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Questions and Answers
Foreign corporations are only taxable on income derived from sources within the Philippines.
False
Income derived from offshore banking units in the Philippines is subject to a 10% final tax.
True
A resident foreign corporation refers to foreign corporations engaged in trade or business activities within the Philippines.
False
Non-resident foreign corporations are taxed at the same rates as domestic corporations concerning capital gains from stocks not traded on exchanges.
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All dividends received by non-resident foreign corporations from domestic corporations are subject to a 20% final withholding tax.
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Domestic corporations in the Philippines are not taxed on income derived from sources outside the country.
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Government-owned corporations in the Philippines are taxed differently based on their activities.
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Profits transferred from a branch to its head office are subject to a 20% tax.
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Study Notes
Taxable Income
- Foreign corporations must pay taxes on income from both inside and outside the Philippines, regardless of location.
- Income from offshore banking units authorized by the BSP (Bangko Sentral ng Pilipinas) for foreign currency transactions with local commercial banks is taxed at a final rate of 10%.
Resident Foreign Corporations
- Resident foreign corporations are those that do not engage in trade or business activities within the Philippines.
Deductions
- Domestic, resident foreign, and non-resident foreign corporations can deduct itemized deductions from their business income, as outlined in the Tax Code.
Return Filing Requirements
- If a corporation's operations do not generate any income tax due, a return demonstrating the cumulative income and deductions for a quarter and preceding quarters does not need to be filed.
Non-Resident Foreign Corporations
- Non-resident foreign corporations share the same tax treatment as domestic and resident foreign corporations regarding capital gains from shares of stock not traded on exchanges.
Specific Industries
- Educational and non-profit hospitals are subject to a 10% tax on their taxable income.
- Foreign corporations are those established and organized according to the laws of countries other than the Philippines.
Dividends from Domestic Corporations
- Starting January 1, 2021, all dividends received from a domestic corporation by a non-resident foreign corporation are subject to a 15% final withholding tax.
Domestic Corporations
- Domestic corporations are taxed on all income earned within and outside the Philippines.
Government-Controlled Entities
- Government-owned or controlled corporations, agencies, and instrumentalities are taxed at rates aligned with similar corporations, industries, or activities, as outlined in the tax code.
Branch Profits
- Profits transferred from a branch to its head office are subject to a 15% tax on the total profits earmarked or applied for remittance, excluding those registered activities with the Philippine Economic Zone Authority.
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Description
This quiz covers the taxation rules applicable to foreign corporations operating in the Philippines. It includes details on taxable income, deductions, and return filing requirements for both resident and non-resident foreign corporations. Test your understanding of these financial regulations.
