CORPORATIONS

A. DEFINITION
Under the Corporation Code of the Philippines (Batas Pambansa 68), a corporation is defined as an artificial being
created by operation of law, having the right of succession and the powers, attributes and properties expressly
authorized by law or incident to its existence (Section 2).
In relation to this, the National Internal Revenue Code expounds the term corporation as that which includes
partnerships, no matter how created or organized, joint-stock companies, joint accounts (cuentas en participacion),
associations, or insurance companies, but does not include the following:
- General professional partnerships
- 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 (Sec. 22 [B]).
B. SCOPE OF TAXATION
A domestic corporation is taxable on all income derived from sources within and without the Philippines (Section 23,
[E], NIRC), while a foreign corporation, whether engaged or not in trade or business in the Philippines, is taxable only
on income derived from sources within the Philippines (Section 23, [F], NIRC).
C. CLASSIFICATIONS
For tax purposes, corporations are grouped into:
1. Domestic corporations, or corporations organized and existing under the laws of the Philippines; and
2. Foreign corporations, or that which is not domestic, may be further classified as:
a. Resident foreign corporations, which are engaged in trade or business in the Philippines (Sec. 22 [H],
NIRC); or
b. Non-resident foreign corporations, which are not engaged in trade or business in the Philippines (Sec. 22
[I], NIRC).
Some special types of corporations are:
1. Proprietary educational institutions and non-profit hospitals;
2. Domestic depository banks (foreign currency deposit units);
3. Offshore banking units;
4. Resident depository banks (foreign currency deposit units);
5. Resident international carriers;
6. Non-resident owner or lessor of vessel;
7. Non-resident cinematographic film owner, lessor, or distributor;
8. Non-resident lessor of aircraft, machinery, and other equipment; and
9. Regional area headquarters and regional operating headquarters of multinational companies.

D. TAXES IMPOSED ON DIFFERENT CLASSIFICATIONS OF CORPORATIONS

1.

Domestic Corporations (DC) a corporation created or organized in the Philippines or

under its laws.
Taxes Imposed in Domestic
Corporations

NORMAL
CORPORATE
INCOME TAX
(NCIT)
TAX RATE:
30%
TAX BASE:
Taxable
Income

MINIMUM
CORPORATE
INCOME TAX
(MCIT)
TAX RATE:
2%
TAX BASE:
Gross Income
except
income
exempt from
income tax
and income
subject to
final
withholding
tax
Note:
Gross
income
pertains to
gross sales
less sales
returns,
discounts,
and
allowances
and cost of
goods sold.

GROSS
INCOME TAX
(GIT)
TAX RATE:
15%
OPTIONAL
RATE
TAX BASE:
Gross Income
Note:

CAPITAL
GAINS TAX
(CGT)

FINAL TAX
ON PASSIVE
INCOME

Please refer
on below
discussions
for Rules on
Capital Gains
and Losses
of a
Domestic
Corporations
.

Please refer
on below
discussions
for Final Tax
on Passive
Incomes of a
Domestic
Corporations
.

1. Available
only to firms
whose ratio
of cost of
sales to
gross sales
or receipts
from all
sources does
not exceed
55%; and
2. Its
application
in liue of the
NCIT must be
authorized
by the
President
upon
recommenda
tion by the
Secretary of
Finance.

IMPROPERLY
ACCUMULATE
D EARNINGS
TAX (IAET)
TAX RATE:
10%

BRANCH
PROFIT
REMITTANCE
TAX (BPRT)
N/A

TAX ON
(OTHER)
GROSS
INCOME
FROM
SOURCES
WITHIN THE
PHILPPINES

TAX Note:
BASE:

