Corporate Income Tax in the Philippines

September 4, 2024

The Philippines operates a progressive tax system wherein corporations and individuals must pay specific taxes based on their income and business activities. For corporations, this includes a wide array of taxes that must be paid at different times of the year. This article provides:

an in-depth explanation of corporate income and revenue taxes in the Philippines,
highlighting the specific taxes corporations are required to pay, including their amounts and deadlines,
individual tax obligations.

We will also explore tax obligations for expat business owners, compliance tips, and available tax incentives for foreign-owned businesses.

Corporate Income Taxes in the Philippines

Regular Corporate Income Tax (RCIT)

Rate: The RCIT is set at 25% of net taxable income for domestic and resident foreign corporations with net taxable income exceeding PHP 5 million, provided their total assets exceed PHP 100 million, excluding land. For smaller corporations, the RCIT rate is 20%.
Deadline: RCIT is due on or before the 15th day of the fourth month following the close of the taxable year.

Minimum Corporate Income Tax (MCIT)

Rate: 1% of gross income for domestic and resident foreign corporations. The MCIT applies when the RCIT is lower than 1% of gross income. The MCIT is imposed starting in the fourth taxable year after the corporation begins business operations.
Deadline: Paid at the same time as RCIT, on or before the 15th day of the fourth month following the close of the taxable year.

Percentage Tax (PT)

Rate: 1% on gross sales or receipts for non-VAT-registered businesses.
Deadline: Filed quarterly, within 25 days following the close of each taxable quarter.

Dividends Taxation

Rate: Dividends received by domestic corporations from another domestic corporation are not subject to tax. However, dividends received by non-resident foreign corporations are subject to a 15% withholding tax, provided that the country of residence allows a tax credit for taxes deemed paid in the Philippines.
Deadline: Withholding taxes must be remitted on or before the 10th day of the month following the distribution of dividends.

Tax on Capital Gains

Rate: A 15% capital gains tax is imposed on the sale of shares not listed on the stock exchange. A 6% capital gains tax applies to selling real property classified as capital assets.
Deadline: Due within 30 days following the sale.

Deductible Business Expenses

Corporations can deduct certain business expenses from their gross income to reduce taxable income. Everyday deductible expenses include:

Salaries and wages
Office Supplies
Rent
Utilities
Depreciation of assets
Advertising and promotion expenses
Interest payments on loans

These deductions must be substantiated with proper documentation and compliance with BIR regulations.

Taxable Income and Losses

Taxable income is calculated by subtracting allowable deductions and exemptions from the corporation’s gross income. Losses can be carried over for up to three years as a deduction against future taxable income. Degraded or obsolete office goods can also be written off as losses, provided they are properly documented.

Corporate Income Tax Filing and Payment

How to File: Corporate taxes are filed using BIR Form 1702. This can be done electronically through the Bureau of Internal Revenue (BIR) eFPS system.
How to Pay: Payments can be made through authorized agent banks (AABs), electronic payment methods such as GCash and PayMaya, or BIR’s online payment portal.

Penalties for Late Filing and Payment

Surcharges: 25% of the unpaid amount.
Interest: 12% per annum on unpaid taxes.
Compromise Penalty: Ranges from PHP 1,000 to PHP 50,000, depending on the tax amount.

Fiscal Incentives and Tax Relief for Corporations

Eligible for Tax Relief:

Corporations engaged in certain activities, such as export-oriented businesses or those located in special economic zones, may qualify for tax relief under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act. This can include:

Income Tax Holiday (ITH): A full or partial exemption from corporate income tax for a specific period.
Special 5% Tax on Gross Income: Instead of the RCIT or MCIT, some businesses in economic zones pay 5% of their gross income as a final tax.

Tax Relief for Expats:

Expat business owners can apply for tax exemptions on income earned outside the Philippines, provided they reside in a country with a tax treaty with the Philippines.

Individual Taxes in the Philippines

Personal Income Tax

The tax brackets for individual income taxes in the Philippines are as follows:

Income up to PHP 250,000: 0%
PHP 250,001 to PHP 400,000: 20% of the amount over PHP 250,000
PHP 400,001 to PHP 800,000: 25%
PHP 800,001 to PHP 2 million: 30%
PHP 2 million to PHP 8 million: 32%
Over PHP 8 million: 35%
Deadline: Taxes must be filed annually on or before April 15.

Ease of Paying Tax (EOPT) Act

The Ease of Paying Tax Act aims to simplify the tax filing process for individuals and corporations. It introduces a single tax return for multiple tax types and promotes the digitalization of tax filings and payments to reduce compliance costs and increase taxpayer convenience.

VAT and Other Taxes

Value-Added Tax (VAT)

Rate: 12% on the sale of goods and services.
Threshold: Businesses with gross annual sales exceeding PHP 3 million are required to register for VAT.
Deadline: VAT returns are filed monthly, with payments due within 20 days following the end of each month.

Import Excise Taxes and Tariffs

Rate: Depending on the product – the excise tax for petroleum products, alcohol, and tobacco ranges from 2% to 20%. Based on the product classification, import tariffs range from 0% to 65%.
Deadline: Paid upon importation or within 15 days of the BIR’s assessment.

Tax Obligations for Expat Business Owners in the Philippines

What are the Tax Obligations for Expat Business Owners?

Expat business owners are required to pay corporate income tax, VAT, and other business-related taxes. Depending on their income, they may also pay personal income tax.

How Can Expats Ensure Compliance with Philippine Tax Laws?

Hire Tax Advisors: Work with local accountants or tax advisors to navigate the Philippine tax system.
Register Properly: Ensure the business is registered with the BIR and follow proper filing schedules for corporate and individual taxes.

Are There Any Tax Incentives for Foreign-Owned Businesses?

Yes, foreign-owned businesses in special economic zones or export industries may qualify for tax incentives, such as an income tax holiday or reduced taxes under the CREATE Act.

Understanding and complying with corporate and individual tax obligations in the Philippines is critical for any business or individual, including ex-pats. Filing taxes on time, ensuring accurate records, and leveraging available tax incentives can significantly enhance a business’s financial performance. If you or your business would like professional tax and accounting assistance, please contact us through any of the channels below: