Chapter 1 Flashcards
(89 cards)
1
Q
What is Corporation?
A
A juridical entity distinct from its owner (stockholders), capable of owning property, entering into contracts, being sued or suing and generate profits and other income.
2
Q
Is corporations earning profit and other income are subject to income taxes?
A
YES
3
Q
What is corporate income taxes and where are they imposed?
A
It is imposed by the government on businesses (corporate taxpayers) to generate revenue. It is an important source of revenue for government.
4
Q
What are the kind of taxes?
A
Corporate taxpayers are subjecc to the following taxes: 1. Regular / Minimum Corporate Income Tax; 2. Final Income Tax on Passive Income ; 3. Capital Gains Tax
5
Q
What are the applicable tax rates for corporate taxpayer in Regular Corporate Income Tax?
A
Domestic Corporations - 25% ; Resident Foreign Corporation - 20% ; Non-Resident Foreign Corporations - N/A
6
Q
What are the applicable tax rates for corporate taxpayer in Final Income Tax on Passive Income?
A
Domestic Corporations - 20% on interests, royalties; Resident Foreign Corporation - 20% on interests and royalties / 15% on interest under EFDS ; Non-Resident Foreign Corporations - 25% of gross income
7
Q
What are the applicable tax rates for corporate taxpayer in Capital Gains Tax?
A
Domestic Corporations - 1) 15% on capital gain on the sales of shares of stocks not traded in PSE ; 2) 6% on presumed gain on the sale of land and/or building ; Resident Foreign Corporation - 15% on capital gain on the sale of shares of stocks not traded in PSE; Non-Resident Foreign Corporations - 15% on capital gain on the sale of shares of stocks not traded in PSE
8
Q
What are the kinds of corporate taxpayers?
A
- Corporation ; 2. Domestic Corporation ; 3. Foreign Corporation; 4. Resident Foreign Corporation (RFC) ; 5. Nonresident Foreign Corporation (NRFC)
9
Q
What is shall include in Corporation?
A
- One-person corporations (OPC); 2. Partnerships ; 3. Joint-stock companies; 4. Joint accounts (cuentas en participacion) ; 5. Associations; 6. Insurance companies
10
Q
What is not include in Corporation?
A
- General professional partnership (GPP) ; 2. A joint venture (JV) or consortiums
11
Q
What is a Domestic Corporation?
A
It is a corporation created or organized in the Philippines or under its laws
12
Q
What is a Foreign Corporation?
A
It is a corporation that is not domestic, meaning, it is organized and existing under the laws of foreign country. It is classified as either Resident Foreign Corporation and Nonresident Foreign Corporation.
13
Q
What is a Resident Foreign Corporation (RFC)?
A
It is a foreign corporation engaged in trade or business within the Philippines.
14
Q
What is a Nonresident Foreign Corporation (NFRC)?
A
It is a foreign corporation not engaged in trade or business within the Philippines. It does not engage in trade or business within Philippines but derives income from Philippine sources such as: 1. Interest, dividends; 2. Royalties ; 3. Rentals; 4. Capital Gains
15
Q
Under the Ease of Paying (EOPT) Act, what are the classifications of taxpayers based on gross sales?
A
The four classifications are: 1. Micro - Less than 3 million; 2. Small - 3 million to less than 20 million; 3. Medium - 20 million to less than 1 billion; 3. Large - 1 billion and above.
16
Q
How is “Gross Sales” defined under the EOPT Act?
A
Gross sales refer to total sales revenue, net of VAT if applicable, during the taxable year, without any other deductions. It includes income from the conduct of trade or business.
17
Q
What are the kinds of income?
A
- Returnable Income ; 2. Passive income subject to Final Tax; 3. Capital Gains subject to Capital Gains Tax
18
Q
What is Returnable Income?
A
This refers to income subject to regular income tax. As a rule, all income not subject to final tax on passive income, capital gains tax, and fringe benefits tax shall be subject to regular tax.
19
Q
What is included in Returnable Income?
A
- Business income; 2. Passive income, not subject to Final Tax; 3. Capital Gains, not subject to Capital Gains Tax; 4. Income from whatever sources
20
Q
What are the Passive Income subject to Final Tax?
A
- Derived from sources within; 2. Passive Income; 3. Specifically provided in the NIRC; 4. Not exempted; 5. Not an exlusion
21
Q
What are the Capital Gains Subject to Capital Gains Tax?
A
- Net capital gains from the sale, barter, exhange ; 2. Presumed gain on sale
22
Q
What are the modes of collection?
A
- Withholding Tax System; 2. Voluntary Payment (Pay as You File System)
23
Q
What is withholding tax system?
