Income Tax for Foreign Corporations

Foreign Corporations and Income Tax

• Foreign corporations, regardless of business activity in the Philippines, are taxable on income sourced within or outside the Philippines.
• Fringe benefits are subject to withholding tax by employers.

Fringe Benefit Tax

• Rank-and-file employees may be subject to fringe benefit tax.
• Annual depreciation of movable property is 20% of its value.
• Lodging expenses on foreign travel are taxable fringe benefits, regardless of the amount.
• Employer-named employee expenses are considered employer business expenses.

Deductions for Foreign Corporations

• Domestic, resident foreign, and non-resident foreign corporations can deduct itemized deductions from business income, as per the Tax code.
• Returns showing cumulative income and deductions for a quarter do not have to be filed if no income tax is due for that period.

Specific Income Tax Cases

• Income from offshore banking units authorized by the BSP, from foreign currency transactions with local banks, is subject to 10% final tax.
• Non-resident cinematographic film owners, lessors, or distributors are taxed at 15% of gross income.
• Perquisite benefits function as compensation income, but are considered fringe benefits subject to fringe benefit tax.
• Ordinary assets are subject to regular income tax; capital assets (excluding domestic stocks and real properties) are also subject to regular income tax.

Corporate Quarterly Summary Declarations

• Every corporation must file a quarterly summary declaration of gross income and deductions, cumulatively, for the preceding quarter(s), to determine income tax.

Capital Gains/Losses Recognition

• Capital assets held for less than one year (short-term) are recognized at 100% of gain/loss.
• Capital assets held for more than one year (long-term) are recognized at 50% of gain/loss.

Fringe Benefits

• Fringe benefits cover benefits or incentives given to employees other than basic pay.
• Aircraft (including helicopters) are considered for business use and are not subject to fringe benefit tax.
• Fringe benefits specifically applicable to managerial and supervisory employees are not considered compensation income, but are still subject to final tax.