Chapter 1 Flashcards
(301 cards)
1
Q
Is a juridical entity distinct from its owners (stockholders), capable of owning property, entering into contracts, being sued or suing and generate profits and other income.
A
Corporation
2
Q
Are imposed by the government on businesses (corporate taxpayers) to generate revenue. It is an important source of revenue for government and can have an impact on the behavior of corporations.
A
Corporate Income Taxes
3
Q
Corporate taxpayers are subject to what following taxes?
A
Regular / Minimum Corporate Income Tax
Final Income Tax on Passive Income
Capital Gains Tax
4
Q
Corporation shall include:
A
- One person corporations (OPC),
- Partnerships, no matter how created or organized,
- Joint-stock companies,
- Joint accounts (cuentas en participacion),
- Associations, or
- Insurance companies
5
Q
Corporation does not include:
A
General professional partnerships (GPP)
A joint venture (JV)
6
Q
Usually treated as a “pass-through” entity, meaning the partnership itself is not taxed. Instead, profits and losses are reported on the partners’ individual tax returns.
A
General professional partnerships (GPP)
7
Q
Consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating consortium agreement under a service contract with the Government.
A
Joint Venture
8
Q
Both general professional partnerships (GPP) and joint venture (JV) and consortiums (or purely contractual joint venture) are not included in the definition of corporations, and are thus not taxable as corporations.
A
9
Q
Refers to a corporation created or organized in the Philippines or under its laws
They are taxed on worldwide income
A
Domestic Corporation
10
Q
Refers to corporation which is not domestic, meaning, it is organized and existing under the laws of a foreign country.
A
Foreign Corporation
11
Q
A foreign corporation engaged in trade or business within the Philippines. Generally, this type of corporation establishes a branch or office for purpose of conductung business or trade in the Philippines.
A
Resident Foreign Corporation
12
Q
A foreign corporation not engaged in trade or business within the Philippines.
This refers to a corporation established and domiciled outside the Philippines and does not engage in trade or business within the Philippines but derives income from Philippine sources such as:
a. Interest, dividends
b. Royalties
c. Rentals
d. Capital gains
A
Nonresident foreign corporation (NRFC)
13
Q
NRFC are type of corporation that has no sales or cost of sales in the Philippines; otherwise, it would be considered as doing business in the Philippines and classified as a Resident Foreign Corporation
A
14
Q
Refer to total sales revenue, net of VAT, if applicable, during the taxable year, without any other deductions. Gross sales shall consist of business income, which shall include income from the conduct of trade or business.
A
Gross Sales
15
Q
For purposes of tax imposition, income may be classified according to the type of tax to be imposed on such income as?
A
- Returnable Income
- Passive Income subject to Final Tax
- Capital Gains subject to Capital Gains Tax
16
Q
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 income tax.
A
Returnable Income
17
Q
Returnable Income includes:
A
- Business income
- Passive income, not subject to Final Tax.
- Capital Gains, not subject to Capital Gains Tax.
- Income from whatever sources
18
Q
Passive income is subject to final tax if the following requisites are present:
A
- Derived from sources within
- Passive income
- Specifically provided in the NIRC
- Not exempted
- Not an exclusion
19
Q
Gains from the sale of the following capital assets are subject to capital gains tax when:
A
- Net capital gains from the sale, barter, exchange, or other disposition of shares of stock in a domestic corporation not traded through the local stock exchange.
- Presumed gain on the sale, exchange, or other disposition of real property.
20
Q
What are the modes of Collection:
A
- Withholding Tax System
- Voluntary Payment (Pay as You File System)
21
Q
Systematic way of collecting taxes at source. It is a part of tax system which collects taxes through withholding tax agents (payor) or employers the appropriate taxes due as they are earned and before earnings are paid to payees or employees.
A
Withholding Tax System
22
Q
Withholding Tax System is considered as an effective tool in the collection of taxes for the following reasons:
A
- It encourages voluntary compliance;
- It reduces cost of collection effort;
- It prevents delinquencies and revenue loss; and
- It prevents dry spell in the fiscal conditions of the government by providing revenues throughout the taxable year.
23
Q
The following persons are required to withhold taxes:
A
- Individuals engaged in business or practiced of profession.
- Non-individuals (corporations, associations, partnership, cooperatives) whether engaged in business or not.
- Government agencies and its instrumentalities (National Government Agencies (NGAs), Government-owned or Controlled Corporations (GOCCs), Local Government Units including Barangays (LGUs).
24
Q
Any person or entity who is in control of the payment subject to withholding tax and therefore is required to deduct and remit taxes withheld to the government
A
Withholding agent
25
Types of Withholding Taxes
1. Final Withholding Tax (FWT)
2. Creditable Withholding Tax (CWT)
26
Is a kind of withholding tax which 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.
Final Withholding Tax
27
Final income tax withheld constitutes the full and final payment of the income tax due from the payee on the particular income subjected to final withholding tax.
28
The withholding agent shall file/remit as follows:
0619-F
- On or before the 10th day of the following month in which withholding was made for the first two (2) months of each calendar quarter.
1601-FQ
- Not later than the last day of the month following the close of the quarter during which withholding was made.
1604-F
- On or before January 31 of the year following the calendar year in which the income payments subject to final withholding taxes were paid or accrued.
29
Is a kind of withholding tax which is prescribed only for certain payors and is creditable against the income tax due of the payee for the taxable quarter year.
Creditable or Expanded Withholding Tax
30
Creditable Withholding Taxes includes:
1. Withholding tax on Wages/Compensation or the tax withheld from income payments to individuals arising from an employer- employee relationship.
2. Expanded Withholding Tax or the kind of withholding tax which is prescribed on certain income payments and is creditable against the income tax due of the payee for the taxable quarter/year in which the particular income was earned.
3. Withholding Tax on GMP
4. Withholding Tax on Government Money Payments (GMP)
31
The obligation to deduct and withhold the tax arises at the time of the income has become payable. The term "income has become payable" means that the seller of goods or service has issued the "Invoice", corresponding to the sales, whether or not the consideration or the price for such goods or service rendered has been paid or not.
32
On the part of the seller, when it issued the Invoice, the "sales" shall already be recognized in the books of accounts. On the part of the payor/buyer, upon receipt of the Invoice for the goods or services procured, the same shall either be recorded as expense or asset.
33
In general, when the payor of income or buyer of goods or services are not engaged in business, they are not required to withhold tax on their payments to their supplier/seller of goods or services. However, in the case of real properties classified as "ordinary asset" of the seller and the buyer is not engaged in business, the required withholding shall be remitted by the seller/payee and the same shall be claimed as income tax credit of the seller.
34
EOPT repealed withholding of tax as deductible payments from gross income.
35
Claims for tax credit or refund of any creditable income tax which was deducted and withheld on income payments shall be given due course only when:
1. It is shown the income payment has been declared as part of the gross income; and
2. The fact of withholding is established.
36
Claims for tax credit of any credible income tax deducted and withheld in a previous period can still be creditable in the subsequent calendar of fiscal year: Provided, That the same has been declared in the tax return where the corresponding income is reported.
37
In FWT:
> A tax withheld at the source of income that constitutes the full and final payment of the income tax due on the income.
In CWT:
> A tax withheld at the source of income that advance serves as an payment of the recipient's income tax liability
38
In FWT:
> The recipient of the income is not required to file income tax return.
In CWT:
> The recipient of the income is required to file income tax return
39
In FWT:
> Passive income subject to final tax;
> Capital gains subject to CGT
> Taxable Fringe benefits (subject to Fringe Benefit Tax);
> Income earned by a NRFC
> Branch Profits Remittances
In CWT:
> Returnable / Active income
> Compensation income of employees
> Professional fees, rental income, and commission
40
In FWT:
> Not creditable against income tax.
In CWT:
> Creditable against the income tax due of the recipient.
41
In FWT:
> Income subject to final withholding tax is excluded from taxable income computation
In CWT:
> Income subject to creditable withholding tax must be reported as part of taxable income
42
In FWT:
> Not eligible for or refund carryover
In CWT:
> Excess withholding tax may be refunded or carried forward to the next taxable period
43
All taxes withheld pursuant to the provisions of this EOPT Act and its implementing rules and regulations are hereby considered trust funds and shall be maintained in a separate account and not commingled with any other funds of the withholding agent.
