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Taxes on Corporate Income

Corporations, under the National Internal Revenue Code of the Philippines, are subject to income tax liabilities. Under the Law, domestic corporations are subject to tax on their worldwide income. On the other hand, foreign corporations are liable only in relation to the income that they earn from Philippine sources.

A domestic corporation, for this purpose, is one that is created and organized under the laws of the Philippines. A foreign corporation, on the other hand, is one that is organized under the laws of any other country. A foreign corporation may either be a resident- one that is engaged in trade or business in the country; or a non-resident- one that is not engaged in trade or business in the Philippines.

Domestic Corporations

A domestic corporation is taxed at thirty percent (30%) of its taxable income. In the event that a corporation has zero or negative taxable income or whenever the minimum corporate income tax is greater than the normal income tax due from such corporation, the Tax Code imposes a Minimum Corporate Income Tax (MCIT) of two percent (2%).

A domestic corporation may likewise be subject to Improperly Accumulated Earnings Tax of ten percent (10%). Under the Philippine Tax Code, Improperly Accumulated Earnings Tax is imposed on every corporation formed or used for the purpose of avoiding income tax with respect to its shareholders, by allowing its earnings and profits to accumulate instead of being divided or distributed.

Resident Foreign Corporations

Resident foreign corporations are taxed in the same manner as domestic corporations but only on income derived from Philippine sources.

A 2.5% income tax is imposed on the gross Philippine billings of International Carriers, unless a lower rate is available under an existing tax treaty. Exemption from this tax is available under international agreements to which the Philippines is a signatory or on the basis of reciprocity.

Regional or Area Headquarters of Multinational Corporations that do not earn or derive income from the Philippines, merely acting as supervisory, communications and coordinating centers for their affiliates, subsidiaries or branches in the Asia-Pacific Region and other foreign markets are not subject to Corporate Income Tax. On the other hand, a Regional Operating Headquarters (ROHQ)[1] is required to pay a tax of ten percent (10%) of their taxable income.

Non-Resident Foreign Corporations

Non-resident foreign corporations are taxed on gross income, derived from sources within the Philippines at thirty percent (30%). Lower rates and even exemption may be available under an applicable tax treaty to which the Philippines is a signatory.

[1] An ROHQ is a branch established in the Philippines by a multinational company that is engaged in any of the following services: general administration and planning, business planning and coordination, sourcing and procurement of raw materials and components, corporate finance advisory services, marketing control and sales promotion, training and personnel management, logistic services, research and development services and product development, technical support and maintenance, data processing and communication, or business development.

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