Corporate Income Tax Module 6 Study Guide | RCIT, MCIT, CREATE,
CREATE MORE, CMEPA, Tax Exemptions, Worked Examples and
Exercises
INTRODUCTION
MODULE 6
Income Taxes for Corporations
In the Philippines, domestic and foreign companies are liable to pay corporate
income tax (CIT). The tax liability for a corporation is determined by its residency
status and is based on the net income it obtains while carrying out its business
activity, normally during one business year.
Beyond Corporate Income Tax, companies should also understand withholding tax
and some other taxes. Business owners who frequently study the country's corporate
taxes and work with their local advisors find it easier to stay compliant and exploit
any beneficial changes, such as rate reductions or incentives.
CORPORATION DEFINED
Section 2 of RA 11232 - the Revised Corporation Code of the Philippines
Section 2 of RA 11232 or the Revised Corporation Code of the Philippines provides
that a Corporation is "an artificial being created by operation of law, having the right
of succession and the powers, attributes and properties expressly authorized by law
or incident to its existence”.
Section 22 of RA 8424 (the Tax Code) as amended by RA 11534 or the Corporate
Recovery and Tax Incentives for Enterprises (CREATE) Act
The term Corporations shall include:
1. One Person Corporations (OPCs)
2. Partnerships, no matter how created or organized
3. Joint stock companies
4. Joint accounts (cuestas end participation)
5. Associations
6. Insurance companies
A one-person corporation (OPC) is a corporation with a single stockholder: Provided,
that only a natural person, trust, or an estate may form a one-person corporation.
Module 6 Study Guide | Page 1
,The term Corporation does not include:
1. General Professional Partnership (GPP). A partnership formed by persons for the
sole purpose of exercising their common profession, no part of the income of which is
derived from engaging in any trade or business.
2. Joint venture or consortium:
Formed for the purpose of undertaking construction projects pursuant to
Presidential Decree (PD) No. 929 (dated 4 May 1976) to assist local contractors in
achieving competitiveness with foreign contractors by pooling their resources in
undertaking big
construction projects.
A joint venture or consortium for engaging in petroleum, coal, geothermal and other
energy operations pursuant to an operating consortium agreement under a service
contract with the government.
JOINT VENTURE OR CONSORTIUM
• a commercial undertaking by two or more persons, differing from a partnership in
that it relates to the disposition of a single lot of goods or the completion of a single
project.
• taxable as corporation.
• However, there are two types of tax-exempt joint ventures described in the
preceding topic as provided for under Section 3 of RR 10-2012. A joint venture or
consortium formed for the purpose of undertaking construction projects is not
considered as corporation under Section 22 of the Tax Code provided:
a. The joint venture was formed for the purpose of undertaking a construction
project; and
b. Should involve joining/ pooling of resources by licensed local contracts; that is,
licensed as general contractor by the Philippine Contractors Accreditation Board
(PCAB) of the Department of Trade and Industry (DTI)
c. The local contractors are engaged in construction business; and
d. The Joint Venture itself must likewise be duly licensed as such by the Philippine
Contractors Accreditation Board (PCAB) of the Department of Trade and Industry
(DTI).
• The tax-exempt joint venture shall not include those who are mere suppliers of
goods, services or capital to a construction.
Module 6 Study Guide | Page 2
,• If not all of the requirements are present, the joint venture or consortium formed
for the purpose of undertaking construction projects shall be considered as taxable
corporations.
• The members of a Joint Venture not taxable as a corporation shall each be
responsible in reporting and paying appropriate income taxes on their respective
share to the joint ventures profit.
• Joint ventures involving foreign contractors may also be treated as a non-taxable
corporation provided:
a. The member foreign contractor is covered by a special license as contractor by the
PCAB.
b. The construction project is certified by the appropriate Tendering Agency
(government office) that the project is a foreign financed/ internationally-funded
project and that international bidding is allowed under the Bilateral Agreement
entered into by and between the Philippine Government and the foreign/
international financing institution pursuant to the implementing rules and
regulations of Republic Act No. 4566 otherwise known as Contractor’s License Law.
JOINT STOCK COMPANIES and JOINT ACCOUNTS
Joint stock companies
• constituted when a group of individuals acting jointly, establish and operate
business enterprise under an artificial name, with an invested capital divided into
transferable shares, an elected board of directors, and other corporate
characteristics, but operating without formal government authority.
