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Income Taxes for Corporation

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CORPORATION DEFINEDcorporation shall include partnerships, no matter how created

or organized, joint stock companies, joint accounts(ceuntas en participacion),

associations, or insurance companies. It also include mutual fund companies,

regional operating headquarters of multinational, and joint accounts but does not

include general professional partnerships and joint venture or consortion formed for the

purpose of undertaking construction projects or engaging in petroleum, coal,geothermal

and energy operations pursuant to an operating or consortium agreement under a service

contract with the Government(Section 22B- NIRC.

Joint venture or consortium - is a commercial undertaking by two or more persons , dif-

fering from a partnership in that it relates to the disposition of a single lot of goods or the

completion of a single project.

Joint venture or consortium, in general is taxable as corporation. However, under Section

3 of RR 10-212, effective June 2012, a joint venture or consortium formed for the pur-

Pose of undertaking construction projects is not considered as corporation under Sec-Tion 22 provided:

a) The joint venture was formed for the purpose of undertaking a construction project.and

b) Should involve joining or pooling of resources by licensed local contracts;that is li-

censed as general contractor by the Philippine Contractors Accreditation Board(PCAB)

of the DTI.

c) The local contractors are engaged in construction business.

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Table 4-1 :Tax treatment of the co-venturersrespective share in the joint venture profit

Corporate co-venturer Individual co-venturer

Taxable Joint The respective share in the joint The respective share in the joint

Venture venture profit is considered as venture profit is considered as

dividend income received by a dividend income received by an

domestic corporation from a individual tax payer from a domes-

domestic corporation. Hence it tic . Consequently, it shall be subject

shall be treated as intercorpo- to 10% final withholding tax.

rate dividend which is taxexempt.

Non-taxable The respective share in the joint The respective share in the joint

Joint venture venture profit shall be included venture profit shall be subject to

in the computation of the cor- creditable withholding tax. Conse-

porate venturers taxable inco- quently, the same shall be includedme subject to normal corpora- in the computation of the individual

te income tax at 30% taxpayers taxable or returnable

income.

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Types of corporation

Domestic corporationis a corporation created or organized in the Philippines or under

its laws.

Foreign corporation- a corporation which is not domestic, and may be a resident(enga-

ged in business in the Philippines) or non resident corporation (not engaged in business

In the Philippines)

Government owned and controlled corporations(GOCCs) refer to all corporations, agen-cies, or instrumentalities owned or controlled by the government.

Tax exempt GOCCs:

1) GSIS

2) SSS

3) Phil Health Insurance Corp.4) PCSO

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Tax Rate and Basis in Computing the Tax Due

As a rule , domestic corporations are taxable on their income from all sources,

(income within and without the philippines) while foreign corporations are taxable only

on their income from sources within the Philippines.

Domestic and resident foreign corporations are subject to 30% normal corporate income

Tax (NCIT) on their regular income based on net income during the taxable year. How-

ever qualified corporations may be taxed at 15% based on their gross income instead

Of the 30% normal corporate income tax, at their option.

Unless otherwise provided, a non resident foreign corporation not engaged in trade or

business in the Philippines shall pay a tax equal to 30% of gross income from all sour-

ces in the Philippines such as interests, rents, salaries, premium(except reinsurance

premiums), annuities, emoluments or other fixed or determinable annuities, periodic,

or casual gains, profits and income and capital gains, except income subject to capital

gains tax.

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Table 4-2. CORPORATE INCOME TAX RATES ON REGULAR INCOME(Basic or Normal tax)

Domestic Resident (Foreign) Non resident

Corporation Corporation

1. Normal

Corporate

Income tax

(NCIT)

* tax rate 30% 30% 30%

* Basis Net income w/in Net income within Gross income

and without within

Minimum 2% of Gross 2% of Gross Not applicable

Corporate Income w/in and Income w/in only

Income tax w/out

(MCIT)***

***Starting on the fourth year of business operations, the tax due is the higher bet-ween the NCIT and MCIT.

2. Gross Income

Tax(Optional)

* tax rate 15% on 15% on Not applicable

* Basis Gross Income Gross Income w/in

w/in & w/out only

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Seatwork: Assume the following data for Mari Kloie Corporation for the current year

Gross income, Philippines P975,000

Expenses, Philippines 750,000

Gross Income, Malaysia 770,000Expenses, Malaysia 630,000

Interest on bank deposit 25,000

Determine the income tax due assuming the corporation is:

a) A domestic corporation

b) A resident corporation

c) A non resident corporation