44
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. It is an under-oath declaration of the taxpayer reflecting his true and correct tax liability.
Income Tax Return
45
Corporations should file their returns and compute their income on the basis of an accounting period of 12 months.
46
1702-RT
Annual Income Tax Return For Corporation, Partnership and Other Non-Individual Taxpayer Subject Only to REGULAR Income Tax Rate
47
1702-EX
Annual Income Tax Return For Corporation, Partnership and Other Non-Individual Taxpayer EXEMPT Under the Tax Code, as Amended, (Sec. 30 and those exempted in Sec. 27(C)} and Other Special Laws, with NO Other Taxable Income
48
1702-MX
Annual Income Tax Return for Corporation, Partnership and Other Non-Individual with MIXED Income Subject to Multiple Income Rates Tax Income with or SPECIAL/PREFERENTIAL RATE
49
1702Q
Quarterly Income Tax Return for Corporations, Partnerships and Other Non-Individual Taxpayers
50
1706
Capital Gains Tax Return for Onerous Transfer of Real Property Classified as Capital Asset (both Taxable and Exempt)
51
1707
Capital Gains Tax Return for Onerous Transfer of Shares of Stocks Not Traded Through the Local Stock Exchange
52
1707-A
Annual Capital Gains Tax Return for Onerous Transfer of Shares of Stock Not Traded Through the Local Stock Exchange
53
1709
Information Return on Transactions with Related Party (International and/or Domestic)
54
Taxable period of Corporation:
Either Calendar or Fiscal Year
55
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 thereof, the same can be done manually to any AABs, RCOs (with some limitations), or ATSPs (for specific returns as approved by BIR), regardless of the Taxpayer Identification Registration Number (TIN).
56
This means when the filing of tax return and payment of tax is done through electronic means using the BIR's electronic platform (Electronic Filing and Payment System/eBIRForms), online banking platform of AAB and ATSP
Electronically
57
This means when the tax return is accomplished by writing or through the aid of electronic equipment, but the act of submission and payment is done through over-the-counter with any AAB or RCO of the BIR, subject to some limitations on amount in case of payment through RCO.
Manually
58
The corporate quarterly declaration shall be filed, either electronically or manually, within sixty (60) days following the close of compromise penalty, the violation shall be referred to the appropriate office for criminal action.
59
The following concessions shall be made available to micro and small taxpayers for purposes of EOPT Act
1. The Income Tax Return (ITR) required under Section 51 of the NIRC shall consist of a maximum of two (2) pages in paper form or electronic form;
2. A reduced rate of ten percent (10%) for civil penalties as provided under Section 248 of the NIRC, as amended;
3. A fifty percent (50%) reduction on the interest rate imposed under Section 249 of the NIRC, as amended;
4. A reduced fine of Five hundred pesos (P500) as penalty for failure to file certain information returns as provided under Section 250 of the NIRC, as amended; and
5. A reduced compromise penalty rate of at least fifty percent (50%) for violations of Sections 113, 237, and 238 of the NIRC, as amended.
60
Refers to domestic or resident foreign corporations subject to regular corporate income tax at a rate of 25% or 20%.
Regular Corporations
61
Refers to a type of corporation that is subject to special tax rates or incentives under Philippine law. These corporations are distinguished from regular domestic or foreign corporations due to the nature of their activities, their purpose. These are subject to preferential tax rate lower than the 25%/20% regular corporate income tax
Special Corporations
62
Special Domestic Corporations includes:
1. Government-Owned (GOCCS) and Controlled Corporations
2. Proprietary Educational Institutions (PEI) subject to 10% of taxable income.
3. Hospitals which are Non-Profit subject to 10% of taxable income.
63
Special Resident Foreign Corporations includes:
1. International carriers subject to Gross Philippine Billings Tax (GPBT) at 2.5% of Gross Philippine Billings
2. Branches of Resident foreign corporation (RFC) subject to Branch Profits Remittances Tax (BPRT) at 15% of remittance (actual or earmarked)
3. Regional Area Headquarters (RAHQ) subject to 0% tax rate.
4. Offshore Gaming License- subject to 5% tax rate of Gross gaming revenues
64
Special Non-Resident Foreign Corporations includes:
1. Nonresident Cinematographic Film Owner, Lessor or Distributor subject to 25% of gross income
2. Nonresident Owner or Lessor of Vessels Chartered by Philippine Nationals- subject to 4.5% tax rate of gross rentals, lease or charter fees
3. Nonresident Owner or Lessor of Aircraft, Machineries and Other Equipment- subject to 7.5% tax rate based on gross rentals or fees
65
What are Exempt Corporations?
Under Section 30 of the Tax Code, it specifies the types of income that are exempt from taxation for certain organizations. Income from activities unrelated to the organization's primary purpose (e.g., business operations) may be subject to tax.
66
Means the pertinent items of gross income specified in the Tax Code, less deductions, if any, authorized for such types of income by the Tax Code or other special laws
Taxable Income
67
Taxable income is subject to the following corporate income tax rates:
1. Regular Corporate Income Tax at 25% or
2. Regular Corporate Income Tax at 20% when:
2.1 Taxpayer is a Domestic Corporation
2.2 Total assets, excluding land on which their office, plant and equipment are situated, does not exceed P100M; and
2.3 Taxable income does not exceed P5M
68
Preferential Income Tax for Proprietary Educational Institutions and Non-Profit Hospitals at 10%.
69
Regular Corporate Income Tax (RCIT)
Covers all income of corporations that are not subject to final tax on passive income and capital gains tax (CGT). The applicable RCIT is 20% or 25% of the taxable income, depending on the classification of the corporation.
70
Non-resident Foreign Corporations (NRFC) are subject to 25% final tax based on gross income from all income earned within the Philippines only. Since it is subject to 25% final tax, the withholding tax agent (resident payor) shall withhold the 25% final tax based on gross income. Thus, NRFC are not subject to RCIT or regular corporate income tax.
71
Domestic corporations are
> subject to RCIT on taxable income earned within and without the Philippines
> while foreign corporations (RFC and NRFC) are subject to income tax only on income earned within the Philippines.
72
The applicable RCIT rate for Domestic Corporation is either 20% or 25% on taxable income, while resident foreign corporations are always subject to 25% RCIT.
On the other hand, non- resident foreign corporations are not subject to RCIT but are instead subject to a 25% final tax on income earned within the Philippines.
73
RCIT applies only to taxable income, meaning income subject to final tax is excluded.
74
For NRFCs, all income earned within the Philippines is subject to a 25% final tax, except for the following:
a. Preferential tax rates of 4.5% or 7.5% applied to certain special corporations.
b. Intercorporate dividends, subject to the 15% tax sparing rule
c. Interest on foreign loans, taxed at 20%
d. Capital gains tax of 15% on net gains from sale of shares not traded through local stock exchange.
75
In computing the income tax of an NRFC, interest on Philippine bank deposit is included and subject to a 25% final tax.
76
The RCIT of 20% applies to domestic corporations with:
1. net taxable income not exceeding P5 million; and
2. total assets not exceeding P100 million, excluding the land on which the particular business entity's office, plant and equipment are situated.
77
Directly deducted from the income tax due to arrive at income tax payable.
Income Tax Credits
78
Corporations earning business income are required to file an income tax return on a cumulative quarterly and annual basis. In their tax returns, they can claim the following income tax credits.
1. Prior Year's Excess Credits
2. Tax Payments for the First 3 Quarters
3. Excess MCIT
4. Creditable Tax Withheld per BIR Form 2307
5. Tax paid in Return Previously Filed
6. Foreign Tax Credit
79
Can be claimed only by domestic corporations
Foreign Tax Credit
80
The excess income tax payments for the quarter cannot be claimed as tax credits for the succeeding quarter.
81
Excess MCIT can be claimed only as tax credit by DOMESTIC and RESIDENT FOREIGN CORPORATION against RCIT.
82
In case of the excess payments or overpayments, the excess amount, at the option of the taxpayer, can be:
1. Refunded;
2. Issued a Tax Credit Certificate (TCC); and
3. Carried over as a tax credit.
83
In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid during the year, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years.