N/A
It
shall
apply
to
every
corporation
formed
or
Improperly
availed for the purpose of avoiding the income
Accumulated
tax with respect to its shareholders or the
earnings
shareholders of any other corporation, by
permitting earnings and profits to accumulate
instead of being divided or distributed
- It is a tax in the nature of a penalty to the
corporations for the improper accumulation of
its earnings, and a deterrent to the avoidance of
tax upon shareholders who are supposed to pay
dividends on the earnings distributed to them.
- As an exception, the use of undistributed
earnings and profits for the reasonable needs of
the business would not generally make the
accumulated or undistributed earnings subject
to the tax.
-According to the Immediacy Test, the
reasonable needs of the business are:
1.) immediate needs of the business; and
2.) reasonably anticipated needs. Hence,
the corporation should prove that there is an
immediate need for the accumulation of the
earnings and profits, or a direct correlation of
anticipated needs to such accumulation of
profits.
-The following constitute accumulation of
earnings for the reasonable needs of the
business:
1. Allowance for the increase in the
accumulation of earnings up to 100% of the
paid-up capital of the corporation as of Balance
Sheet date, inclusive of accumulations taken
from other years;
2. Earnings reserved for definite corporate
expansion projects or programs requiring
considerable capital expenditure as approved
by the Board of Directors or equivalent body;
3. Earnings reserved for building, plant, or
equipment acquisition as approved by the
Board of Directors or equivalent body;
4. Earnings reserved for compliance with any
loan covenant or pre-existing obligation
established under a legitimate business
agreement;
5. Earnings required by law or applicable
regulations to be retained by the corporation or
in respect of which there is a legal prohibition

Final Withholding Tax on Passive Incomes

subject to Final Tax
DOMESTIC
CORPORATION

Royalties

Interest Income

Tax on Income Derived

under the Expanded
Foreign Currency
Deposit System
A. Use and
exhaustion of
property such as
earnings from
copyrights,
patents,
trademarks,
formulas and
natural
resources under

A. Yield from
Deposit
Substitutes,
Turst, Frunds &
Other similar
arrangments:
20%
B. Net Income
From Expanded
Foreign
Currency
Deposit System:

B. Royalties
from books,
literary works
and musical
compositions:

7.5%

10%
NOTES:
1. It covers both
payments made:
- Under license; and
- Under Compensation
which a person would
be obliged to pay for
fraudulently copying
or infringing the right.
2. Royalties must be
derived from sources
within the Philippines
to be considered as
passive income.
3. If it is derived from
sources outside the
Philippines, the

Inter-Corporate
Dividends

The income of a
depositary bank
under the EFCDS
from foreign
currency
transactions
with
nonresidents,
offshore banking
units in the
Philippines, local
commercial
banks, including
branches of
foreign banks
that may be
authorized by
the Bangko
Sentral to
transact
business with

Received by a Domestic
Corporations from:

B.
A. From a foreign
domestic
corporation

CAPITAL ASSETS
All properties not classified as
ordinary asset.

CAPITAL
ORDINARY ASSETS

-SUBJECT TO CGT-

GAINS TAX

Sales of shares of stock of a

RULES ONA.CAPITAL
GAINS AND LOSSES
domestic corporation not
of a DOMESTIC
listed and CORPORATION
not traded

1. Stocks in Trade of the

taxpayer or other properties of a
kind which would properly be
included in the inventory of the
taxpayer if on hand at the close
of the taxable year.

2. Property held by the taxpayer

primarily for sale to customers in
the ORDINARY COURSE OF
BUSINESS.
3. Personal Property used in
trade or business subject to
depreciation.

through stock exchange by

a non-dealer securities:

B.

1st P100,000.00 5%
In excess of
P100,000.00 10%
Sale or Other Disposition of
Real Property subject to
CGT:
6% on the gross selling
price or zonal values of
the provincial and city
assessors, whichever is
the highest

4. Real property used in trade or

business.

Tax Base:

Note: The above-mentioned

list is exclusive.

Net Capital Gains on a per

transaction basis.

OTHER CAPITAL ASSETS NOT

SUBJECT TO CGT
Involves sale or exchange or one
considered as equivalent to a
sale or exchange of property
classified as capital asset
except:
1.