Joint accounts (cuestas end participation)
• constituted when one interests himself in the business of another by contributing
capital thereto, and sharing in the profits or losses in the proportion agreed upon
• They are not subject to any formality and may be privately contracted orally or in
writing. The term “associations” includes all organizations which have substantially
the salient features of a corporation to be taxable as a “corporation”.
TAX EXEMPT CORPORATIONS
Under Section 30 of the Tax Code, the following organizations shall not be taxed in
respect to income received by them as such:
a. Labor, agricultural or horticultural organizations not organized principally for
profits.
Module 6 Study Guide | Page 3
, b. Mutual savings bank not having a capital stock represented by shares, and
cooperative bank without capital stock, organized and operated for mutual purposes
and without profit.
c. A beneficiary, society, order or association, operating for the exclusive benefit of
the members such as a fraternal organization operating under the lodge system, or a
mutual aid association or a non-stock corporation organized by employees providing
for the payment of life, sickness, accident, or other benefits exclusively to the
members of such society, order, or association, or nonstock corporation or their
dependents.
d. Cemetery company owned and operated exclusively for the benefit of its members.
e. Non-stock corporation or association organized and operated exclusively for
religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation
of veterans, no part of its net income or asset shall belong or inure to the benefit of
any member, organizer, officer or any specific person.
f. business leagues, chambers of commerce, boards of trade not organized for profit
and no part of the net income of which insures to the benefit of any private
stockholder or individual
g. civic leagues or organization not organized for profit but operated exclusively for
the promotion of social welfare;
h. A non-stock and nonprofit educational institutions;
i. government educational institutions;
j. farmers’ or other mutual typhoon or fire insurance companies, mutual ditch or
irrigation companies, mutual or cooperative telephone companies, or like
organizations of a purely local character, the income of which consists solely of
assessments, dues, and fees collected from members for the sole purpose of meeting
its expenses; and
k. farmers, fruit growers, or like association organized and operated as a sales agent
for the purpose of marketing the products of its members and turning back them the
proceeds of sales, less the necessary selling on the basis of the quantity of produced
finished by them.
- Notwithstanding the provision in the preceding paragraphs, the income of whatever
kind and character of the foregoing organizations from any of their properties, real or
personal or from any of their activities conducted for profit, regardless of the
disposition made of such income shall be subject to tax imposed under the Tax Code.
Module 6 Study Guide | Page 4
CREATE MORE, CMEPA, Tax Exemptions, Worked Examples and
Exercises
INTRODUCTION
MODULE 6
Income Taxes for Corporations
In the Philippines, domestic and foreign companies are liable to pay corporate
income tax (CIT). The tax liability for a corporation is determined by its residency
status and is based on the net income it obtains while carrying out its business
activity, normally during one business year.
Beyond Corporate Income Tax, companies should also understand withholding tax
and some other taxes. Business owners who frequently study the country's corporate
taxes and work with their local advisors find it easier to stay compliant and exploit
any beneficial changes, such as rate reductions or incentives.
CORPORATION DEFINED
Section 2 of RA 11232 - the Revised Corporation Code of the Philippines
Section 2 of RA 11232 or the Revised Corporation Code of the Philippines provides
that a Corporation is "an artificial being created by operation of law, having the right
of succession and the powers, attributes and properties expressly authorized by law
or incident to its existence”.
Section 22 of RA 8424 (the Tax Code) as amended by RA 11534 or the Corporate
Recovery and Tax Incentives for Enterprises (CREATE) Act
The term Corporations shall include:
1. One Person Corporations (OPCs)
2. Partnerships, no matter how created or organized
3. Joint stock companies
4. Joint accounts (cuestas end participation)
5. Associations
6. Insurance companies
A one-person corporation (OPC) is a corporation with a single stockholder: Provided,
that only a natural person, trust, or an estate may form a one-person corporation.
Module 6 Study Guide | Page 1
,The term Corporation does not include:
1. General Professional Partnership (GPP). A partnership formed by persons for the
sole purpose of exercising their common profession, no part of the income of which is
derived from engaging in any trade or business.
2. Joint venture or consortium:
Formed for the purpose of undertaking construction projects pursuant to
Presidential Decree (PD) No. 929 (dated 4 May 1976) to assist local contractors in
achieving competitiveness with foreign contractors by pooling their resources in
undertaking big
construction projects.
A joint venture or consortium for engaging in petroleum, coal, geothermal and other
energy operations pursuant to an operating consortium agreement under a service
contract with the government.
JOINT VENTURE OR CONSORTIUM
• a commercial undertaking by two or more persons, differing from a partnership in
that it relates to the disposition of a single lot of goods or the completion of a single
project.
• taxable as corporation.
• However, there are two types of tax-exempt joint ventures described in the
preceding topic as provided for under Section 3 of RR 10-2012. A joint venture or
consortium formed for the purpose of undertaking construction projects is not
considered as corporation under Section 22 of the Tax Code provided:
a. The joint venture was formed for the purpose of undertaking a construction
project; and
b. Should involve joining/ pooling of resources by licensed local contracts; that is,
licensed as general contractor by the Philippine Contractors Accreditation Board
(PCAB) of the Department of Trade and Industry (DTI)
c. The local contractors are engaged in construction business; and
d. The Joint Venture itself must likewise be duly licensed as such by the Philippine
Contractors Accreditation Board (PCAB) of the Department of Trade and Industry
(DTI).
• The tax-exempt joint venture shall not include those who are mere suppliers of
goods, services or capital to a construction.
Module 6 Study Guide | Page 2
,• If not all of the requirements are present, the joint venture or consortium formed
for the purpose of undertaking construction projects shall be considered as taxable
corporations.
• The members of a Joint Venture not taxable as a corporation shall each be
responsible in reporting and paying appropriate income taxes on their respective
share to the joint ventures profit.
• Joint ventures involving foreign contractors may also be treated as a non-taxable
corporation provided:
a. The member foreign contractor is covered by a special license as contractor by the
PCAB.
b. The construction project is certified by the appropriate Tendering Agency
(government office) that the project is a foreign financed/ internationally-funded
project and that international bidding is allowed under the Bilateral Agreement
entered into by and between the Philippine Government and the foreign/
international financing institution pursuant to the implementing rules and
regulations of Republic Act No. 4566 otherwise known as Contractor’s License Law.
JOINT STOCK COMPANIES and JOINT ACCOUNTS
Joint stock companies
• constituted when a group of individuals acting jointly, establish and operate
business enterprise under an artificial name, with an invested capital divided into
transferable shares, an elected board of directors, and other corporate
characteristics, but operating without formal government authority.
Joint accounts (cuestas end participation)
• constituted when one interests himself in the business of another by contributing
capital thereto, and sharing in the profits or losses in the proportion agreed upon
• They are not subject to any formality and may be privately contracted orally or in
writing. The term “associations” includes all organizations which have substantially
the salient features of a corporation to be taxable as a “corporation”.
TAX EXEMPT CORPORATIONS
Under Section 30 of the Tax Code, the following organizations shall not be taxed in
respect to income received by them as such:
a. Labor, agricultural or horticultural organizations not organized principally for
profits.
Module 6 Study Guide | Page 3
, b. Mutual savings bank not having a capital stock represented by shares, and
cooperative bank without capital stock, organized and operated for mutual purposes
and without profit.
c. A beneficiary, society, order or association, operating for the exclusive benefit of
the members such as a fraternal organization operating under the lodge system, or a
mutual aid association or a non-stock corporation organized by employees providing
for the payment of life, sickness, accident, or other benefits exclusively to the
members of such society, order, or association, or nonstock corporation or their
dependents.
d. Cemetery company owned and operated exclusively for the benefit of its members.
e. Non-stock corporation or association organized and operated exclusively for
religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation
of veterans, no part of its net income or asset shall belong or inure to the benefit of
any member, organizer, officer or any specific person.
f. business leagues, chambers of commerce, boards of trade not organized for profit
and no part of the net income of which insures to the benefit of any private
stockholder or individual
g. civic leagues or organization not organized for profit but operated exclusively for
the promotion of social welfare;
h. A non-stock and nonprofit educational institutions;
i. government educational institutions;
j. farmers’ or other mutual typhoon or fire insurance companies, mutual ditch or
irrigation companies, mutual or cooperative telephone companies, or like
organizations of a purely local character, the income of which consists solely of
assessments, dues, and fees collected from members for the sole purpose of meeting
its expenses; and
k. farmers, fruit growers, or like association organized and operated as a sales agent
for the purpose of marketing the products of its members and turning back them the
proceeds of sales, less the necessary selling on the basis of the quantity of produced
finished by them.
- Notwithstanding the provision in the preceding paragraphs, the income of whatever
kind and character of the foregoing organizations from any of their properties, real or
personal or from any of their activities conducted for profit, regardless of the
disposition made of such income shall be subject to tax imposed under the Tax Code.
Module 6 Study Guide | Page 4