84
Once the option to carry-over (carry-over option) and apply the said excess quarterly income taxes paid against the income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefore
85
Common Expanded Withholding Tax rates:
1. For payments to supplier of goods
1%
86
2. For payments to provider of services, in general
2%
87
Rental payments
5%
88
4. Payments to professionals (Lawyers, CPA, etc.)
5% if gross income for Current Year did not exceed P3M
or
10% if gross income is more than P3M or VAT registered, regardless of amount).
89
Resident citizens and domestic corporations have the option to claim foreign taxes paid abroad through either:
1. Itemized deduction
2. Tax credit
90
Requisites are:
1. Must be a domestic corporation;
2. The corporate taxpayer signifies in its return the desire to avail of the tax credit for taxes paid in foreign country; and
3. Subject to Specific Country Limitation and Global Limitation.
91
Pursuant to Specific Country Limitation, the amount of the credit in respect to the tax paid or incurred to any country shall not exceed the same proportion of the tax against which such credit is taken, which the taxpayer's taxable income from sources within such country under this Title bears to his entire taxable income for the same taxable year
92
Pursuant to Global Limitation, the total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken, which the taxpayer's taxable income from sources without the Philippines taxable under this Title bears to his entire taxable income for the same taxable year
93
The income tax return shall consist of a maximum of four (4) pages in paper form or electronic form, be filed by the president, vice- president or other principal officer, and shall be sworn to by such officer and by the treasurer or assistant treasurer, and shall only contain the following information:
1. Corporate profile and information;
2. Gross sales, receipts or income from services rendered, conduct of trade or business, except income subject to final tax as provided under this Code;
3. Allowable deductions
4. Taxable income; and
5. Income tax due and payable.
94
For micro and small taxpayers, the Income Tax Return (ITR) required under Section 51 of the NIRC shall consist of a maximum of two (2) pages in paper form or electronic form.
95
Imposition of MCIT:
Beginning the fourth taxable year of its business operations. domestic corporations and resident foreign corporations shall pay MCIT of 2% (1% from July 1, 2020 - July 1, 2023) of gross income whenever:
1. Corporations have zero or negative taxable income, or
2. MCIT is greater than the regular corporate income tax.
96
MCIT is not an additional tax.
The MCIT is compared with the regular income tax (RCIT), which is due from a corporation.
If the regular income is higher than the MCIT, then the corporation does not pay the MCIT but the amount of the regular income tax.
97
Domestic and resident foreign corporations shall pay RCIT or MCIT, whichever is higher.
98
MCIT is imposed beginning on the fourth taxable year immediately following the year in which such corporation commenced its operation. The period of reckoning which is the start of its business operations is the year when the corporation was registered with the BIR. This rule will apply regardless of whether the corporation is using the calendar year or fiscal year as its taxable year.
99
What are the Outside the Scope of MCIT?
1. Corporations which are subject to a special corporate tax or to preferential rates under special laws do not fall within the coverage of the MCIT.
2. For corporations whose operations or activities are partly covered by the regular income tax and partly covered by the preferential rate under special law, the MCIT shall apply the regular income tax rate on its operations not covered by the tax incentives.
3. Newly established corporations or firms which are in their first 3 years of operations are not covered by MCI
100
List of Companies not covered by MCIT are:
1. Proprietary educational institutions
2. Non-profit Hospitals
3. Domestic Corporations engaged in business as depository banks under the expanded foreign currency deposit system, otherwise known as FCDUS (Foreign Currency Deposit system)
4. Special Resident Foreign corporations
5. Non-resident Foreign Corporations
6. Firms taxed under special income tax regimes such as PEZA registered firms availing the 5% GIT incentive.
7. Real Estate Investment Trust (REIT)
101
MCIT is applied to Gross Income
102
May be credited over the 3-year reglementary period against RCIT due
Excess MCIT over RCIT
103
The corporate taxpayer shall observe the following in Excess MCIT Carry-Over
1. Excess MCIT can be used only as a tax credit against RCIT due in any of the three subsequent years. Excess MCIT cannot be deducted against MCIT due.
2. Credit for the excess MCIT from prior years can be taken up to the full amount of RCIT due in the next three years.
3. When there are several excess MCIT from prior years, tax crediting shall be made on a first-in-first-out basis.
4. Unused excess MCIT at the end of the three-year period shall expire and can no longer be used.
104
If MCIT is higher than RCIT, the excess MCIT from the previous taxable year/s cannot be credited against the MCIT due.
Furthermore, expanded withholding tax, quarterly income tax payments, whether RCIT or MCIT payments, can be applied against the quarterly MCIT due.
105
The Secretary of Finance may suspend imposition of MCIT on any corporation which sustained substantial losses on account of (LMB):
1. Prolonged labor dispute (losses from a strike staged by employees that lasts for more than 6 months and caused the temporary shutdown of operations), or
2. Force majeure (acts of God and other calamity; includes armed conflicts like war or insurgency), or
3. Legitimate business reverses (substantial losses due to fire, robbery, theft or other economic reasons).
106
The computation and the payment of MCIT shall likewise apply at the time of filing the quarterly corporate income tax. Items allowed to be credited against quarterly MCIT due: (a) CWT, (b) Quarterly income tax payments under the normal income tax; and (c) MCIT paid in the previous taxable quarter(s). However, excess MCIT from the previous taxable year/s shall not be allowed to be credited against the quarterly MCIT tax due.
107
The following institutions shall be covered by the preferential ten percent (10%) corporate income tax rate;
Provided, that beginning July 1,2020 until June 30,2023, the rate of one percent (1%) shall apply, as imposed under Section 27 (B) of the NIRC, as amended:
1. Proprietary Educational Institutions;
2. Hospitals which are non-profit; and,
3. Non-Stock, Non-Profit Educational Institutions whose net income or assets accrue/inure to or benefit any member or specific person.
108
Refer to any private schools maintained and administered by private individuals or groups, with an issued permit to operate from:
1. Department of Education (DepEd)
2. Commission on Higher Education (CHED)
3. Technical Education and Skills Development Authority (TESDA)
Proprietary Educational Institution
It can be organized as Stock Corporations or Non-Stock Corporations
109
110
Refers to any private hospitals which are non-profit, maintained and administered by private individuals or groups.
Hospitals Which are Non-Profit
111
As used in the definition of Proprietary Hospitals and Non-Stock, means that no net income or asset accrues to or benefits any member or specific person, with all the net income or assets devoted to the institution's purposes and all its activities conducted not for profit.
Non Profit
112
The following shall not be prohibited and shall not necessarily be considered a private inurement that would negate the status of the institutions as non-profit:
1. Grant of per diems such as transportation allowance in attendance of meetings,
2. Compensation and/or endowments for services rendered, or
3. Any other similar emoluments to the Board of Trustees, officers, employees, or any members thereof.
113
If gross income from unrelated trade or business or other activity exceeds 50% of total gross income derived from all sources, RCIT shall apply on the entire taxable income; thus, in relation to Section 30, NIRC:
114
Means any trade, business or other activity, the conduct of which is not substantially related to the exercise or performance by such educational institution or hospital of its primary purpose or function.
Unrelated trade, business or other activity
115
Refer to the offshore gaming operator, whether organized abroad or in the Philippines, duly licensed and authorized, through a gaming license, by the Philippine Amusement and Gaming Corporation (PAGCOR) or any special economic zone authority or freeport authority to conduct offshore gaming operations, including the acceptance of bets from offshore customers, as provided for on their respective charters.
Offshore Gaming Licensees (OGL)
116
Offshore gaming licensees (OGL) are subject to a gaming tax of?
(5%) on the entire gross gaming revenue or receipts or the agreed predetermined minimum monthly revenue or receipts from gaming, whichever is higher, in lieu of all other direct and indirect internal revenue taxes and local taxes.
117
Shall mean gross wagers less payouts. Gross wagers refer to the total amount of money that offshore gaming customers wage. Payouts refers to the total amount paid out to offshore gaming customers for winning
Gross gaming revenue or receipts
118
Refers to the amount that is derived after dividing the minimum monthly fee or its equivalent, as imposed by a POGO Licensing Authority, by the rate of prescribed regulatory fee.
Agreed Pre determined Minimum Monthly Revenue from Gaming Operations
119
Refers to the operation by an OGL of online games of chance or sporting events via internet using a network and software or program, exclusively for offshore customer players who are non-Filipinos.
Philippine Offshore Gaming Operations (POGO)
120
The types of Offshore Gaming licenses are as follows:
1. E-casino- refers to an OGL for the operation of Live Casino Games or Random Number Generator (RNG) based games.
2. Sportsbetting - refers to an OGL for the acceptance and/or facilitation of wagers in the operation of predicting the outcome and results of a sporting event
3. Sportsbetting on Regulated Wagering Events.
121
The provisions of existing special or general laws to contrary notwithstanding, the non-gaming revenues of Philippine-based offshore gaming licensees as duly licensed by the Philippine Amusement and Gaming Corporation or any special economic zone authority or tourism zone authority or freeport authority shall be subject to an income tax equivalent to twenty-five percent (25%) of the taxable income derived during each taxable year from all sources within and without the Philippines.
122
Gaming Revenues
- 5% Gaming Tax
Non-Gaming Revenue
- 25% Income Tax
123
Gaming Revenues
- Entire gross gaming revenue or receipts or The agreed predetermined minimum monthly revenue or receipts from gaming, whichever is higher
Non-Gaming Revenue
- Taxable Income
Philippine-based:
> taxable income from all sources within and without the Philippines
Foreign-based
> taxable income derived within the Philippines.
124
Accredited service providers to offshore gaming licensees shall not be subject to the gaming tax imposed by Section 125-A but shall pay such rate of tax as imposed in Section 27(A) of this Code, and shall be subject to all other applicable local and national taxes.
125
An accredited service provider to an offshore gaming licensee ('service provider) shall be a juridical person that is duly created or organized within or outside the Philippines or a natural person, regardless of citizenship or residence, which provides ancillary services to an offshore gaming licensee as defined by Section 22 (II) of NIRC or to any gaming licensee or operator with licenses from other jurisdictions. Such ancillary services may include, but shall not be limited to, customer and technical relations and support, information technology, gaming software, data provision, payment solutions and live studio streaming services.
126
Resident foreign corporations are subject to the following taxes:
Regular Corporate Income Tax
> 25%; Taxable income
Minimum Corporate Income Tax
> 2%; Gross Income
Gross Philippine Billings Tax
> 2.5%; GPB
Branch Profits Remittance Tax
> 15%: Remittance (Actual or Earmarked)
Offshore Gaming License
> 25%: Taxable Income (Non-Gaming)
Offshore Gaming License
> 5%; Gross Gaming Revenues
127
Offshore Banking Units (OBUs) tax rate: 25%
128
OBUs are now taxed as resident foreign corporations upon the effectivity of the CREATE.
129
A minimum corporate income tax of two percent (2%) of gross income, as prescribed under Section 27(E) of NRIC, as amended, shall be imposed, under the same conditions, on a resident foreign corporation; provided, that effective July 1, 2020, until June 30, 2023, the rate shall be one percent (1%).
130
An International carrier doing business in the Philippines shall pay a tax of 2.5% on its Gross Philippine Billings (GPB) unless it is subject to a preferential rate or exemption on the basis of applicable tax treaty or international agreement to which the Philippines is a signatory or on a basis of reciprocity.
131
International carrier consists of two kinds, namely:
(1) international air carrier
(2) international shipping.
132
In international air carriers, GPB means:
1. Gross revenue derived from
(a) carriage of persons, excess baggage, cargo and mail
(b) originating from the Philippines in a continuous and uninterrupted flight
(c) irrespective of the place of sale or issue and the place of payment of the ticket or passage document;
2. Tickets revalidated, exchanged and/or indorsed to another international airline part of GPB if passenger boards a plane in a port or point in the PH; and
3. Flights which originate from the PH, but transshipment of passenger takes place at a port outside PH on another airline part of GPB only the aliquot portion of the cost of the ticket corresponding to the leg flown from the PH to transshipment point.
133
In International Shipping, GPB means:
Gross revenue for
(a) passenger, cargo or mail
(b) originating from the Philippines up to final destination
(c) regardless the place of sale or payments of the passage or freight documents.
134
Not included in the Gross Philippine Billings:
1. Non-revenue passengers shall not be given value for purposes of computing the taxable base subject to tax.
2. Refunded tickets shall likewise not be included in the computation of Gross Philippine Billings.
135
Originating from the Philippines" following: shall include the following:
A) Where passengers, their excess baggage, cargo and/or mail originally commence their flight or voyage from any Philippine port to any other port or point outside the Philippines;
B) Chartered flights or voyages of passengers, their excess baggage, cargo and/or mail originally commencing their flights or voyages from any foreign port and whose stay in the Philippines is for more than forty-eight (48) hours prior to embarkation save in cases where the flight of the airplane belonging to the same airline company or the voyage of the vessel belonging to the same international sea carrier failed to depart within forty-eight (48) hours by reason of force majeure;
C) Chartered flights of passengers, their excess baggage, cargo and/or mail originally commencing their flights or voyages from any Philippine port to any foreign port; and
D) Where a passenger, his excess baggage, cargo and/or mail originally commencing his flight or voyage from a foreign port alights or is discharged in any Philippine port and thereafter boards or is loaded on another airplane owned by the same airline company or vessel owned by the same international sea carrier, the flight or voyage from the Philippines to any foreign port shall not be considered originating from the Philippines, unless the time intervening between arrival and departure of said passenger, his excess baggage, cargo and/or mail from the Philippines exceeds forty-eight (48) hours, except, however, when the failure to depart within forty-eight (48) hours is due to reasons beyond his control, such as, when the only next available flight or voyage leaves beyond forty-eight (48) hours or by force majeure. Provided, however, that if the second aircraft belongs to a different airline company, or the second vessel belongs to a different international sea carrier, the flight or voyage from the Philippines to any foreign port shall be considered originating from the Philippines regardless of the intervening period between the arrival and departure from the Philippines by said passenger, his excess baggage, cargo and/or mail.
136
Refers to a flight or voyage in the carrier of the same company from the moment a passenger, excess baggage, cargo, and/or mail is lifted from the Philippines up to the point of final destination of the passenger, excess baggage, cargo and/or mail.
Continuous and Uninterrupted Flight or Voyage
137
The flight or voyage is not considered continuous and uninterrupted if transshipment of passenger, excess baggage, cargo and/or mail takes place at any port outside the Philippines on another aircraft or vessel belonging to a different company.
138
In the case of a flight that originates from the Philippines but transshipment of passenger, excess baggage, cargo and/or mail takes place elsewhere in another aircraft belonging to a different airline company, the Gross Philippine Billings shall be determined based on that portion of the revenue corresponding to the leg flown from any point in the Philippines to the point of transshipment.
139
In computing the taxable amount, the foreign exchange conversion rate to be used shall be the average monthly Airline Rate as provided in the Bank Settlement Plan (BSP) Monthly sales report or the Bankers Association of the Philippines (BAP) rate, whichever is higher.
The average monthly BAP rate shall be computed by adding all the different BAP rates during the month and dividing the same by the number of days during the month.
140
The same procedures / principles applied for determination of Gross Philippine Billings of International Air Carriers shall apply to International Sea Carriers.
141
In computing for "Gross Philippine Billings" of international sea carriers, there shall be included the total amount of gross revenue whether for passenger, cargo, and/or mail originating from the Philippines up to final destination, regardless of the place of sale or payments of the passage or freight documents.
142
Are people who travel on an aircraft without paying for air transportation
Non-revenue passengers
143
Non-revenue passengers shall not be given value for purposes of computing the taxable base subject to tax.
Refunded tickets shall likewise not be included in the computation of Gross Philippine Billings.
144
International air carrier does not have flights originating from or coming to the Philippines and does not operate any airplane in the Philippines.
Offline international air carrier
145
146
A resident foreign corporation which is an offline international air carrier is subject to normal corporate income tax, not GPB tax.
147
All items of income derived by international carriers that do not form part of Gross Philippine Billings shall be subject to regular corporate income tax
148
Demurrage fees, which are in the nature of rent for the use of property of the carrier in the Philippines, is considered income from Philippine source and is subject to income tax under the regular rate as the other types of income of the carrier.
149
Detention fees and other charges relating to outbound cargoes and inbound cargoes are all considered Philippine-sourced income of international sea carriers they being collected for the use of property or rendition of services in the Philippines, and are subject to the Philippine income tax under the regular rate.
150
Online International Carrier
> With flight operations from and to Philippines
Offline International Carrier
> Without flight operations from and to Philippines
151
Online International Carrier
> Special RFC
Offline International Carrier
> Ordinary RFC
152
Online International Carrier
> Subject to the Gross Philippine Billings of 22% unless it is subject to a preferential rate or exemption on the basis of applicable tax treaty or international agreement to which the Philippines is a signatory or on a basis of reciprocity
Offline International Carrier
> GPB is not applicable, however the local sales agent that sold and issued passage tickets in the Philippines, for the offline airline company will be subject to 25% regular corporate tax Please see illustration for BOAC Corporation.
153
Online International Carrier
> Returnable Income: RCIT 25%
Offline International Carrier
> Returnable Income: RCIT 25%
154
Online International Carrier
> Passive Income: Final Tax
Offline International Carrier
> Passive Income: Final Tax
155
An international carrier which is either DOMESTIC corporation or NON RESIDENT FOREIGN corporation is not subject to of 2.5% on its Gross Philippine Billings.
For example, Cebu Pacific Airlines, a corporation registered under Philippine law (thus, classified as a Domestic Corporation), is not subject to GPB tax of 2.5%. Instead, Cebu Pacific Airlines, DC, is subject to regular corporate income tax.
156
GPB does not include income or receipts subject to final taxes and those incomes exempt from income tax.
157
Exceptions to 2.5% tax rate imposed to International carriers:
1. Applicable tax treaty to which the Philippines is a signatory
2. Reciprocity
158
An international carrier, whose home country grants income tax exemption to Philippine carriers, shall likewise be exempt from the tax imposed under the tax code
Reciprocity
159
Banks derive their earnings from operations of its:
1. Regular Banking Units (RBUs) or
2. From its Foreign Currency Deposit Units (FCDUs), Expanded Foreign Currency Deposit Units (EFCDU), or Offshore Banking Units (OBUs).
160
Taxable income derived from operations of RBUs are subject to?
RCIT of 25%/20%
161
Taxable income of banks from E/FCDUs with respect to foreign currency transactions with non-residents, OBUs in the Philippines, and local commercial banks, including branches of foreign banks authorized to transact business with E/FCDUs are?
Exempt from Income Taxes
162
Interest income from foreign currency loans granted by such depository banks (FCDUs and OBUs) under the expanded system to residents_other than offshore units in the Philippines or other depository banks under the expanded system shall be subject to?
A final tax of 10% (Before CREATE law)
163
In relation to computation of taxable income of RBUs, bank may deduct only those costs and expenses attributable to the operations of its RBU to arrive at the taxable income of the RBU subject to regular income tax.
Any cost or expense related with or incurred for the operations of its FCDU/EFCDU or OBU are not allowed as deduction from the RBU's taxable income. (Before CREATE law)
164
A branch, subsidiary or affiliate of a foreign banking corporation which is duly authorized by the Central Bank of the Philippines to transact offshore banking business in the Philippines.
Offshore Banking Unit (OBU)
165
Shall refer to the conduct of banking transactions in foreign currencies involving the receipt of funds from external sources and the utilization of such funds as provided in this Decree.
Offshore Banking
166
Shall refer to that unit of a local bank or of a local branch of a foreign bank authorized by the Bangko Sentral Ng Pilipinas (BSP) to engage in foreign currency denominated transactions, pursuant to the provisions of R.A. 6426, as amended.
Foreign Currency Deposit Unit (FCDU)
167
Shall refer to a thrift bank or a commercial bank organized under the laws of the Republic of the Philippines.
Local bank
168
Shall refer to a branch of a foreign bank doing business in the Philippines
Local branch of a foreign bank
169
Taxation of Income of an FCDU or OBU from Foreign Currency Transactions (Before CREATE Law)
Income derived by an FCDU or an OBU from foreign currency transactions with residents of the Philippines, including local commercial banks, local branches of foreign banks, and other depository banks under the foreign currency deposit system, shall be subject to a final withholding tax of ten percent (10%) based on gross income. Income from foreign currency transactions shall include:
a. interest income from lending operations,
b. including bank charges,
c. commissions,
d. service fees, and
e. net foreign exchange transaction gains.
170
Income from foreign currency transactions with non-residents of the Philippines shall not be subject to income tax.
171
Withholding of tax on income payments to OBUS/FCDU
The person making the income payment shall withhold and remit the tax withheld. Thus, in the case of interest payment by a resident of the Philippines on a foreign currency loan from an OBU or an FCDU, the withholding agent shall be the said resident.
172
Income derived by an FCDU or an OBU from activities other than foreign currency transactions shall be subject to the regular income tax.
173
Taxation of Income of an OBU from Foreign Currency Transactions under CREATE law
OBUS will be subject to the same tax rate of an Ordinary Resident Foreign Corporation
174
Under CREATE law, there is removal of 1) tax exemption for income derived by offshore banking units (OBUs) from foreign currency transactions with nonresidents; and 2) 10% final tax on interest income derived by OBUs from foreign currency loans granted to residents. Such income will be subject to the 25% corporate income tax rate.
175
Under CREATE Law
Type of Income:
Transactions with
1.non-residents
2. residents
176
Income from foreign currency transactions
Regular Corporate income tax at 25%
177
Other income of FCDU or OBU (non-foreign currency transactions) such consultancy as service fees and rentals
Regular Corporate income tax at 25%
178
Passive income and Capital gains (not related to FCDU / OBU's operations)
> Final tax on passive income
> Capital Tax Gains
179
Shall mean
(1) an individual citizen of the Philippines residing therein; or
(2) an individual who is not a citizen of the Philippines but is permanently residing therein;
(3) а согроration or other juridical person organized under the laws the Philippines; or of
(4) a branch, subsidiary, affiliate, extension office or other unit of corporations or juridical persons organized under the laws of any foreign country operating in the Philippines.
Resident of the Philippines
"Non-resident" shall mean an individual, corporation or other juridical person not included in the above definition of "resident".
180
Shall refer to the conduct of banking transactions whereby any person whether natural or juridical may deposit foreign currencies forming part of the Philippine international reserves.
Foreign Currency Deposit System
181
182
Which is actually or constructively received by a domestic corporation or a resident foreign corporation from a foreign currency bank deposit shall be subject to a final withholding tax at the rate of fifteen percent (15%) based on the gross amount of such interest income. The depository bank shall withhold and remit the tax.
Interest income
183
Any income of nonresidents, whether individuals or corporations, from transactions with said offshore banking units shall be exempt from income tax.
184
Resident foreign corporations shall pay Branch Profits Remittance Tax of ?
15% on the total profits applied or earmarked for remittance without any deduction for the tax component (except those lactivities registered with PEZA).
This includes any income derived from Philippines source by the Regional Operating Headquarters of Multinational corporations when remitted to the parent company
185
The Branch Profits Remittance Tax (BPRT) covers:
profit remittances of all RFC (Resident Foreign Corporations) including OBU, / FCDUs and international carriers, except Profits remittances arising from activities which are registered with PEZA, SBMA, CDA and TIEZA
186
The following entities are not subject to 15% BPRT:
Profits arising from activities which are registered with:
1. Philippine Economic Zone (PEZA)
2. Subic Bay Metropolitan Authority (SBMA)
3. Clark Development Authority (CDA)
4. Tourism Infrastructure and Enterprise Zone Authority (TIEZA)
187
The following are not treated as branch profits unless effectively connected with the conduct of trade or business in the Philippines:
1. Interests, dividends, rents, royalties (including remuneration for technical services),
2. Salaries, wages,
3. Premiums, annuities, emoluments, or
4. Other fixed or determinable annual, periodic or casual gains, profits, income and capital gains received during each taxable year from all sources within the Philippines.
188
The mere existence of the income does not automatically mean there is a branch profit remittance tax. There must be an actual Transfer to the assigned capital account or actual earmarking of profits or remittance before branch profit remittance is impossible.
189
Only branch offices in the Philippines of a FOREIGN corporations ABROAD are subject to BPRT.
The profit remitted by the branch office to its head office must be effectively connected with conduct of its TRADE or BUSINESS in the Philippines.
190
Income not treated as Branch profits
- Not subject to BPRT
Income treated as Branch profits
- Subject to BPRT
> Income effectively connected with business operations / activity or income arising from business activity in which the taxpayer is engaged
191
Note that "only profit remittances of an RFC or a branch of a foreign corporation" are subject to BPRT of 15%.
Thus, if a RFC remitted or "dividends" to its Parent company located abroad (NRFC), the "remittance of dividend" is not subject to BPRT at 15% instead, the remittance of dividend will be subject to final tax rate of 25% or 15% (if there is a tax sparing rule)
192
Regional or area headquarters
> Not subject to income tax
Regional operating headquarters
- Subject to 10% tax based on taxable income
193
Refer to branches established in the Philippines by multinational companies and which headquarters do not earn or derive income from the Philippines and which act as supervisory, communications and coordinating center for their affiliates, subsidiaries, or branches in the Asia-Pacific Region and other foreign markets.
Regional or area headquarters
194
Refer to branches established in the Philippines by multinational companies which are engaged in any of the following services: (i) general administration and planning; (ii) business planning and coordination; (iii) sourcing and procurement of raw materials and components; (iv) corporate finance advisory services; (v) marketing control and sales promotion; (vi) training and personnel management; (vii) logistic services; (viii) research and development services and product development; (ix) technical support and maintenance; (x) data processing and communications; and (xi) business development.
Regional operating headquarters
195
RAHQ
> Activities are limited to acting as a SUPERVISORY, communications and coordinating centre for its subsidiaries affiliates and branches in the region.
> NOT allowed to derive any income from sources in the Philippines
ROHQ
> Is an extension of a foreign allowed to derive income in the Philippines by qualifying performing services to its head office, affiliates, subsidiaries or branches
196
RAHQ
> Exempt from corporate income tax
ROHQ
> RCIT 25%
197
RAHQ
> Exempt from branch profits remittance tax
ROHQ
> Subject to 15% branch profit remittance tax on their income remittances to their parent companies abroad
198
The Interest income from bank-Phil is subject to final tax at (20%), and not to regular corporate income tax. Thus, it is excluded from the computation of gross income.
199
Offshore Gaming Licensees
The provisions of existing special or general laws to the contrary notwithstanding, the non-gaming revenues derived within the Philippines of foreign-based offshore gaming licensees as defined and duly licensed by the Philippine Amusement and Gaming Corporation or any special economic zone authority or tourism zone authority or freeport authority shall be subject to an income tax equivalent to twenty-five percent (25%) of the taxable income derived during each taxable year.
200
TAXATION OF NON-RESIDENT FOREIGN CORPORATIONS
Non-resident foreign corporations are subject to the following taxes:
1. Gross income in general
25% of Gross Income
201
2. Interest on Foreign Loans
20%; Interest
202
3. Intercorporate Dividends
15%; Dividends; subject to Tax Sparing Rule, otherwise 25%
203
4. Capital gains from sale of shares not traded though local stock exchange
15%; Net Capital Gain
204
Non-resident cinematographic film owners, lessors or distributors
25%; Gross Income
205
Non-resident owner or lessor of vessels charted by Philippines nationals
4.5%; Gross rentals or fees
206
Non-resident owner or lessor of aircraft, machineries or other equipment
7.5%; Gross rentals or fees
207
A foreign corporation not engaged in trade or business in the Philippines, effective January 1, 2021, shall pay a tax equal to twenty- five percent (25%) of the gross income received during each taxable year from all sources within the Philippines, such as:
1. Interests,
2. Dividends,
3. Rents,
4. Royalties,
5. Salaries,
6. Premiums (except reinsurance premiums),
7. Annuities,
8. Emoluments or
9. Other fixed or determinable annual, periodic or casual gains, profits and income, and
10. Capital gains, except capital gains subject to tax under subparagraph 5(c).
208
A nonresident owner or lessor of vessels shall be subject to a tax of four and one-half percent (4 1/2%) of gross rentals, lease or charter fees from leases or charters to Filipino citizens or corporations, as approved by the Maritime Industry Authority.
> IF NOT chartered by Philippine Nationals, the rentals/ fees are subject to 25% final tax rate.
209
What is the tax rate of Interest on Foreign Loans?
A final withholding tax at the rate of 20% is imposed on the amount of interest on foreign loans contracted on or after August 1, 1986.
210
211
Inter corporate Dividends rate for NRFC
A final withholding tax at the rate of fifteen percent (15%) is hereby imposed on the amount of cash and/or property dividends received from a domestic corporation
212
Tax sparing rule applies if the country in which the nonresident foreign corporation is domiciled;
1. allows a tax credit of at least 15% for taxes "deemed paid" in the Philippines, or
2. does not impose a tax on dividends received by a non-resident foreign corporation from the Philippines.
213
Arises from transactions other than from the active pursuit of business or from the primary purpose for which the business is organized.
Passive Income
214
Passive income may be subject to regular income tax, final tax, or exempt from income tax.
215
Passive income is subject to final income tax if the following requisites are present:
1. Derived from sources within
2. Specifically provided in the NIRC
3. Not exempted
4. Not excluded
216
Interest from any currency bank deposit, yield or any other monetary benefit from deposit substitutes, trust funds and similar arrangements
DC - 20%
RFC - 20%
NRFC - 25%
217
Interest under the expanded foreign currency deposit system
DC - 15%
RFC - 15%
NRFC - Exempt
218
On long-term deposit or investment certificates (LTDIC) in banks (e.g., savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments, which maturity of 5 YEARS OR MORE)
DC - RCIT
RFC - RCIT
NRFC - 25%
219
Royalties, in general
DC - 20%
RFC - 20%
NRFC - 25%
220
Intercorporate dividends (dividends received from domestic corporation)
DC - EXEMPT
RFC - EXEMPT
NRFC
> 15% (Subject to Tax Sparing Rule)
> 25% (If not)
221
Intercorporate dividends (dividends received from domestic corporation)
DC - EXEMPT
RFC - EXEMPT
NRFC
> 15% (Subject to Tax Sparing Rule)
> 25% (If not)
222
Intercorporate dividends corporation) (dividends, which are income within, received from foreign corporations)
DC - EXEMPT or RCIT
RFC - RCIT
NRFC - 25%
223
Passive Income Not Subject to Final Tax
1. All passive income derived by domestic corporation from sources without the Philippines shall be subject to RCIT.
2. Rentals are subject to RCIT.
3. Prizes earned by corporations are subject to RCIT.
4. Interest income even from long-term deposits or investment held for more than five years are subjec to RCIT.
224
Income Taxation on Interests
Interest earned abroad by a domestic corporation, those engaged in trade or business of lending, financing, or extending credits that earn interest are eventually regarded as their profit.
Subject to?
RCIT
225
Interest from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements.
Subject to?
Final Income Tax
226
Interest earned by NRFC
Subject to?
25% on Gross Income
227
Interest received by NRFC abroad.
Exempt
228
Interest earned from currency bank deposits, yields, or any other monetary benefits from deposit substitutes, trust funds, and similar arrangements received by domestic corporations and RFC shall be subject to?
20% tax rate
229
Shall mean an alternative form of obtaining funds from the public other than deposits, through the issuance, endorsement, or acceptance of debt instruments for the borrower's own account, for the purpose of relending or purchasing receivables and other obligations or financing their own needs or the needs of their agent or dealer.
Deposit Substitutes
230
Examples of Deposit Substitutes are:
1. bankers' acceptances,
2. promissory notes,
3. repurchase agreements, including reverse agreements entered into by and between the Bangko Sentral ng Pilipinas and any authorized agent bank, repurchase
4. certificates of assignment or participation and
5. similar instruments with recourse
231
Means borrowing from twenty (20) or more individual or corporate lenders at any one time.
Public
232
If funds are simultaneously obtained from 20 or more lenders/investors, there is deemed to be a public borrowing and the bonds at that point in time are deemed deposit substitutes.
Consequently, the seller is required to withhold the 20% final withholding tax on the imputed interest income from the bonds.
233
Corollarily, the mere flotation of a debt instrument is not considered tobe a public borrowing and is not deemed a deposit substitute if there are only 19 or less individual or corporate lenders at any one time.
234
For debt instruments that are not deposit substitutes, RCIT applies.
235
What are not Deposit Substitute?
1. Debt instruments simultaneously obtained from 19 and below are not deposit substitute, except for Interest on Government Debt Instruments and Securities.
2. Debt instruments issued for interbank call loans with a maturity of not more than five (5) days to cover the deficiency in reserves against deposit liabilities, including those between or among banks and quasi-banks, shall not be considered as deposit substitute debt instruments.
236
Interest on Government Debt Instruments and Securities
1. Government Debt Instruments and Securities, inclduing Bureau of Treasury (BTr) issued instruments and securities such as Treasury bonds (T-Bonds), Treasury Bills (T-Bills), and Treasury notes, shall be considered as deposit substitutes irrespecitve of the number of lenders at the time of origination if such debt instruments and securities are to be traded or exchanged in the secondary market;
2. Interest income derived therefrom is subject to final withholding tax payable upon original issuance of the deposit substitutes;
3. The original issuance of these debt instruments is subject to documentary stamp tax;
4. The mere issuance of government debt instruments and securities is deemed as falling within the covereage of deposit substitutes irrespective of the number of lenders at the time of origination, and therefore interest income derived therefrom shall be subject to the applicable final withholding tax imposed on deposit substiute.
237
Interest Income from long-term deposit or investment shall be subject to RCIT if received by domestic corporation and resident foreign corporation
238
Expanded Foreign Currency Deposit Unit shall refer to a unit of a local bank or of a local branch of a foreign bank authorized by the BSP to engage in foreign currency-denominated transactions, pursuant to the provisions of Republic Act No. 6426, as amended.
239
Interest income under the expanded foreign currency deposit system received by domestic corporation or RFC is subject to?
A 15% final tax rate
> However, if received by NRFC, it shall be exempt from taxation.
240
Any income of or individuals nonresidents, whether corporations, from transactions with depository banks under the expanded system shall be exempt from income tax.
241
Interest income derived from any other debt instruments not within the covereage of deposit substitutes shall be subject to a creditable withholding tax at the rate of?
twenty percent (20%).
242
Liquidating dividends in excess of invested capital Foreign-Sourced dividends that fail to meet the conditions for exemption.
Subject to?
Regular Income Tax
243
Dividends received by NRFC from domestic corporation subject to 15% under the tax sparing rule.
Subject to?
25% on Gross Income
244
Foreign-Sourced dividends that meet the condition for exemption; dividends received by NRFC abroad:
Subject to?
Exempt
245
Dividends received by a domestic corporation shall not be subject to tax. Provided that foreign-sourced dividends shall be exempt subject to reinvestment conditions.
246
Intercorporate dividends received by a domestic corporation and resident foreign corporation from a domestic corporation are exempt from final tax.
247
The dividends received from non-resident foreign corporations24 and resident foreign corporations are subject to the 50% Rule.
248
In general, foreign-sourced dividends received by domestic corporations are subject to income tax
To be exempted, the following conditions must be satisfied:
1. The dividends actually received or remitted in the Philippines are reinvested in the business operations of the domestic corporation within the next taxable year from the time the foreign source dividends were received or remitted;
2. The dividends received shall only be used to fund the working capital requirements, capital expenditures, dividend payments, investment in domestic subsidiaries, and infrastructure project; and
3. The domestic corporation holds directly at least 20% in value of the outstanding shares of the foreign corporation and has held the shareholdings uninterruptedly for a minimum of two years at the time of the dividends distribution.
NOTE:
Absent any one of the conditions, the foreign-sourced dividends shall be considered as taxable income of the domestic corporation in the year of actual receipt or remittance, subject to surcharges, interest, and penalties, as applicable.
249
No credit or deduction shall be allowed for any taxes of foreign countries paid or incurred by the domestic corporation in relation to the exempt foreign-sourced dividends.
250
Any taxes of foreign countries paid or incurred by the domestic corporation in relation to the exempt foreign-sourced dividends shall be disregarded in computing the limitations.
251
Stock dividends are treated as capital transactions and are not treated as income.
252
Are considered a mere return of capital, When the amount received in liquidation exceeds the initial amount of capital invested, the excess is treated as other capital gain, which is subject to RCIT.
Liquidating dividends
253
Is a stock corporation established principally for the purpose of owning income - generating real estate assets
Real Estate Investment Trust or "REIT
254
Cash or property dividends paid by a REIT shall be subject to a final tax of ten percent (10%) unless received by:
1. Nonresident alien individual corporation, which or a nonresident foreign are entitled to claim withholding tax rate of less than ten percent (10%) pursuant to an applicable tax treaty. a preferential
2. Domestic corporations or resident foreign corporations are exempt.
3. Overseas Filipino Investors are exempt for seven (7) years from the effectivity of RR No. 13-2011. This has already expired.
255
The amount of income tax withheld by the withholding agent is constituted as a full and final payment of income tax due from the payee of the said income.
256
The liability for payment of tax rests primarily on the payor as a withholding agent. Failure to withhold the tax or in case of under withholding, the deficiency tax shall be collected from the payor/withholding agent.
257
Capital gains can be classified as?
1. Net capital gains from the sale, barter, exchange, or other disposition of shares of stock in a domestic corporation not traded through the local stock exchange.
2. Presumed gain on the sale, exchange, or other disposition of real property.
3. Other capital gains.
258
Tax rate of Capital gains from sale of shares of stock of a Philippine corporation not traded in the stock exchange
15%
- The tax base is the net capital gains resulting from the subject transaction.
259
Tax Rate of Capital gains from sale of land and/or buildings situated in the Philippines
6%
260
Capital gains from sale, exchange, and other disposition of other capital assets
DC and RFC - RCIT
NRFC - 25%
261
Taxable Stock Transactions
1. The sale of shares by dealers in securities is subject to regular income tax.
2. Sale of shares not traded in a local stock exchange by a taxpayer, who is not a dealer in securities, shall be subject to capital gains tax.
3. Shares of stock traded in the local stock exchange are subject to percentage tax.
262
Net capital gains from sale, barter, exchange, or other disposition of shares of stock in a domestic corporation NOT traded in the stock exchange
15%; Net Capital Gain; Capital Gains Tax
263
Sale, barter, exchange or other disposition of shares of stocks listed and traded in the Local Stock Exchange (Stock Transaction Tax)
6/10 of 1%; Gross Selling Price; Percentage Tax
264
Net capital gains from sale, barter, exchange, or other disposition of shares of stock of Dealer of securities (Ordinary gain)
RCIT; Taxable Income; Regular Income Tax
265
Capital gains tax applies on the sale of shares not listed and traded in the stock exchange if the following are present:
1. There is a sale, barter, exchange, or other disposition of shares of stock of a domestic corporation.
2. The sale is not traded in the local stock exchange.
3. The sale results in net capital gain.
266
The excess of the amount realized on the sale or selling price over the basis or adjusted basis of shares, and the loss shall be the excess of the basis or adjusted basis for determining loss over the amount realized.
Net Capital Gain
267
The sum of money received plus the fair market value of the property (other than money) received, if any
Amount realized from the sale or other disposition
268
Determination of Selling Price
1. In the case of a cash sale, the selling price shall be the total consideration per deed of sale.
2. If the total consideration of the sale or disposition consists partly in money and partly in kind, the selling price shall be the sum of money and the fair market value of the property received.
3. In the case of exchange, the selling price shall be the fair market value of the property received
269
Net capital gain on the sale of shares not listed and traded in the stock exchange is subject to a capital gains tax of 15%
270
All corporate taxpayers are subject to a capital gains tax of 15%.
271
In computing the net capital gain, the cost basis of the shares should be considered. The cost basis for determining gain (loss) from the sale/disposition of the property follows:
1. Purchase
Cost of property acquired
272
2. Inheritance
Fair market value as of the date of acquisition (at the time of death)
273
3. Gift
The cost to the donor or to the previous owner who did not acquire it by gift.
But if such basis is greater that the fair market value at the time of the gift, the basis shall be such fair market value for the purpose of determining the loss.
