Transcript INCOME TAX - Susan Dajao Tusoy

Income Tax Computation
Corporate Taxpayer
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What is a corporation?
Corporation – is an artificial being created by law, having
the rights of succession and the powers, attributes and
properties authorized by law or incident to its existence.
For taxation purposes, corporation shall include –
 Partnerships
 Joint-stock companies
 Joint accounts
 Associations
 Insurance companies
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A corporation does not include –
•General Professional Partnership
•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
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Classification of Corporation
 Domestic corporation
 Foreign corporation
 Resident Foreign – engaged in trade or
business within the Phil. Generally, it
establishes branch or an office for the
purpose of doing business or trade.
 Non-Resident Foreign – not engaged in trade or
business within the Philippines.
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Evolution of Corporate Income Tax Rate
Tax Rate
Effectivity
Basis
34%
Jan 1, 1998
RA 8424
33%
Jan 1, 1999
RA 8424
32%
Jan 1, 2000
RA 8424
35%
Nov 1, 2005
RA 9337
30%
Jan 1, 2009
RA 9337
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Taxability of Corporations (RA 9337)
Income In General
All income derived from
sources within or outside
the Phils.
Domestic
30%
(Net
Taxable
Income)
All income derived from
sources within the Phils.
Resident
Foreign
Non-Res.
Foreign
--
--
30%
(Net Taxable
Income)
30%
(Gross
Income)
---
Optional Corporate Tax
Rate
15%
(Gross
Income)
15%
(Gross
Income)
Minimum Corporate
Income Tax (MCIT)
2%
(Gross
Income)
2%
(Gross
Income)
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Taxability of Corporations
Domestic corporations
 In general
 Taxable on all income
Derived from sources
Within and without the Phil.
 Optional corporate tax rate
(based on gross income)
 Minimum Corporate Income Tax
(MCIT)
30%
15%
2%
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Taxability of Corporations
Domestic corporations
 Proprietary educational institutions
& hospitals (non-profit)
 GOCCs (except GSIS, SSS, PHIC
and PCSO)
 Improperly accumulated earnings
 Passive income
 Interest
 Interest income from FCDU
7.5%
 Royalties
10%
30%
10%
20%
20%
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Taxability of Corporations
Domestic corporations
 Capital gains from sale of shares of
Stocks not traded in the SE
- Not over P100,000
- In excess of P100,000
 Income from foreign currency loans
Granted by depository bank under FCDU
 Intercorporate dividends
 Capital gains from sale of land
and building
5%
10%
10%
exempt
6%
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Taxability of Corporations
Resident Foreign corporations
 In general
 Taxable on all income derived
from sources within the Phil.
 Optional corporate tax rate
(based on gross income)
 Minimum Corporate Income Tax
(MCIT)
30%
15%
2%
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Taxability of Corporations
Resident Foreign corporations
 Gross Philippine Billings
 International air carrier
2.5%
 International shipping
2.5%
 Interest income on foreign currency
Loans granted by OBU
 Branch profit remittance
 Regional or area headquarters
 Regional operating headquarters
10%
15%
exempt
10%
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Taxability of Corporations
Resident Foreign corporations
 Passive income
 Interest
 Interest income from FCDU
7.5%
 Royalties
 Income from foreign currency loans
Granted by depository bank under FCDU
 Capital gains from sale of shares of
Stocks not trade in the SE
 Not over P100,000
 In excess of P100,000
 Intercorporate dividends
20%
20%
10%
5%
10%
exempt
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Taxability of Corporations
Non-resident Foreign corporations
 In general
 On gross income received from all
sources within the Phils.
30%
 Cinematographic film owner, lessor,
or distributor
25%
 Owner/lessor of vessels chartered by
Phil. Nationals
4.5%
 Owner/lessor of aircraft, machineries
& other equipment
7.5%
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Taxability of Corporations
Non-resident Foreign corporations
 Interest on foreign loans
 Intercorporate dividends
 Capital gains from sale of shares of
stocks not traded in the SE
 Not over P100,000
 In excess of P100,000
10%
20%
15%
5%
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The Normal Corporate Income Tax
BIR Form 1702 (General Format for Income tax computation on
business income)
Sales/ Revenues/ Fees from within and without
Less:
Sales returns, allow., and disc. (if any)
Cost of Sales
Gross Income from operation
Add:
Non-operating and other income not
subjected to final tax or capital gains tax
P
xxx
P xxx
xxx
xxx
P
xxx
xxx
Gross Income
xxx
Less: Allowable itemized business deductions/ OSD
xxx
Net Taxable Income
xxx
Multiply by Normal Corporate Income Tax Rate
30%
Normal Corporate Income Tax
xxx
===
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MINIMUM CORPORATE INCOME TAX
(MCIT)
RR No. 9-98, as amended by RR no. 12-07
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Sec. 27(E) and 28 (A)(2) of the NIRC
Imposed on:
Domestic & Resident Foreign
2% on Gross Income
if: - in the 4th year of operation
- net loss/zero taxable income/
MCIT is greater than NCIT
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Gross income
Include all items of gross income enumerated under Section
32(A) of the Tax Code, as amended, except income exempt from
income tax and income subject to final. withholding tax.
