October 2017 INCOME TAX ON PARTNERSHIPS ‘Atty, C.Llamado For purposes ofthe income ta, partnerships are classified into: (4) Partnership not subject income tax and —- £4! (b) Partnership subject to income tax. The following partnerships are not subject to incoime '8X: — A parmership formed by 1. (General Professional Partnership ("GPP") — A partnership petsons forthe sole purpose of exercising thei common profession, no part ‘ofthe income of which i derived from engaging in trade or business (See. 22 ®), NRC) Note: Because of the exemption of GPPs from the income tax, income payments to them by their clients are exempt ftom creditable ‘withholding tax (RMC No. 3-2012). 2. A joint venture or onsortinm formed forthe purpose of (j) undertaking gonstruction projects; or ()engeging in petroleum, coal, geothermal, and other energy operations ‘pursuant fo an operating ot consortium agreement under 2 service ‘contract with the goverament. (Sec. 22(B), NIRC). ‘Fling of Return ‘+ honuat wfesmaton EXS™PL partnerships are required to file an annual information iva’ 408 Feturn However, the purpose is o furnish information (Form 1702 EX) as to fen the share each partner sall report ard include in his personal income tax return. + fom fete fore MalnmWA oy a fh prvmeTap Tax Liability of Partners in Exempt Partnership (@) Persons engoging in business as partners ina general professional partnership shall be liable for income tax only in theic Separate and individual capaciti (b) Each partner shall report as gross income his distributive share, actually or constructively’ teveived, inthe net income of the partnership (Sec. 6, NIRC), ‘The share of partner in the net yt the partner, whether distributed or not, ‘of the partnership shall be taxable to at E885 wevse— tan, “> 0 (2) . 4 October 2017 | By Joiner renture fssoviaten ont Raat interorporate dividends Tatavie Parinechip| , (©) The share of «partner shall be subject to ereditable withholding tax of 10% if the current year's income payments to the partner total 720,000 or below oF 15% if the same exceeds P720,000, (2) For purposes of computing the distributive share of the partners, the net income of the partnership shall be computed in the same manner as corporation (See. 26, NIRC), Note: Co-venturers in a joint venture or consortium which is not subject to income tax have the same tax liability as partners in an exempt partnership. B. Partnerships Subject to Income Tax All othr partnerships, except those mentioned above (item A), no mater how «created or organized, are considered corporations Subject to corporute income tax. (Sec. 22 (B), NIRC). ‘ling of Tax Return’ Guang hrnunly Taxable parerships, like ordinary corporation, are required to file quarterly income tax returns for the ist, second, and third quarters, and an annual return based on their aecounting periods Tax Liability of Partners in a Taxable Partnership Tax Base Dividend or Share in the distributable after tax net income ofthe partnership "] Dividend or Share inthe distributable | ater tox net income of the partnership Dividend or Share in the distributable after tax net income of the partnership [Note: The share of an individual in the net income after tax of an association, a joint account, or a joint venture or consortium taxable as a corporation, (of which he is a member or co-venturer, i also subject to this final tax. Tax Llabillty of Corporate Co-Venturers ina Taxable Joint Venture (JV) Final Tax Rate] Tax Base 4 T Dividend r Share in the Gee {| Exempt | afer ax net income ofthe 1V _ —,attertax net income ofthe SV_| a Dividend or Share in the distributable REC _|__ Exempt | ater tx net income ofthe IV 1 Dividend or Share inthe distibuable M 5% i RFC | 19% | ater ane income of te IV asOctober 2017 For income tax purposes, co-ownership may arise in the following eases: 1, When two or more heirs or beneficiariesiihett an undivided property from a decedent; or 2. When a donor makes aii of an undivided property in favor of two or more doness. 1. When Co-ownership Is Not Subject to Income Tax Generally, the activities of the co-owners are (usually limited to the preservation of the co-ownership property and the collection of the income therefrom. In such a case, the co-ownership, as such entity, is mot subject to jincome tax. ‘Tax Liability of Co-owners in Exempt Co-ownership — SYKRES OF Wer INCOME -¢- Gonneahap ‘Phe co-owners in an exempt co-ownership shall be liable for income tax only in their separate and individual capacities. The co-owners shall report and include in their respective personal income tax returns their shares of the net income of the co-owmership. Notun extavtvoen g Aptana 1. When Co-ownership Is Subject to Income Tax |< Wield eat 1) When co-ownership is formed or established voluntarily, or upon Agreement of the partes, what was likely constituted is business partnership. oR 2) When the income of the co-ownership is invested by the co-owners if business or other income-producing properties, the co-owners in effect ‘constituted themselves into a business partnership. In either case, the co-ownership will be subject to income tax as a corporation,