissioner of Internal Revenue can grant extensions for filing income tax returns in deserving cases, but the request must meet the requirements of Section 56 of the Tax Code.

Corporations are required to make quarterly income tax declarations on a cumulative basis, paying taxes within 60 days of the end of each of the first three quarters. The declaration is adjusted each quarter, reflecting previously paid taxes.