Unlisted shares of stock

of a domestic
corporation; and

2.

Real property in the

Philippines held as
capital asset.

30%
NCIT
EXEMPT

Tax Treatment and Rate:

Included in the gross income
subject to the regular income tax
rates.
Tax Treatment:
1.

Ordinary Gains
included in the gross
income.

2.

Ordinary Losses
deductible from gross
income.

Tax Base:
Net Capital Gains

EXCLUSIONS FROM GROSS INCOME OF DOMESTIC

CORPORATIONS
Income received or earned but is not included in the determination of gross income
and thus not taxable either because:
1.
2.
3.
4.

They are not income, gain or profit.

They represent return of capital.
They are subject to another kind of internal revenue tax.
They are income, gain or profits which are expressly exempt from income tax under the
Constitution, tax treaty, NIRC or general or special law.

EXCLUSION VS. EXEMPTION

EXCLUSION

EXEMPTION

Refers to the
removal
of
otherwise
taxable
items
from the reach

Refers
to
an
immunity
or
privilege,
freedom
from
charge
or

of taxation

burden to which
other
persons
are subject to
tax
(PLDT v Laguna, G.R. No. 151899, August 16, 2005)
1. PROCEEDS OF LIFE INSURANCE
CONDITION: The life insurance proceeds must be paid to the heirs or beneficiaries by reason of
death of the insured, whether in a single sum or installment.
2. RETURN OF INSURANCE PREMIUM

ITEMS OF
EXCLUSI
ONS

CONDITION: The amounts must be received as a return of premiums paid by him under life
insurance, endowment or annuity contracts.
3. GIFT, BEQUEST, DEVISE OR DESCENT
CONDITION: Only donated property is excluded from gross income.

4. COMPENSATION FOR INJURIES OR SICKNESS

CONDITION: The term injury includes death, even if there is no injury. If the person dies, the
compensation received on account of his death is also excluded from the gross income.
5. RETIREMENT BENEFITS, PENSIONS AND GRATUITIES
CONDITION: It does not matter whether the retirement is voluntary. As long as requirements are
met, the retirement proceeds are excluded from gross income.
6. INCOME EXEMPT UNDER TREATY
CONDITION: Income of any kind to the extent required by any treaty obligation binding upon the
Government of the Philippines may be excluded from the gross income.
7. MISCELLANEOUS ITEMS
- PASSIVE INCOME
- INCOME DERIVED BY THE PHILIPPINE GOVERNMENT OR ITS POLITICAL SUBDIVISION
- PRIZES AND AWARDS
- PRIZES AND AWARDS GRANTED TO ATHLETES IN SPORTS COMPETITIONS LOCALLY OR ABROAD AND
SANCTIONED BY THEIR NATIONAL SPORTS ASSOCIATION
- 13TH MONTH PAY AND OTHER BENEFITS UP TO P30,000.00
- GSIS, SSS, MEDICARE (NOW PHILHEALTH) AND PAG-IBIG CONTRIBUTIONS AND UNION DUES OF
INDIVIDUALS
- GAINS DERIVED FROM SALE OR EXCHANGE OF BONDS, DEBENTURES, OR OTHER CERTIFICATE OF
INDEBTEDNESS WITH A MATURITY OF MORE THAN 5 YEARS
- GAINS FROM REDEMPTION OF SHARES IN MUTUAL FUNDS

DEDUCTIONS FROM GROSS INCOME OF DOMESTIC

CORPORATIONS
ALLOWABLE DEDUCTIONS
FOR DOMESTIC
CORPORATIONS

ITEMIZED
DEDUCTION

2.

