Philippines Corporate Tax Rates

Income Tax Rates for Domestic Corporations

• Effective July 1, 2020, a 25% income tax is imposed on taxable income from all sources within and without the Philippines
• For corporations with net taxable income not exceeding P5,000,000.00 and total assets not exceeding P100,000,000.00 (excluding land where the business operates), the tax rate is 20%
• For corporations using the fiscal-year accounting period, taxable income is calculated without considering specific transaction dates
• Income and expenses are considered earned/spent equally each month
• The corporate income tax rate is applied by multiplying the number of months under the new rate by the corporation's taxable income for the period, divided by twelve

Tax Rates for Proprietary Educational Institutions and Hospitals

• Non-profit proprietary educational institutions and hospitals pay 10% tax on taxable income, subject to exceptions
• From July 1, 2020, to June 30, 2023, the tax rate is 1%
• If gross income from unrelated activities exceeds 50% of total gross income, the Subsection (A) tax rate applies to the entire taxable income
• "Unrelated trade, business or other activity" refers to activities not substantially related to the institution's primary purpose
• "Proprietary" includes private hospitals or schools with permits from DepEd, CHED, or TESDA, following existing laws

Taxation of Government Entities

• Government-owned or controlled corporations, agencies, and instrumentalities, except GSIS, SSS, HDMF, PHIC, and local water districts, pay taxes at rates imposed on similar businesses

Tax Rates on Passive Income

• A 20% final tax applies to interest on currency bank deposits, yields, monetary benefits from deposit substitutes, trust funds, similar arrangements, and royalties from sources within the Philippines for domestic corporations
• Interest income from depository banks under the expanded foreign currency deposit system is taxed at 15%
• A 15% final tax is imposed on net capital gains from selling shares of stock not traded in the stock exchange
• Income derived by depository banks under expanded foreign currency deposit system from foreign currency transactions is exempt from all taxes
• Interest income from foreign currency loans to residents is taxed at 10%
• Income of nonresidents from transactions with depository banks under the expanded system is tax-exempt

Intercorporate Dividends

• Dividends received by a domestic corporation are not taxed
• Foreign-sourced dividends are exempt if reinvested in the Philippines within the next taxable year and used for specific purposes like working capital, capital expenditures, dividend payments, domestic subsidiaries, and infrastructure projects
• The domestic corporation must hold at least 20% of the foreign corporation's outstanding shares for a minimum of two years

Capital Gains

• A 6% final tax is imposed on gains from the sale, exchange, or disposition of lands/buildings not used in business, treated as capital assets, based on gross selling price or fair market value, whichever is higher

Minimum Corporate Income Tax (MCIT)

• A 2% MCIT is imposed on gross income at the end of the taxable year, starting from the fourth year of business operations, if it exceeds the regular income tax
• From July 1, 2020, to June 30, 2023, the MCIT rate is 1%
• Excess MCIT over normal income tax can be carried forward and credited against normal income tax for the next three years
• The Secretary of Finance can suspend MCIT for corporations suffering losses due to prolonged labor disputes, force majeure, or legitimate business reverses

Defining Gross Income and Cost of Goods Sold

• 'Gross income' means gross sales less sales returns, discounts, allowances, and cost of goods sold
• 'Cost of goods sold' includes all business expenses directly incurred to produce merchandise
• For trading/merchandising, 'cost of goods sold' includes invoice cost, import duties, freight, and insurance
• For manufacturing, it includes all production costs (raw materials, labor, overhead, freight, insurance)
• For service providers, 'gross income' means gross receipts less sales returns, allowances, discounts, and the cost of services
• 'Cost of services' includes salaries, benefits, consultant fees, and facility costs

Offshore Gaming Licensees

• Non-gaming revenues of Philippine-based offshore gaming licensees are subject to a 25% income tax
• Accredited service providers to offshore gaming licensees pay the tax rate in Section 27(A) of the code and are applicable to local and national taxes
• Accredited service provider includes juridical or natural persons which offer gaming services and support

Income Tax Rates for Resident Foreign Corporations

• A 25% income tax is imposed on taxable income from sources within the Philippines effective July 1, 2020
• For corporations using the fiscal-year accounting period, taxable income is computed without regard to specific transaction dates
• Income and expenses are deemed earned and spent equally each month.
• The corporate income tax rate is applied by multiplying the number of months covered by the new rate within the fiscal year by the taxable income of the corporation for the period, divided by twelve

Minimum Corporate Income Tax (MCIT) for Resident Foreign Corporations

• A 2% MCIT on gross income is prescribed with conditions on resident foreign corporations
• Effective July 1, 2020 until June 30, 2023, the MCIT rate is 1%

Taxation of International Carriers

• International carriers pay 2.5% tax on Gross Philippine Billings
• "Gross Philippine Billings" for air carriers refers to revenue from carriage of passengers, excess baggage, cargo, and mail originating from the Philippines
• For international shipping, "Gross Philippine Billings" is gross revenue from passengers, cargo, or mail originating from the Philippines
• International carriers might have preferential rates or exemptions based on tax treaties or reciprocity

Tax on Branch Profit Remittances

• Profits remitted from a branch to its head office are taxed at 15%
• This tax is based on total profits earmarked for remittance without deducting the tax component
• Interests, dividends, rents, royalties, and capital gains received by a foreign corporation are not treated as branch profits unless effectively connected to its trade or business

Taxation of Multinational Companies

• Regional/area headquarters are not subject to income tax
• Regional operating headquarters pay 10% tax on taxable income
• Starting January 1, 2022, regional operating headquarters are subject to the regular corporate income tax

Tax on Certain Incomes Received by Resident Foreign Corporations

• A 20% final income tax is imposed on interest from currency bank deposits, yields, and royalties derived from sources within the Philippines
• Interest income derived by resident foreign corporations from depository banks under the expanded foreign currency deposit system is subject to a 15% final income tax.
• A final tax of 15% on net capital gains realized during the taxable year
• Dividends received by a resident foreign corporation from a domestic corporation are not taxable
• Non-gaming revenues derived within the Philippines of foreign-based offshore gaming licensees have an income tax of 25%

Taxation of Nonresident Foreign Corporations

• Nonresident foreign corporations not engaged in trade/business in the Philippines pay 25% tax on gross income from sources within the Philippines, effective January 1, 2021
• Cinematographic film owners/lessors/distributors pay 25% tax on gross income from sources within the Philippines
• Nonresident owners/lessors of vessels chartered by Philippine nationals pay 4.5% tax on gross rentals/lease/charter fees
• Nonresident lessors of aircraft, machineries, and other equipment pay 7.5% tax on gross rentals/fees

Taxes on Incomes for Nonresident Foreign Corporations

• A 20% final withholding tax is imposed on the amount of interest on foreign loans
• A 15% final withholding tax is imposed on intercorporate dividends
• A 15% tax is imposed on net capital gains realized from shares of stock not traded in the stock exchange

SEC. 29

• SEC. 29 is REPEALED

Exemptions from Tax on Corporations

• Exemptions include non-profit labor, agricultural, or horticultural organizations; mutual savings banks; beneficiary societies; cemetery companies; nonstock corporations for religious, charitable, scientific, athletic, or cultural purposes; business leagues; civic leagues; nonstock and nonprofit educational institutions; government educational institutions; farmers' mutual typhoon or fire insurance companies; and farmers' fruit growers' associations
• Income from properties or activities conducted for profit by these organizations is subject to tax