For Sale of goods
Gross sales – (cost of goods sold + sales returns +
discounts+ allowances)
“Gross sales”
Include only sales contributory to income taxable under Sec.
27(A) of the Code.
“Cost of goods sold”
Include all business expenses directly incurred to produce the
merchandise to bring them to their present location and use.
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For sale of services
Gross revenue – (cost of services/direct cost + sales
returns + discounts + allowances)
“Gross Revenues”
Include income from sale of services, likewise, taxable
under Sec. 27(A)
“Cost of services or Direct cost of Services”
Include all business expenses directly incurred or related
to the gross revenue from rendition of services.
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Illustration
Gross sales/ revenues
1,000,000.00
Less: Sales Ret., Disc & Allow.
25,000.00
Cost of Goods Sold/ services
500,000.00
Gross Income from operation
475,000.00
Add: Other Income not subject to
Final Tax or Capital Gains Tax
100,000.00
Total Gross Income subject to MCIT 575,000.00
========
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Carry forward of Excess MCIT
• Excess of MCIT over normal income tax shall be
carried forward on an annual basis and credited
against the normal income tax for the 3 immediately
succeeding taxable years.
• Excess MCIT can only be credited against the
income tax due if the normal income tax is higher
than the MCIT
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Carry forward of Excess MCIT
• Excess MCIT which has not or cannot be so
credited against the normal income tax due
for the 3-year period shall lose its credibility.
• Excess MCIT cannot be claimed as a credit
against the MCIT itself or against any other
losses
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Carry forward of Excess MCIT
• The final comparison between the normal
income tax payable and the MCIT shall be
made at the end of the taxable year.
• The payable or excess payment in the
Annual Income Tax Return shall be
computed taking into consideration income
tax payment made at the time of filing of
quarterly income tax returns whether this be
MCIT or normal income tax
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Rules on crediting of tax payments & taxes withheld
Annual Computation
NIT
is higher than MCIT
MCIT
is higher than Normal
Income Tax
Excess MCIT from prior
year can be deducted
from the NIT due
Excess MCIT from prior
years cannot be deducted
from the MCIT due
Excess withholding tax
from prior year can be
deducted from the NIT due
Excess withholding tax from
prior year can be deducted
from the MCIT due
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Rules on crediting of tax payments & taxes withheld
Annual Computation
NIT
is higher than MCIT
MCIT
is higher than Normal Income Tax
Quarterly taxes withheld
can be credited from the
NIT due
Quarterly taxes withheld can be
credited from the MCIT due
Quarterly income tax
payments whether Normal
Income Tax or MCIT can
be deducted from the NIT
due
Quarterly income tax payments
whether MCIT or Normal Income
Tax can be deducted from the
MCIT due
Note: The final comparison between the NIT and MCIT shall be made at25
the end of te taxable year
Rules on crediting of tax payments & taxes withheld
Annual Computation
NIT
is higher than MCIT
MCIT
is higher than Normal Income Tax
Excess MCIT from prior
year can be deducted
from the quarterly NIT
due
MCIT from prior year cannot be
deducted from the quarterly MCIT
due
Excess withholding tax
from prior year can be
deducted from the
quarterly NIT due
Excess withholding tax from prior
year can be deducted from the
quarterly MCIT due
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Rules on crediting of tax payments & taxes withheld
Annual Computation
NIT
is higher than MCIT
MCIT
is higher than Normal Income Tax
Quarterly taxes withheld
can be credited from the
quarterly NIT due
Quarterly taxes withheld can be
credited from the quarterly MCIT
due
Payment from previous
quarters of the taxable
year can be deducted
from the cumulative tax
due
Payment from previous quarters of
the taxable year can be deducted
from the cumulative tax due
Note: Quarterly comparison to determine whichever is higher between the NIT and MCIT
shall be done on a cumulative basis
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Suspension of MCIT
•
Instances when MCIT may be suspended
Substantial losses on account of –
 Prolonged labor dispute
 Force majeure
 Legitimate business reverses
•
Who may suspend
 Secretary of Finance upon
recommendation of the CIR
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Suspension of MCIT
•
Required documentation
 Submission of proof by the corporation
 Duly verified by the CIR’s duly authorized
representative
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IMPROPERLY ACCUMULATED
EARNINGS TAX
(IAET)
RA 8424/ RR No. 2-2001/RMC 35-2011
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CONCEPT OF IAET