OPTIONAL
STANDARD
DEDUCTIONS

Resident Foreign Corporations (RFC) a corporation which is not a domestic and

engaged in trade or business in the Philippines.
In order that a foreign corporation may be regarded as doing business within a State,
there must be continuity of conduct and intention to establish a continuous business,
such as the appointment of a local agent.
Taxes Imposed in Resident Foreign
Corporations

IMPROPERLY
ACCUMULATE
D EARNINGS
TAX (IAET)
N/A

TAX ON
(OTHER)
GROSS
INCOME
FROM
SOURCES
WITHIN THE
PHILPPINES
N/A

NORMAL
CORPORATE
INCOME TAX
(NCIT)
TAX RATE:
30%
TAX BASE:
Taxable
Income

MINIMUM
CORPORATE
INCOME TAX
(MCIT)
TAX RATE:

GROSS
INCOME TAX
(GIT)
TAX RATE:
15%
OPTIONAL
RATE

2%
TAX BASE:
Gross Income
except
income
exempt from
income tax
and income
subject to
final
withholding
tax
Note:
Gross
income
pertains to
gross sales
less sales
returns,
discounts,
and
allowances
and cost of
goods sold.

TAX BASE:
Gross Income
Note:
1. Available
only to firms
whose ratio
of cost of
sales to
gross sales
or receipts
from all
sources does
not exceed
55%; and

CAPITAL
GAINS TAX
(CGT)

FINAL TAX
ON PASSIVE
INCOME

Please refer
on below
discussions
for Rules on
Capital Gains
and Losses
of a Resident
Foreign
Corporations
.

Please refer
on below
discussions
for Final Tax
on Passive
Incomes of a
Resident
Foreign
Corporations

BRANCH
PROFIT
REMITTANCE
TAX (BPRT)
TAX RATE:
15%
TAX BASE:
Total profit
applied or
earmarked
for
remittance
without any
deduction for
the tax
component
thereof.

2. Its
application
in liue of the
NCIT must be
authorized
by the
President
upon
recommenda
tion by the
Secretary of
Finance.

Final Withholding Tax on Passive Incomes

subject to Final Tax

Interest Income

The income of a
depositary bank
B. Royalties
under the EFCDS
from books,
from foreign
literary works
currency
and musical
transactions
RESIDENT FOREIGN
CORPORATION
compositions:
with
nonresidents,
10%
offshore banking
Royalties
Tax on Income Derived units in Inter-Corporate
NOTES:
the
underboth
the Expanded Philippines,Dividends
1. It covers
local
B. Net
A.
YieldIncome
from
payments
made: Currency
Foreign
commercial
- Under license; and
From Expanded
Deposit
A.
Use
and
Deposit System
- Under Compensation
banks, including
Foreign
Substitutes,
exhaustion
of
which
a person would
branches of
be
obliged tosuch
pay for
Currency
Turst,
Frunds &
property
as
fraudulently copying
foreign banks
Deposit
Other
similar
System:
earnings
or
infringing from
the right.
that may be
2.
Royalties must be
arrangments:
copyrights,
derived from sources
authorized by
7.5%
patents,
within
the Philippines
the Bangko
20%
to
be considered as
trademarks,
Sentral to
passive income.
formulas and
3. If it is derived from
transact
natural
sources outside the
business with
Philippines, the

Received by a Resident
Foreign Corporations from:

B. From
A.
From a
a foreign
domestic
corporation
corporation
If from sources
within - 30%
EXEMPT
NCIT

CAPITAL GAINS TAX

RULES ON CAPITAL GAINS AND LOSSES
of a RESIDENT FOREIGN CORPORATION
CAPITAL ASSETS
ORDINARY ASSETS
1. Stocks in Trade of the
taxpayer or other properties of a
kind which would properly be
included in the inventory of the
taxpayer if on hand at the close
of the taxable year.

All properties not classified as

ordinary asset.
-SUBJECT TO CGTC.

2. Property held by the taxpayer

primarily for sale to customers in
the ORDINARY COURSE OF
BUSINESS.
3. Personal Property used in
trade or business subject to
depreciation.
4.
Real
property used in trade or
Tax
Treatment:
business.
1. Ordinary Gains
Note: The
above-mentioned
included
in the gross
list is exclusive.
income.

2.

