TAXATION FOR CORPORATIONS Flashcards
For income tax purposes, a corporation includes?
- Partnerships, no matter how created or organized
- Joint stock companies
- Joint accounts
- Associations
- Insurance companies
- One Person Corporations
IT DOES NOT INCLUDE:
a. General Professional Partnerships
b. JV or consortiums formed for the purpose of:
1. Construction projects
2. Engaging in petroleum/coal/geothermal/other energy
operations pursuant to an operating consortium
agreement under a service contract with the
government.
For a JV/consortium formed for undertaking construction projects to be NOT CONSIDERED AS A CORPORATION for income tax purposes, what requirements are set by law?
- JV must be formed for undertaking construction projects
- Should involve joining/pooling of resources by licensed local contracts, and is licensed by PCAB and DTI as a GENERAL CONTRACTOR
- Local contractor is engaged in construction business
Foreign contractors may also be treated as non-taxable corporations subject to the above requirements, PLUS certification by the APPROPRIATE TENDERING AGENCY
How are the JV classified as non-corporations taxed?
Since the JV is not taxed, those forming the non-taxable JV will be subject to tax.
Corporations forming part of the non-taxable JV - the share of the corporation shall be subject to 30% RCIT.
Individual forming part of the non-taxable JV - the share of the individual is part of his gross income and therefor subject to basic tax.
How are the JV classified as corporations taxed?
Since the JV is taxed as corporations, those forming the taxable JV will either be exempt or subject to FWT as follows:
Corporations forming part of the taxable JV - the JV has already been taxed, so the share of the corporation is already TAX-EXEMPT.
Individual forming part of the taxable JV - the share of the individual is subjected to final withholding tax.
What are Joint Stock Companies?
Joint stock companies are constituted when a group of individuals, acting jointly, establish and operate a business enterprise under an artificial name, with an invested capital divided into TRANSFERRABLE SHARES, an elected BoD, and other corporate characteristics, BUT WITHOUT FORMAL GOVERNMENT AUTHORITY.
What are Joint Account Companies?
Joint Account Companies are constituted when one interests himself in the business of another by CONTRIBUTING CAPITAL THERETO AND SHARING IN THE PROFITS AND LOSSES in the proportion agreed to.
What are the classification of corporate taxpayers?
As to organization:
1. Domestic Corporations - created under PH law
- Resident Foreign Corporations - organized abroad and engages business in PH
- Nonresident Foreign Corporation - organized abroad and does not engaged in business in PH
As to tax treatment:
1. Ordinary corporations - those subject to RCIT of 30% UNDER THE TRAIN LAW AND EITHER 25% OR 20% UNDER CREATE LAW
- Special corporations - those subject to income tax rate which is lower than the RCIT of 30%, 25% OR 20% as the case may be.
What are the special corporations listed under the Tax Code and their corresponding tax rate?
- Domestic Corporations
a. Proprietary educational institutions
b. Non-profit hospitals
If related income is greater than unrelated income:
TRAIN LAW: 10%
CREATE: July 1, 2020 to June 2023: 1%
Beg July 1, 2023: 10%
TRAIN 30%, CREATE 25% or 20% if unrelated income is higher than related income - Resident Foreign Corporations
a. International Carriers - 2.5% of Gross Philippine Billings but may be lower under certain conditions
b. ROHQs - TRAIN - 10% of net income
CREATE: Until Dec 2021: 10%
Beginning Jan 1, 2022 - taxable as RFCs (25%) ROHQs are no longer considered special corporations beginning January 1, 2022. - Nonresident foreign corporations
a. Non-resident Cinematographic Film
Owner/Lessor/Distributor - 25% of Gross income
b. Non-resident Owner or Lessor of Vessels chartered
by PH nationals - 4.5% of Gross Income
c. Non-resident owner or lessor of
aircraft/machineries/other equipment - 7.5% of Gross Income
What are exempt organizations from income tax?
Incomes earned by the following organizations from any of their primary activities are exempt from tax:
a. Labor/agricultural/horticultural orgs not organized for profit
b. Mutual savings banks not having capital stocks represented by shares
c. Cooperative banks without capital stocks organized for mutual purposes and without profit
d. Beneficiary societies not for profit
e. Cemetery companies owned and operated exclusively for the benefit of its members.
f. Non-stock corporations/associations for religious/charitable/scientific/athletic/cultural purposes where no part of its net income inures to the benefit of any member
g. Business leagues/chambers of commerce/board of trades not organized for profit
h. Civic leagues not organized for profit
i. Nonstock nonprofit educational institutions
j. Government educational institutions
k. Farmer’s or other mutual typhoon or fire insurance company and farmer’s fruit growers associations.
However, other incomes earned for profit by the above and not from their primary purpose is taxable.
Are GOCCs subject to income tax?
All corporations /agencies /instrumentalities of the government shall be TAXABLE LIKE ORDINARY CORPORATIONS EXCEPT FOR:
a. GSIS
b. SSS
c. PHIC
d. Local Water Districts
e. HDMF (PAG-IBIG)
Note: - PCSO IS ALREADY TAXABLE UNDER TRAIN on Jan 1 2018
- HDMF is exempt only upon effectivity of CREATE (Apr 11, 2021)
What are the general principles in corporate income taxation?
A. As to source
a. DC - world
b. RFC and NRFC - PH only
B. As to basis
a. DC and RFC - Net income
b. NRFC - Gross income
Abdul Incorporated sold its vacant lot to the PH government. What are his options when it comes to the income tax on the sale?
Capital gains tax only. The option to choose to be taxed at either CGT or regular income tax IS ONLY FOR INDIVIDUAL SELLERS.
CGT on sale of shares not through the LSE but directly to a buyer by a domestic corporation not organized for dealing in shares is computed by?
Same as sales by individuals, 15% CGT on the gain.
CGT on sale of shares not through the LSE but directly to a buyer by a foreign corporation not organized for dealing in shares is computed by?
Same as the Pre-TRAIN rate, 5% on the first 100,000 gain and 10% on the excess gain.
When is the tax sparing rule available and to whom?
The tax sparing rule of 15% is APPLICABLE ONLY TO THE RECEIPT OF DIVIDENDS FROM A DOMESTIC CORPORATION BY A NON-RESIDENT FOREIGN CORPORATION IF THE OTHER COUNTRY ALSO DOES NOT IMPOSE THE SAME TAXES TO PH COUNTERPARTS.
What tax applies when there is a sale of shares directly to a buyer but the share is listed in the LSE? For example, when the shares of San Miguel held by a corporation is sold directly to a buyer?
CGT applies, since it was sold DIRECTLY TO A BUYER. What will determine what tax applies is the manner through which it was sold. Had it been sold through the LSE, it would’ve been subject to stock transaction tax.
What is the FWT rate for corporations on interest income?
If the interest income is from: 1. Bank deposit 2. Deposit Substitute (money market placements) 3. Trust funds The rate is: a. For DCs - 20% b. For RFCs - 20% c. For NRFCs - 30%/25%
If the interest income from a FCDU, the rate is:
a. DCs - 15%
b. RFCs - 7.5%(TRAIN) (15% CREATE)
c. NRFCs - EXEMPT
If the interest income is from a LONG TERM DEPOSIT
a. DCs - 20%
b. RFCs - 20%
c. NRFCs - 30%/25%
What is the FWT on royalties for corporations?
For corporations, the rate on royalties WHETHER FROM MUSIC/LITERARY/BOOKS AND OTHERS, ARE THE SAME. The rate is:
a. For DCs - 20%
b. For RFCs - 20%
c. For NRFCs - 30%/25%
What is the FWT on dividends and shares in distributable net income for corporations?
a. For DCs - EXEMPT
b. For RFCs - EXEMPT
c. For NRFCs - 15%(TAX SPARING) or 30%/25%
What is the treatment of dividends received from RFCs?
It is NOT SUBJECT TO CGT OR FWT, but to basic income tax, regardless of the classification of the recipient.
Explain the CGT on sale of shares for corporations.
- ) For DOMESTIC corporations NOT ORGANIZED AS DEALERS IN STOCKS, the CGT is computed as 15% on the gain of sale of stocks.
- ) For FOREIGN corporations NOT ORGANIZED AS DEALERS IN STOCKS, the CGT is computed as 5% on the first 100,000 gain, and 10% on the excess.
For the 2 situations above, THE STOCKS MUST BE SOLD DIRECTLY TO THE BUYER, also the tax basis is:
a. Specific Identification
b. Moving Average
c. FIFO
Explain the CGT on sale of capital real property by corporations.
For FOREIGN CORPORATIONS, THEY ARE NOT SUBJECT TO CGT ON SALE OF REAL CAPITAL PROPERTIES.
For DOMESTIC CORPORATIONS, the CGT is 6% of the tax base, which is the HIGHEST BETWEEN:
A. Selling Price
B. Zonal Value
C. Assessed/FMV
If a domestic corporations sells real capital property to the government, what tax applies?
ONLY CGT. The domestic corporation has no option to be taxed at CGT or basic income tax, AS COMPARED TO INDIVIDUALS.
How is the Regular Corporate Income Tax computed?
Gross Income xxx Allowable Deductions (xxx)
Taxable Income XXX
Rate 30%
RCIT XXX
What are allowable deductions in the computation of RCIT?
- Itemized deductions such as business expenses and losses
- Optional Standard Deduction