• Taxpayer is a corporation
• Improper accumulation of taxable income beyond
the reasonable needs of the business
• Non-distribution of earnings/profits to stockholders
• The purpose of accumulation is to avoid the
payment of the income tax
• Imposition of tax equivalent to 10% of the
improperly accumulated taxable income
• The tax imposed is in the nature of penalty to a
corporation for improper accumulation of earnings
beyond the reasonable needs of the business
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EVIDENCE OF PURPOSE TO AVOID
THE TAX
• The corporation is a mere holding or
investment company
• Earnings or profits are permitted to
accumulate beyond the reasonable
needs of the business
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Reasonable vs. Unreasonable Accumulation
 Reasonable Needs of Business:
 Immediate needs of business, including
reasonably anticipated needs (Immediacy
Test)
 Unreasonable Accumulation
 Not necessary for the purpose of the
business considering all circumstances of
the case
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Reasonable Needs of Business
 100% of the paid up capital or the amount
contributed to the corporation representing
the par value of the shares of stock, hence,
any excess capital over & above the par shall
be excluded (RMC 35-2011).
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Reasonable Needs of Business
 Earnings Reserved
 for definite corporate expansion projects
 for building, plant or equipment acquisition
 for compliance with loan covenant or preexisting obligation established under a
legitimate business agreement.
 Required by law to be retained or with legal
prohibition
 In case of foreign corporation subsidiaries,
intended for investments within the
Philippines
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Unreasonable accumulation of Profits
 Investment of substantial earnings and
profits of the corporation in unrelated
business or in stock or securities of
unrelated business;
 Investment in bonds and other long term
securities; and
 Accumulation of earnings in excess of
100% of paid-up capital or contribution
representing the par value of the shares
of stock.
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Corporation Exempt from IAET







Banks and non-bank financial intermediaries
Insurance companies
Publicly held corporations
Taxable partnerships
GPP
Non-taxable joint ventures
Firms registered under RA 7916, 7227, and other
special ecozones
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IMPOSITION OF IAET
Tax rate
10%
Corporations liable
Closely-held domestic
corporations
Deadline
15th day after the
end of he year following the
close of the taxable year
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Closely-held corporations:
 are corporations at least 50% in value
of the outstanding capital stock or at
least 50% of the total combined
voting power of all classes of stocks
entitled to vote is owned directly or
indirectly by or for not more than 20
individuals
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TAX BASE OF IAET
(Improperly Accumulated Taxable Income)
Taxable income
Add:
(a) Income subject to final tax
(b) NOLCO
(c) Income exempt from tax
(d) Income excluded from gross income
Total
Less: Income tax paid for the year
Div. actually or const. paid/issued
Total
Less : Amount that can be retained
IATI
P xxx
Pxxx
xxx
xxx
xxx
xxx
xxx
xxx
P xxx
xxx
xxx
xxx
Pxxx
===
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Payment of IAET
 Dividend must be declared and paid not later
than one year following the close of the taxable
year
 Otherwise, IAET should be paid within 15 days
thereafter
Once the profit has been subjected to IAET, the same shall no
longer be subjected to IAET in later years, even if not declared as
dividend.
Profits subjected to IAET, when finally declared as dividends, shall
be nevertheless be subject to 10% final withholding tax
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Proprietary Educational
Institution
Any private school created and organized as domestic
corporation and which is maintained and administered by
private individuals or groups with an issued permit to
operated from DECS, CHED or the TESDA, as the case may
be, in accordance with existing laws and regulations.
Taxability
In general
10%
If gross income from unrelated trade,
business or other activity exceeds 50%
of the total gross income
30%
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Non-Profit Hospital
A non-stock and non-profit domestic corporation organized and
created to maintain and administer a hospital without a capital
stock divided into shares, and no part of the income of which is
distributable as dividends to its members, trustees or officers, but
are used only for the furtherance of the said purpose. Hospital
means an institution for the reception and care of sick, wounded,
infirm or aged persons. It does not include hospitals for the care
of animals.