Ordinary Losses
deductible from gross
income.

Sales of shares of stock of a

domestic corporation not
listed and not traded
through stock exchange by
a non-dealer securities:

D.

1st P100,000.00 5%
In excess of
P100,000.00 10%
Sale or Other Disposition of
Real Property subject to
CGT:
N/A

NOTE: Foreign Corporations

cannot own real properties in
the Philippines.
Tax Base:
Net Capital Gains on a per
transaction basis.

OTHER CAPITAL ASSETS NOT

SUBJECT TO CGT
Involves sale or exchange or one
considered as equivalent to a
sale or exchange of property
classified as capital asset
except:
1.

Unlisted shares of stock

of a domestic
corporation; and

2.

Real property in the

Philippines held as
capital asset.
Tax Treatment and Rate:
Included in the gross income
subject to the regular income tax
rates.
Tax Base:
Net Capital Gains

EXCLUSIONS FROM GROSS INCOME OF RESIDENT FOREIGN

CORPORATIONS
Income received or earned but is not included in the determination of gross income
and thus not taxable either because:
1.
2.
3.
4.

They are not income, gain or profit.

They represent return of capital.
They are subject to another kind of internal revenue tax.
They are income, gain or profits which are expressly exempt from income tax under the
Constitution, tax treaty, NIRC or general or special law.

EXCLUSION VS. EXEMPTION

EXCLUSION

EXEMPTION

Refers to the
removal
of
otherwise
taxable
items
from the reach
of taxation

Refers
to
an
immunity
or
privilege,
freedom
from
charge
or
burden to which
other
persons
are subject to
tax
(PLDT v Laguna, G.R. No. 151899, August 16, 2005)
1. PROCEEDS OF LIFE INSURANCE
CONDITION: The life insurance proceeds must be paid to the heirs or beneficiaries by reason of
death of the insured, whether in a single sum or installment.
2. RETURN OF INSURANCE PREMIUM
CONDITION: The amounts must be received as a return of premiums paid by him under life
insurance, endowment or annuity contracts.

ITEMS OF
EXCLUSI
ONS

3. GIFT, BEQUEST, DEVISE OR DESCENT

CONDITION: Only donated property is excluded from gross income.

4. COMPENSATION FOR INJURIES OR SICKNESS

CONDITION: The term injury includes death, even if there is no injury. If the person dies, the
compensation received on account of his death is also excluded from the gross income.
5. RETIREMENT BENEFITS, PENSIONS AND GRATUITIES
CONDITION: It does not matter whether the retirement is voluntary. As long as requirements are
met, the retirement proceeds are excluded from gross income.
6. INCOME EXEMPT UNDER TREATY
CONDITION: Income of any kind to the extent required by any treaty obligation binding upon the
Government of the Philippines may be excluded from the gross income.
7. MISCELLANEOUS ITEMS
- PASSIVE INCOME
- INCOME DERIVED BY THE PHILIPPINE GOVERNMENT OR ITS POLITICAL SUBDIVISION
- PRIZES AND AWARDS
- PRIZES AND AWARDS GRANTED TO ATHLETES IN SPORTS COMPETITIONS LOCALLY OR ABROAD AND
SANCTIONED BY THEIR NATIONAL SPORTS ASSOCIATION
- 13TH MONTH PAY AND OTHER BENEFITS UP TO P30,000.00
- GSIS, SSS, MEDICARE (NOW PHILHEALTH) AND PAG-IBIG CONTRIBUTIONS AND UNION DUES OF
INDIVIDUALS
- GAINS DERIVED FROM SALE OR EXCHANGE OF BONDS, DEBENTURES, OR OTHER CERTIFICATE OF
INDEBTEDNESS WITH A MATURITY OF MORE THAN 5 YEARS
- GAINS FROM REDEMPTION OF SHARES IN MUTUAL FUNDS

DEDUCTIONS FROM GROSS INCOME OF RESIDENT FOREIGN

CORPORATIONS
ALLOWABLE DEDUCTIONS
FOR RESIDENT FOREIGN
CORPORATIONS

ITEMIZED
DEDUCTION
3.

OPTIONAL
STANDARD
DEDUCTIONS

Non-Resident Foreign Corporations (NRFC) a corporation which is not a

domestic and not engaged in trade or business in the Philippines.
Taxes Imposed in Non-Resident Foreign
Corporations

NORMAL
CORPORATE
INCOME TAX
(NCIT)

MINIMUM
CORPORATE
INCOME TAX
(MCIT)

N/A

N/A

GROSS
INCOME TAX
(GIT)
N/A

TAX ON
(OTHER)
GROSS
INCOME
FROM
SOURCES
WITHIN THE
PHILPPINES
TAX RATE:

30%
BRANCH
FINAL TAX
IMPROPERLY CAPITAL
ON PASSIVE
ACCUMULATE GAINSPROFIT
TAX
TAX BASE:
REMITTANCE INCOME
D EARNINGS
(CGT)
TAX (BPRT)
TAX (IAET)
Gross income
Please refer
Please refer
received
N/A
on below
N/A
on below
from all
discussions
discussions
sources
for Final Tax
for Rules on
within the
on Passive
Capital Gains
PH, such as
Incomes of a
and Losses
interest,
Nonof a Nonrents,
Resident
Resident
royalties,
Foreign
Foreign
salaries,
Corporations
premiums,
.
annuities,
emoluments,
or other
fixed or
determinable
annual,
periodic or
casual gains,
profits and
income, and
capital gains
except
capital gains
resulting
from sale of

Final Withholding Tax on Passive Incomes

subject to Final Tax

NON-RESIDENT FOREIGN
CORPORATION
Interest Income

Royalties

A. Yield from
Deposit
Substitutes,
Turst, Frunds &
Other similar
arrangments:
20%
B. Net Income
From Expanded
Foreign
Currency
Deposit System:
EXEMPT

Tax on Income Derived

under the Expanded
Foreign Currency
Deposit System
A. Use and
exhaustion of
property such as
earnings from
copyrights,
patents,
trademarks,
formulas and
natural
resources under
B. Royalties
from books,
literary works
and musical
compositions:
10%
NOTES:
1. It covers both
payments made:
- Under license; and
- Under Compensation
which a person would
be obliged to pay for
fraudulently copying
or infringing the right.
2. Royalties must be
derived from sources
within the Philippines
to be considered as
passive income.
3. If it is derived from
sources outside the
Philippines, the

Inter-Corporate
Dividends

The income of a
depositary bank
under the EFCDS
from foreign
currency
transactions
with
nonresidents,
offshore banking
units in the
Philippines, local
commercial
banks, including
branches of
foreign banks
that may be
authorized by
the Bangko
Sentral to
transact
business with

Received by a Non-Resident
Foreign Corporations from:

B.
A. From a foreign
domestic
corporation
If
from sources within - 30%
Rule:
NCIT
It is subject to a final tax of
15% provided that one of
the following conditions are
met:
1.

2.

The country in which

the nonresident
foreign corporations
is domiciled allows a
tax credit against the
tax due from the
NRFC taxes deemed
to have been paid in
the Philippines
equivalent to 15%; or
Such country does
not impose tax on
dividends.

CAPITAL GAINS TAX

RULES ON CAPITAL GAINS AND LOSSES
of a NON-RESIDENT FOREIGN
CAPITAL ASSETS

ORDINARY ASSETS
1. Stocks in Trade of the
taxpayer or other properties of a
kind which would properly be
included in the inventory of the
taxpayer if on hand at the close
of the taxable year.

All properties not classified as

ordinary asset.
-SUBJECT TO CGTA.

2. Property held by the taxpayer

primarily for sale to customers in
the ORDINARY COURSE OF
BUSINESS.
3. Personal Property used in
trade or business subject to
depreciation.
4. Real property used in trade or
business.
Note: The above-mentioned
list
exclusive.
Tax is
Treatment:
1.