A
It is a systematic way of collecting taxes at source which collects taxes through withholding tax agents (payor) or employers
24
Q
Why withholding tax system is an effective tool in collection of taxes?
A
- It encourages voluntary compliance; 2. It reduces cost of collection effort; 3. It prevents delinquencies and revenue loss; 4. It prevents dry spells in fiscal conditions.
25
Who are the persons required to withhold taxes?
1. Individuals engaged in business or practiced of the profession; 2. Non-individuals (corporations, associations, partnerships, cooperatives) whether engaged in business or not; 3. Government agencies and their instrumentalities.
26
What are the types of withholding taxes?
1. Final Withholding Tax (FWT); 2. Creditable Withholding Tax (CWT)
27
What is Final Withholding Tax?
It is a kind of withholding tax that is prescribed on certain income payments and is not creditable against the income tax due of the payee on other income subject to regular rates of tax for the taxable year.
28
What are the items of income that are subject to final withholding tax under Tax Code?
Income items subject to Final Withholding Tax under the Philippine Tax Code include interest and monetary benefits, capital gains from shares and property sales, income from foreign currency deposits, branch profit remittances, regional headquarters tax, income of nonresident foreign corporations, interest on foreign loans, and intercorporate dividends, where the tax withheld serves as the full and final payment of the income tax liability.
29
When was the withholding agent shall file/remit?
The withholding agent shall file and remit the Final Withholding Tax (FWT) on or before the last day of the month following the end of the quarter using BIR Form 1601-FQ and submit the Annual Information Return (BIR Form 1604-F) with the Alphalist of Payees on or before January 31 of the following year through eFPS, eBIRForms, or Authorized Agent Banks to ensure compliance and avoid penalties.
30
What is Expanded Withholding Taxes?
Kind of withholding tax which is prescribed only for a certain payors and is creditable against the income tax due of the payee
31
What is Final Withholding Tax?
A tax withheld at the source that serves as the full and final payment of the income tax due.
32
What is Creditable Withholding Tax?
A tax withheld at the source that serves as an advance payment of the recipient's income tax liability.
33
Is Final Withholding Tax creditable against income tax?
No, it is not creditable against income tax.
34
Is Creditable Withholding Tax creditable against income tax?
Yes, it is creditable against the income tax due of the recipient.
35
Who is required to file an income tax return under Final Withholding Tax?
The recipient is not required to file an income tax return.
36
Who is required to file an income tax return under Creditable Withholding Tax?
The recipient is required to file an income tax return and can claim the withheld tax as a credit.
37
What types of income are subject to Final Withholding Tax?
Passive income, capital gains, taxable fringe benefits, income of nonresident foreign corporations, and branch profit remittances.
38
What types of income are subject to Creditable Withholding Tax?
Active income, compensation income, professional fees, rental income, and commissions.
39
Can Final Withholding Tax be refunded or carried over?
No, it is not eligible for refund or carryover.
40
Can Creditable Withholding Tax be refunded or carried over?
Yes, excess withholding tax may be refunded or carried forward to the next taxable period.
41
How does Final Withholding Tax impact taxable income?
Income subject to Final Withholding Tax is excluded from taxable income computation.
42
How does Creditable Withholding Tax impact taxable income?
Income subject to Creditable Withholding Tax must be reported as part of taxable income.
43
What BIR form is used for monthly remittance of Creditable Withholding Tax?
BIR Form 1601-EQ for expanded withholding tax and 1601-C for compensation withholding tax. (CHECK BIR FORM NO. IN PAGE 8)
44
What BIR form is used for annual reporting of Creditable Withholding Tax?
BIR Form 1604-E for expanded withholding tax and 1604-C for compensation withholding tax. (CHECK BIR FORM NO. IN PAGE 8)
45
When is Final Withholding Tax filed and remitted?
On or before the last day of the month following the end of the quarter using BIR Form 1601-FQ and annually through BIR Form 1604-F. (CHECK BIR FORM NO. IN PAGE 8)
46
When is Creditable Withholding Tax filed and remitted?
On or before the last day of the month following the end of the quarter using BIR Form 1601-EQ or 1601-C and annually through BIR Form 1604-E or 1604-C. ((CHECK BIR FORM NO. IN PAGE 8))
47
What is income tax return?
It is a statement of income tax of a taxpayer showing the nature and amounts of his income less the allowed deductions for the taxable year.
48
When was the corporations should file their returns and compute their income?
On the basis of an accounting period of 12 months.
49
What is the taxable period of individual taxpayers and corporation?