Taxability
In general
10%
If gross income from unrelated trade,
business or other activity exceeds 50%
of the total gross income
30%
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Exempted Corporations (Sec. 30)
 Labor, agricultural or horticultural organizations not
organized principally for profit
 Mutual savings bank without capital stock represented
by shares and cooperative bank without capital stock
organized and operated for mutual purposes and without
profit
 Beneficiary society, order or association, operating for
the exclusive benefit of the members
 Cemetery company owned and operated exclusively for
the benefit of its members
 Non-stock corporation or association organized and
operated exclusively for religious, charitable, scientific,
athletic, or cultural purposes, or for the rehabilitation of
veterans.
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Exempted Corporations (Sec. 30)






Business league, chamber of commerce, or board of trade, not
organized for profit
Civic league or organization not organized for profit but
operated exclusively for the promotion of social welfare
Non-stock, non-profit educational institution
Government educational institution
Farmer’s or other mutual typhoon or fire insurance co., mutual
ditch or irrigation co., mutual or cooperative telephone co. or
like organization of local character
Farmers, fruit growers or like association organized and
operated as sales agents of its members and turning back to
them the proceeds of sales less the necessary expenses
Income from any of their properties or from any activity conducted
for profit shall be subject to tax regardless of disposition.
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Partnership
By the contract of partnership, two (2) or more
persons bind themselves to contribute money,
property or industry to a common fund with the
intention of dividing the profits among themselves.
Types of Partnership
 General partnership (Partnership)
 General Professional partnership (GPP)
 General Co-ownership
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General Partnership
 A partnership other than GPP
 It is considered as a corporation for tax purposes
 Partners are considered as stockholders thus,
profits distributed are considered as dividends
 Partners distributive share in the profits of the
partnership is not subject to normal income tax
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General Professional Partnership
 Partnership formed by persons for the sole purpose
of exercising their common profession, no part of
the income of which is derived from engaging in
any trade or business
 Not considered as a corporation
 GPP is not subject to income tax
 Individual partners shall be liable to income tax on
his share in the distributable net income of the GPP
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General Co-Ownership
Activities of the coowners are limited to
the preservation of
the property and the
collection of the
income therefrom
Co-ownership is not
subject to tax
Co-owners invest the
income of the coownership in any
income producing
properties
Will constitute a
partnership subject to tax
as a corporation
Co-owner is taxed
individually on his
distributive share
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Income Tax Forms and
Due Dates
50
Individual
Form
No.
Form Name
1701Q Quarterly Income
Tax Return
1701
Deadline for Filing
No. of
Copies
1st – April 15
2nd – August 15
3rd – November 15
3 copies
Annual Income Tax Calendar – April 15 3 copies
Return
Fiscal – 15th day of
the 4th month ff. the
close of the year
Corporations
Form
No.
1702
Form Name
Annual Income Tax
Return
(For Corporations,
Partnerships and
Other Nonindividual
Taxpayers)
Deadline for Filing
On or before April
15
No. of
Copies
3 copies
On or before the
15th day of the 4th
month following
the close of the
fiscal year
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Form
No.
1702Q
1704
Form Name
Quarterly Income Tax
Return
(For Corporations,
Partnerships and Other
Non-individual
Taxpayers)
Improperly
Accumulated Earnings
Tax Return
Deadline for Filing No. of Copies
60 days
following the
close of the first
3 taxable
quarters
3 copies
On or before the
15th day of the
following year
following the
taxable year
3 copies
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Attachments Required
 Account Information Form (AIF) BIR Form 1702AIF and the Certificate of the Independent CPA
(The CPA Cert. is req’d. if the Gross sales,
earnings, receipts exceed P150,000.00);
 Certificate of income payments not subjected to
withholding tax (BIR Form 2304), if applicable;
 Certificate of Creditable withholding tax withheld
at source (BIR Form 2307, if applicable);
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




Summary Alphalist of W/T (SAWT) per RR 2-2006;
Duly approved Tax Debit Memo, if applicable;
Proof of prior year’s excess credits, if applicable;
Proof of Foreign Tax credits, if applicable;
For amended return, proof of tax payment and the
return previously filed;
 For those availing of fiscal incentives, see RMC No.
21-2007
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Deductions from the Income Tax Due
• Taxes withheld from current year’s income
• Tax credits for foreign taxes paid
• Tax credits (tax credit memo)
• Taxes paid in the first 3 quarters (NIT or MCIT)
• Excess tax payments in the preceding year
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NOTE:
Installment Payments
• Applicable to individual taxpayer
only and NOT TO CORPORATION
next
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“Knowing is not enough; we must apply.
Willing is not enough; we must do.”
Johann Wolfgang von Goethe
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