Ordinary Gains
included in the gross
income.

2.

Ordinary Losses
deductible from gross
income.

Sales of shares of stock of a

domestic corporation not
listed and not traded
through stock exchange by
a non-dealer securities:

B.

1st P100,000.00 5%
In excess of
P100,000.00 10%
Sale or Other Disposition of
Real Property subject to
CGT:
N/A

NOTE: Foreign Corporations

cannot own real properties in
the Philippines.
Tax Base:
Net Capital Gains on a per
transaction basis.

OTHER CAPITAL ASSETS NOT

SUBJECT TO CGT
Involves sale or exchange or one
considered as equivalent to a
sale or exchange of property
classified as capital asset
except:
1.

Unlisted shares of stock

of a domestic
corporation; and

2.

Real property in the

Philippines held as
capital asset.
Tax Treatment and Rate:
Included in the gross income
subject to the regular income tax
rates.
Tax Base:
Net Capital Gains

EXCLUSIONS FROM GROSS INCOME OF NON-RESIDENT FOREIGN

CORPORATIONS
Income received or earned but is not included in the determination of gross income
and thus not taxable either because:
1.
2.
3.
4.

They are not income, gain or profit.

They represent return of capital.
They are subject to another kind of internal revenue tax.
They are income, gain or profits which are expressly exempt from income tax under the
Constitution, tax treaty, NIRC or general or special law.

EXCLUSION VS. EXEMPTION

EXCLUSION

EXEMPTION

Refers to the
removal
of
otherwise
taxable
items
from the reach
of taxation

Refers
to
an
immunity
or
privilege,
freedom
from
charge
or
burden to which
other
persons
are subject to
tax
(PLDT v Laguna, G.R. No. 151899, August 16, 2005)
1. PROCEEDS OF LIFE INSURANCE
CONDITION: The life insurance proceeds must be paid to the heirs or beneficiaries by reason of
death of the insured, whether in a single sum or installment.
2. RETURN OF INSURANCE PREMIUM

ITEMS OF
EXCLUSI
ONS

CONDITION: The amounts must be received as a return of premiums paid by him under life
insurance, endowment or annuity contracts.
3. GIFT, BEQUEST, DEVISE OR DESCENT
CONDITION: Only donated property is excluded from gross income.

4. COMPENSATION FOR INJURIES OR SICKNESS

CONDITION: The term injury includes death, even if there is no injury. If the person dies, the
compensation received on account of his death is also excluded from the gross income.
5. RETIREMENT BENEFITS, PENSIONS AND GRATUITIES
CONDITION: It does not matter whether the retirement is voluntary. As long as requirements are
met, the retirement proceeds are excluded from gross income.
7. MISCELLANEOUS ITEMS
6. INCOME
EXEMPT
UNDER TREATY
- PASSIVE
INCOME
- INCOME DERIVED BY THE PHILIPPINE GOVERNMENT OR ITS POLITICAL SUBDIVISION
CONDITION:
Income
any kind to the extent required by any treaty obligation binding upon the
- PRIZES
ANDofAWARDS
Government
of theAND
Philippines
may
be excluded
from theIN
gross
income.
- PRIZES
AWARDS
GRANTED
TO ATHLETES
SPORTS
COMPETITIONS LOCALLY OR ABROAD AND
SANCTIONED BY THEIR NATIONAL SPORTS ASSOCIATION
- 13TH MONTH PAY AND OTHER BENEFITS UP TO P30,000.00
- GSIS, SSS, MEDICARE (NOW PHILHEALTH) AND PAG-IBIG CONTRIBUTIONS AND UNION DUES OF
INDIVIDUALS
- GAINS DERIVED FROM SALE OR EXCHANGE OF BONDS, DEBENTURES, OR OTHER CERTIFICATE OF
INDEBTEDNESS WITH A MATURITY OF MORE THAN 5 YEARS
- GAINS FROM REDEMPTION OF SHARES IN MUTUAL FUNDS