274
4. Acquired for less than adequate consideration
Amount paid by the transferee
275
5. Property acquired where gain or loss is not recognized (Tax-free exchanges)
For stocks or securities received by the transferor, the cost basis shall be the basis of property, stock/ securities exchanged:
1. Increased by:
a. dividends.
b. amount of any gain recognized by the exchange.
2. Decreased by:
a. money received.
b. fair market value of the other property received.
c. liability assumed by the transferee.
For the property transferred in the hands of the transferee, the basis would be the same as it would be in the hands of the transferor increased by the amount of the gain recognized to the transferor on the transfer.
276
Capital Gains Tax Return for Onerous Transfer of Shares of Stock Not Traded through the Local Stock Exchange shall be filed and paid within thirty (30) days after each sale, barter, exchange, or other disposition of shares of stock not traded through the local stock exchange.
277
Annual Capital Gains Tax Return for Onerous Transfer of Shares of Stock Not Traded Through the Local Stock Exchange, the consolidated return, shall be filed on or before April 15 of each year covering all stock transactions of the preceding taxable year.
278
The net capital gain from the sale of the listed shares through the local stock exchange is exempt from income tax, but the sale transaction is subject to stock transaction tax at the rate of 0.6 of 1% on the gross selling price or gross value in money of the shares of stock sold or transferred.
279
The presumed gain on the sale of real property situated in the Philippines shall be subject to capital gains tax if the following elements are present:
1. There is a sale, barter, exchange, or other disposition of real property.
2. The real property is held as capital assets.
3. It is located in the Philippines.
4. The capital gains tax rate is 6% of the on whichever is higher between the gross selling price or fair market value.
280
Means the higher between the
1. Gross Selling Price
2. Fair Market value
Presumed Gain
The fair market value of real property at the time of sale shall be the higher of:
1. The fair market value as determined by the Commissioner of Internal Revenue, or
2. The fair market value as shown in the schedule of valued fixed by the Provincial and City Assessors.
281
If there is no zonal value, the taxable base shall be the gross selling price per sales documents or the fair market value that appears in the latest tax declaration, whichever is higher.
282
If there is an improvement, the fair market value, based on the latest tax declaration at the time of the sale or disposition, duly certified by the City/Municipal Assessor shall be used.
283
The sale of real property situated in the Philippines is subject to a capital gains tax of 6% on whichever is higher between the gross selling price or fair market value.
284
Capital gains from sale of land and/or buildings situated in the Philippines
DC - 6%
RFC- RCIT
NRFC - 25%
285
Capital gains tax still applies even if the transactions result in a net capital loss. Gain or loss is immaterial, there being a conclusive presumption of gain.
286
BIR Form No. 1706 shall be filed and paid within thirty (30) days following the sale, exchange or disposition of real property with the RDO having jurisdiction over the place where the property being transferred is located.
287
In case of installment sale, the return shall be filed within thirty (30) days following the receipt of the 1st downpayment and within thirty (30) days following each subsequent installment payment.
288
One return is filed for every transfer document regardless of the number of each property sold, exchanged, or disposed of.
289
Filing of BIR Form No. 1706 is no longer required when the real property transaction involves the following:
1. It is not classified as a capital asset.
2. Not located in the Philippines.
3. Disposition is gratuitous.
4. Disposition is pursuant to the Comprehensive Agrarian Reform.
290
Electronically generated Certificate Authorizing Registration issued by the Commissioner or his duly authorized representative attesting that the transfer and conveyance of land, buildings/improvements or shares of stock arising from sale, barter or exchange have been reported and the taxes due inclusive of the documentary stamp tax, have been fully paid.
Electronic Certificate Authorizing Registration (eCAR)
291
In general, all corporations, agencies, or instrumentalities owned or controlled by the Government are subject to income tax.
Only the following are exempt from income tax:
1. Government Service Insurance System (GSIS)
2. Social Security System (SSS)
3. Home Development Mutual Fund (HDMF)
4. Philippine Health Insurance Corporation (PHIC), and the
5. local water districts
292
The following organizations as provided for under Section 30 oi the NIRC are exempt from corporate tax with respect to income received by them as such:
1. Labor, agricultural or horticultural organization - non-profit
2. Mutual savings bank or cooperative bank profit, operated for mutual purposes non-stock, non-
3. Beneficiary society, order, or association operating for the exclusive benefits of their members; includes: fraternal organization operating under the lodge system; or mutual aid association or a nonstock corporation organized by employees providing life, sickness, accident, or other benefits exclusively to the members
4. Cemetery company benefit of its members. owned and operated exclusively for the
5. Non-stock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes or for the rehabilitation of veterans, provided
that no part of its income or asset belong to or inure to the benefit of any individual
6. Business league, chamber of commerce, or board of trade - Non- profit; no part of net income inures to the benefit of an
individual
7. Civic league or organization Non-profit; operating exclusively for the promotion of social welfare
8. Non-stock and non-profit educational institutions
9. Government educational institutions
10. Organizations of a purely local character whose income consists solely of assessment, duties and fees collected from their members to meet expenses; includes: farmers' or other mutual typhoon or fire insurance company, mutual ditch or irrigation company and mutual or cooperative telephone company
11. Farmers', fruit growers', and like association whose primary function is to market the product of their members
293
The following are the requirements (test) to avail tax exemption under Section 30 of the Tax Code:
First, the organization must show in its documents that its primary purpose of incorporation falls under Sec. 30 (Organizational Test). This is the organizational test, which requires that the corporation's constitutive documents (i.e., SEC registration, Articles of Incorporation (AOI), and By-Laws) show that its primary purpose(s) falls under Section 30 of the Tax Code such as those organized and operated exclusively for religious, charitable, scientific, cultural and educational purposes.
Second, that its regular activities be devoted exclusively to the accomplishment of the purposes specified in Section 30 (Operational Test). Corporation fails to meet this test if the corporation has no activities conducted in furtherance of the purpose for which it is was organized or if substantially part of its operations constitutes activities conducted for profit.
In addition, the earnings of a Section 30 corporation that chiefly come from donations, grants, or contributions should not inure to the benefit of its trustees, organizers, officers, members, or any specific person
294
Notwithstanding pargraph 1 of Section 30 of the NIRC, the income of the exempt organizations from (1) their properties, real or personal, or from (2) their activities conducted for profit regardless of the disposition made of such income, shall be subject to tax imposed under the NIRC.,
295
With respect to their income from unrelated sources, exempt corporations are treated as regular corporations, regardless of the disposition of such income.
296
To be exempted, the income of a "Section 30 corporation" must arise from activities related to the organization's main purpose, while, for Non- stock- non-profit educational institution, all revenue (income) be used actually, directly, and exclusively for educational purpose, regardless of the source of income.
297
Organizations as provided for under Section 30 of the NIRC
Income from related activities (income from activities related to the organization's main purpose)
> EXEMPT
Income from Non-Exempt unrelated or activities (Income derived from activities unrelated to the organization's main purpose (operating a commercial business)
> RCIT
Passive Income earned within the Philippines (passive income specified under the tax code); and Capital Gains
> Final Tax
Fund raising activities (commercial in nature)
> RCIT
Membership fees and dues collected for operational purposes.
> EXEMPT
298
Non-stock- non-profit educational institution under Article XIV of the Constitution
All revenues are used actually, directly, and exclusively for educational purpose.
> EXEMPT
All revenues are not used actually, directly, and exclusively for educational purpose.
> RCIT/ Final Tax/ CGT
299
Income tax exemption covers only the income derived by the corporation in furtherance of the purposes for which it was organized (related activities) under Section 30 of the NIRC of 1997.
300
The tax exemption granted under Section 30 of the NIRC of 1997 does not cover:
1. Withholding taxes on compensation income of the employees of the corporation, or the withholding tax on income payments to persons subject to tax pursuant to Section 57 of the NIRC of 1997.
The corporation or association under Sec 30 is therefore constituted as a withholding agent for the government if it acts as an employer and any of its employees receives compensation income subject to withholding tax, or if it makes income payments to individuals or corporations subject to the withholding tax.
2. Regular income tax from income derived from activities unrelated to the organization's main purpose such activities conducted for profit.
3. Final tax on passive income such as interest income from bank deposits, royalties earned in Philippines and other passive income from unrelated activities subject to final tax.
301