Individual - Calendar Year only ; Corporation - Either Calendar Year of Fiscal Year (check the example in page 12 for more understanding)
50
What is the mode of filing?
The filing of tax return and the payment of tax with corresponding due dates shall be made electronically in any of the available electronic platforms, however, in case of unavailability, you can use manually.
51
What is electronic and manual mode of filing?
1. Electronically - done through electronic means using BIR's electronic platform;
1. Manually - tax return is accomplished by writing.
52
What is the filing date for return?
The corporate quarterly declaration shall be filed, either any mode of filing, within sixty (60) days following the close of each of the first three (3) quarters of the taxable year.
53
What is the final adjustment return?
It shall be filed on or before the fifteenth (15th) day of April, or on or before the fifteenth (15th) day of the fourth (4th) month following the close of the fiscal year.
54
What is the place of filing return?
With any authorized agent bank, Revenue District Office through Revenue Collection Officer
55
What will happen if they file their tax return with the wrong internal revenue officer?
Starting January 2024, under the EOPT Act, taxpayers will no longer be charged a 25% penalty, however, if the transaction took place before 2024 (e.g., in 2020), prior to the effective of the EOPT Act, the 25% surcharge for the wrong venue would still apply.
56
What is the time of payment of filing a return?
The payment of the corporate income tax follows the 'pay as you file" principle. The income tax due on the corporate quarterly returns and the final adjustments income tax returns shall be paid, at the time the declaration or return is filed, in a manner prescribed by the Commissioner.
57
What is the Amended Income Tax Returns?
A corporate taxpayer may amend their income tax return within three years from filing or the legal deadline, provided no tax audit or notice of assessment has been issued by the BIR.
58
What will happen if the taxpayer fails to file a tax return or pay the required tax?
If a taxpayer fails to file a tax return or pay the required tax, they may face:
1. Surcharge – A penalty of 25% or 50% of the unpaid tax, depending on the severity of the violation ;
1. Interest – 12% per year on any unpaid tax until fully settled ;
1. Failure to File Information Returns – A fine of ₱1,000 per violation, up to ₱25,000 per year ;
1. Compromise Penalty – A negotiated fine (₱200 to ₱50,000) to settle tax violations without a court case; refusal may lead to criminal prosecution.
The TRAIN Law (2018) removed the double interest penalty, meaning taxpayers are now charged only one type of interest at a time.
59
What is the maximum number of pages for the Income Tax Return (ITR) under the Ease of Paying Taxes Act?
A maximum of two (2) pages in paper or electronic form.
60
What is the reduced rate of civil penalties for micro and small taxpayers?
10% of the unpaid tax.
61
How much is the reduction on the interest rate for tax deficiencies?
50% reduction on the interest rate.
62
What is the penalty for failure to file certain information returns?
₱500 per violation.
63
What is the reduction on the compromise penalty rate for violations of Sections 113, 237, and 238 of the NIRC?
At least 50% reduction
64
What are the three types of corporation under the Tax Code?
1. Regular Corporation; 2. Special Corporation; 3. Exempt Corporation
65
What is Regular Corporation?
It refers to domestic or resident foreign corporations subject to regular corporate income tax at a rate of 25% or 20.
66
What is Special Corporation?
This refers to a type of corporation subject to special tax rates or incentives under Philippine law. These are distinguished due to nature of their activities, their purpose. These are subject to preferential tax rate lower than the 25% / 20% regular corporate income tax.
67
What are the types of Special Corporations?
a. Special Domestic Corporations; b. Special Resident Foreign Corporations; c. Special Non-Resident Foreign Corporations
68
What are Special Domestic Corporations?
Special Domestic Corporations are corporations in the Philippines with special tax treatment. Examples include:
1. Government-Owned and Controlled Corporations (GOCCs)
1. Proprietary Educational Institutions (PEIs) – Taxed at 10% of taxable income
1. Non-Profit Hospitals – Taxed at 10% of taxable income
69
What are Special Resident Foreign Corporations?
These are foreign corporations operating in the Philippines that are subject to specific tax rates. Examples include:
1. International Carriers – Taxed at 2.5% of Gross Philippine Billings
1. Branches of Resident Foreign Corporations (RFCs) – Profits remitted are taxed at 15% (Branch Profits Remittances Tax or BPRT)
1. Regional Area Headquarters (RAHQs) – Taxed at 0%
1. Offshore Gaming License Holders – Taxed at 5% of gross gaming revenues
70
What are Special Non-Resident Foreign Corporations?
These are foreign corporations that earn from the Philippines but don’t operate locally. Examples include:
1. Non-Resident Film Owners, Lessors, or Distributors – Taxed at 25% of gross income
1. Non-Resident Vessel Owners or Lessors (chartered by Filipinos) – Taxed at 4.5% of gross rentals, lease, or charter fees
1. Non-Resident Aircraft, Machinery, and Equipment Lessors – Taxed at 7.5% of gross rentals or fees
71
What is Exempt Corporations?
Income from the activities unrelated to the organization's primary purpose (e.g., business operations) may be subject to tax.
## Footnote
Check the Section 30 of Tax Code to see the types of income that are exempt from taxation.
72
What is taxable income of corporation?
Taxable income is the amount of income a corporation is required to pay tax on, calculated as gross income minus allowable deductions.
73
What types of income are included in a corporation’s gross income?
All income subject to Regular Corporate Income Tax (RCIT) must be included in gross income.
74
What types of income are excluded from gross income?
The following are not included in gross income:
* Exempt or excluded income (e.g., certain tax-exempt earnings)
* Passive income subject to final tax (e.g., interest from bank deposits)
* Capital gains subject to capital gains tax (e.g., gains from selling shares or property)
75
What deductions can a corporation claim?
A corporation can deduct expenses allowed by law, such as:
* Itemized deductions (specific business expenses)
* Optional standard deduction (OSD) (a fixed percentage of gross income)
76
What happens if a corporation claims deductions that are not allowed by law?
The disallowed deductions will be added back to taxable income, increasing the corporation’s tax liability.
77
What are the corporate tax rates in the Philippines?
* 25% RCIT (Regular Corporate Income Tax)
* 20% Lower Tax Rate for domestic corporations that meet all these conditions:
1. Total assets (excluding land) do not exceed ₱100 million
1. Taxable income does not exceed ₱5 million
* 10% Preferential Tax Rate for:
1. Proprietary Educational Institutions
1. Non-Profit Hospitals
78
How is passive income taxed?
Passive income (e.g., interest from bank deposits, dividends) is subject to final tax and excluded from gross income.
79
Do all corporations pay the same tax rate?
No, the tax rate depends on the corporation’s income, assets, and type. Some corporations, like educational institutions and non-profit hospitals, pay a lower 10% tax rate.
80
What is the tax treatment for capital gains?
Capital gains are taxed separately under the capital gains tax and are not included in regular taxable income.
81
Why is it important to separate taxable income from excluded income?
Separating taxable and excluded income ensures that corporations only pay tax on the correct portion of their earnings and comply with tax laws.
82
What is Regular Corporate Income Tax (RCIT)?
RCIT is the tax imposed on corporations that are not subject to final tax or capital gains tax (CGT). The tax rate is either 20% or 25% depending on the classification of the corporation.
83
How are Domestic Corporations taxed?
* They are registered in the Philippines.
* They pay tax on all income earned worldwide (both inside and outside the Philippines).
* **Tax rate:** 25% or 20% if they meet the qualifications for a lower rate (total assets ≤ ₱100M and taxable income ≤ ₱5M).
84
What are Resident Foreign Corporations (RFCs) and how are they taxed?
* These are foreign corporations operating in the Philippines (e.g., foreign branch offices).
* They are taxed only on income earned within the Philippines.
* **Tax rate:** 25%.
85
What are Non-Resident Foreign Corporations (NRFCs) and how are they taxed?
* These are foreign corporations that do not operate in the Philippines but earn income from the country (e.g., foreign companies receiving royalties or rentals from Philippine sources).
* They do not pay RCIT but are subject to a final tax of 25% on their gross income earned in the Philippines.
86
How is the tax base different for Domestic, Resident Foreign, and Non-Resident Foreign Corporations?
* **Domestic corporations** – Taxed on worldwide income.
* **Resident foreign corporations** – Taxed on Philippine-sourced income.
* **Non-resident foreign corporations** – Taxed on Philippine-sourced income but under a 25% final tax instead of RCIT.
87
Why do some domestic corporations qualify for the 20% tax rate instead of 25%?
A domestic corporation pays 20% instead of 25% if it meets all three of these conditions:
* It is a domestic corporation.
* Its total assets (excluding land) do not exceed ₱100 million.
* Its taxable income does not exceed ₱5 million.
88
Why don’t Non-Resident Foreign Corporations (NRFCs) pay RCIT?
* NRFCs do not operate in the Philippines but only earn income from Philippine sources.
* Instead of RCIT, they are subject to a 25% final tax on gross income, which is withheld by the resident payor before payment.
89
How does RCIT differ from final tax?
* RCIT is applied to net taxable income (after deductions).
* Final tax is a fixed percentage applied to gross income with no deductions allowed (e.g., the 25% final tax for NRFCs).