DEDUCTIONS FROM GROSS INCOME OF NON-RESIDENT

FOREIGN CORPORATIONS
ALLOWABLE DEDUCTIONS
FOR NON-RESIDENT
FOREIGN CORPORATIONS

NRFC cannot avail of any deductions since

their gross income from sources within the
Philippines is subject to final tax of:
30%

4. Special
Corporations

Types

of

Domestic
Corporations
a. Proprietary
educational
institutions
and
non-profit
a.
International
Carriers hospitals (Section 27 [B], NIRC]
These are
subject to 10% tax on net
International
carriers
income
are taxed
at a(except
rate of on income subject to
tax and passive income
2.5 capital
%
on gains
Gross
subject toBillings,
final tax) within and outside the
Philippine
which Philippines.
refers to the
amount of:
If gross income from unrelated trade or
business or other activity exceeds 50% of
the total gross income derived from all
sources, revenue
the tax rate of 35% shall be
i.
gross
imposed
on the entire taxable income.
derived
from carriage
of
persons,
excess
baggage, cargo and
mail originating from
the Philippines in a
continuous
and
uninterrupted
flight,
irrespective
of
the
place of sale or issue
and
the
place of
payment of the ticket
or passage document;
b. Offshore banking
ii. gross revenue from
units
tickets
revalidated,
exchanged
and/or
- These corporations
indorsed to another
are taxable only on
international airline if
income
derived
by
the passenger boards
offshore banking units
a plane in a port or
from foreign currency
point
in
the
transactions
with
Philippines;
nonresidents,
other

b.

Domestic
depository
banks
(foreign currency deposit units)

Aside from net income tax from

transactions expressly specified by the
Secretary of Finance, these domestic
depository banks are exempt from all
taxes; provided that interest income from
foreign currency loans granted by such
depository banks under the expanded
system to residents other than offshore
units in the Philippines or other depository
banks shall be subject to a final tax rate
of 10%.

offshore banking units,

and local commercial
banks
including
branches of foreign
banks that may be
authorized by the BSP

These are branches

established
in
the
country
by
multinational
companies which are
engaged in any of the
following services:
General administration
and planning;
Business planning and
coordination;

Resident Foreign Corporations

iii. for flights which

originate
from
the
Philippines,
but
transshipment
of
passenger takes place
at any port outside the
Philippines on another
airline,
the
gross
revenue consisting of
only
the
aliquot
portion of the cost of
the
ticket
corresponding to the
leg flown from the
Philippines to the point
of
transshipment
(Revenue
Regulation
15-2002)

e. Regional
operating
headquarters of
multinational
companies

c.
Resident
depository
banks
(foreign
currency
deposit units)
-These
corporations
are taxable only on
income derived by a
depository
banks
under the EFCDS from
foreign
currency
transactions
with
nonresidents,
other
offshore banking units,
and local commercial
banks
including
branches of foreign
banks that may be
authorized by the BSP

d. Regional area
headquarters
-These are branches
established
in
the
Philippines
by
multinational
companies and which
headquarters do not
earn or derive income
from the Philippines
and which act as
supervisory,
communications, and
coordinating center for
their
affiliates,
subsidiaries,
or
branches in the AsiaPacific
Region
and

Sourcing
procurement
materials
components;

of

and
new
and

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
communications; and
Business development.
They are taxable at
a rate of 10% on
their taxable income

Non-Resident Foreign Corporations

Non-resident
vessel

owner

or

lessor

of

Non-resident cinematographic film

owner, lessor, or distributor

Non-resident lessor of aircraft,

machinery, and other equipment

They are subject to 4.5% of gross

rentals, lease or charter fees from leases
or charters to Filipino citizens or
corporations, as approved by the

They are subject to 25% of gross income

from all sources within the Philippines.

Such are subject to 7.5% of gross

rentals or fees.