Corporate Income Tax 1

The Corporate Income Tax (CIT) varies based on the business type and special laws.

1. Type of corporation 
For CIT purpose, it is classified as domestic or foreign depending on the place of incorporation.

a) Domestic Corporation (DC): Taxed to NET worldwide income. 30% of net taxable income.
    It includes partnerships but not include general professional partnerships and a joint venture or
consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating or consortium agreement under
a service contract with the Government

b) Resident Foreign Corporation (RFC): Taxed to NET Philippine source income. Examples are branch of foreign company, regional operating headquarters, regional or area headquarters and representative offices.

c) Non-resident foreign corporation (NRFC) : It has no business operation in the Philippines. Taxed to gross Philippine source income. Examples are loan income, stock investment, leasing out assets such as air crafts, vessels.

Notes: "NET" means net taxable income which is equal to gross income less allowable deductions.
Notes: If foreigners own more than 40%, it's foreign owned domestic company. Means, it's still a DC.
Notes: "income" here means sales or receipts not net income.
Notes: VAT wise, export sales generally regarded as a zero-rated VAT sales.

2. Which Tax rate will be applied? 
a) Special economic zones (SEZ) : It's usually 5% of gross income. (3% for BIR, 2% for LGU)
b) Regular CIT (RCIT) : Most companies fall under this categories. It's 30% of taxable income.
c) Minimum CIT (MCIT) : It might be applied starting 4th taxable years. It's 2% of gross income
d) Special Rate : schools, religious organization, carriers, etc. Tax rate varies.

Notes: Fiscal incentives for SEZ locators might be changed. The tax reform package may suggest "sunset" provision for the 5% tax rate. No final version is filed to Congress as of Jan, 2018.

3. Type of Income

a) Exempt Income : Based on special laws or treaty. Examples are dividend income from a DC to another DC or RFC. It should be declared in BIR form 1702.

b) Final Income : Some incomes subject final income tax (withheld before pay you). Examples are interest income on bank deposits, royalties, etc. It should be declared in BIR form 1702.

c) Capital Gains : subject to 6% capital gain tax. It should be declared in BIR form 1702.

d) Ordinary Income : All other incomes not belong to above mentioned category. It is subject to the CIT.

4. Rough Flow Concepts
For CIT, Ordinary Income is used since other incomes are exempted or paid tax already.

   Gross Sales/Receipts
   Less Sales Returns and allowances
   --------------------------------------------
   Net Sales/Receipts
   Less Cost of Sales/Services (check which expenses belong to this. It varies based on business field.)
   ---------------------------------------------
   Gross Income
   Add other taxable income
   ---------------------------------------------
   Gross Taxable Income
   Less allowable deductions (choose OSD or itemized deduction method, check available NOLCO)
   ---------------------------------------------
   Taxable Income
   Apply Tax Rate (30%)
   ---------------------------------------------
   Tax Due (compare with MCIT, whichever bigger is Tax Due)
   Less Tax Credits (CWT, MCIT credits) if applicable
   Less Tax Payments (already paid)
   Add Penalties
   ---------------------------------------------
   Total Amount Payable

Simple, right? Not really. There are devils in the details...:)

5. CIT Exemptions (subject to certain conditions)

(1) Labor, agricultural, or horticultural organization not organized principally for profit;
(2) Mutual savings bank not having a capital stock represented by shares, and cooperative bank without capital stock organized and operated for mutual purposes and without profit;
(3) A beneficiary society, order or association, such as fraternal organization, or a mutual aid association or a non-stock corporation, organized and operated exclusively for the benefit of its members;
(4) Cemetery company owned and operated exclusively for the benefit of its members;
(5) Religious, charitable74, scientific, athletic, and cultural organizations or those organized for the rehabilitation of veterans, under certain conditions;
(6) Business league, chamber of commerce, or board of trade, not organized for profit and no part of the net income of which inures to the benefit of any private individual;
(7) Civic league or organization organized for profit but operated exclusively for the promotion of social welfare;
(8) Non-stock and nonprofit educational institutions;

(9) Government educational institutions;
(10) Farmers’ or other mutual typhoon or fire insurance company or like organization of purely local character; and
(11) Farmers’, fruit growers’, or like associations organized and operated as sales agent, under certain conditions.