Villaflor, Micol G.

TAX1101 – Section 16

Canvas Activity 2

1. State the general income tax rules for regular types of corporations.
The following corporate income tax (CIT) rates apply to domestic corporations:

Income CIT rate (%)

In general, on net income from all sources. 30
Minimum corporate income tax (MCIT) on 2
gross income, beginning in the fourth
taxable year following the year of
commencement of business operations.
MCIT is imposed where the CIT at 30% is less
than 2% MCIT on gross income.
Proprietary educational institutions and non- 10
profit hospitals, on net income if gross
income from unrelated trade, business, and
other activities does not exceed 50% of the
total gross income from all sources.
Non-stock, non-profit educational institutions Exempt
(all assets and revenues used actually,
directly, and exclusively for educational
purposes) and other non-profit
organizations.
Certain passive income from domestic sources is subject to final tax rather than ordinary
income tax.

Corporate income tax

The applicable CIT rate for both resident and non-resident corporations is 30 percent based on
net taxable income. This is set to change with the introduction of the Corporate Income Tax
and Incentives Rationalization Act (CITIRA) in September 2019. CITIRA will see CIT rates
reduced to 20 percent in annual increments of 1 percentage point over a 10-year period
starting in 2020.

Withholding tax

Dividends
Dividends distributed by a resident company are subject to withholding tax at 30 percent;
those distributed to non-residents are taxed at 15 percent, provided the country of the non-
resident recipient allows a tax credit of 15 percent. The withholding tax may be reduced under
an applicable tax treaty.

Interest
Interest paid to a non-resident is subject to a 20 percent withholding tax unless otherwise
stipulated under a tax treaty.

Royalty
Royalty payments made to a domestic or resident company are subject to a final withholding
tax of 20 percent. A 30 percent withholding tax is levied on royalty payments to non-residents.
2. Enumerate the different types of resident foreign corporations and their corresponding tax
rates
Resident foreign corporations (i.e. foreign corporations engaged in trade or business in the
Philippines through a branch office) are taxed in the same manner as domestic corporations
(except on capital gains on the sale of buildings not used in business, which are taxable as
ordinary income), but only on Philippine-source income.

Income CIT rate (%)

Income of international carriers on their 2.5
gross Philippine billings
Interest income from foreign currency loans 10
granted to residents other than offshore
business units (OBUs) or local commercial
banks
Income of OBUs and foreign currency Exempt
deposit units (FCDUs) of depository banks
from foreign currency transactions with non-
residents, other OBUs or FCDUs, and local
commercial banks (including branches of
foreign banks) authorised by the Bangko
Sentral ng Pilipinas (BSP; central bank) to
transact business with OBUs and FCDUs
Regional operating headquarters (ROHQs) 10
earning income from the Philippines
Regional or area headquarters of Exempt
multinational corporations that do not earn
or derive income from the Philippines, and
that act as supervisory, communications,
and coordinating centres for their affiliates,
subsidiaries, or branches in the Asia-Pacific
region and other foreign markets
In general, a resident foreign corporation is taxed in the same manner as a domestic
corporation on its income derived from all sources within the Philippines. That is, a resident
foreign corporation shall be subject to the normal income tax rate of thirty two percent (32%)
of its taxable Philippine-sourced income.

In the computation of taxable income, there shall be deducted from the Philippine-sourced
gross income, such allowable expenses, losses and other deductions properly allocated thereto
and a ratable part of expenses, interests, losses and other deductions effectively connected
with the business or trade conducted exclusively within the Philippines which cannot definitely
be allocated to some items or class of gross income.

However, the following shall be subject to a different tax rate:

 International carriers doing business in the Philippines shall be taxed at two and one-
half per cent (2 1/2 %) of gross Philippine billings;
 Income derived by offshore banking units from foreign currency transactions with local
commercial banks and branches of foreign banks and interest derived from foreign
currency loans to residents shall be subject to a final tax at the rate of ten per cent
(10%) of such income;
 Regional operating headquarters shall pay a tax of ten per cent (10%) of their taxable
income. A Regional operating headquarter refers to a branch established in the
Philippines by multinational companies which are engaged in any of the following
services: general administration and planning; business planning and coordination;
sourcing and procurement of raw materials and components; corporate finance
 advisory services; marketing control and sales promotion; training and personnel
management; logistic services; research and development services and product
development; technical support and maintenance; data processing and
communication; and business development.
The following passive incomes of resident foreign corporations are subject to a final tax at the
same rates as domestic corporations:
 Twenty per cent (20%) on interest from any currency bank deposit and yield or any
other monetary benefit from deposit substitutes and from trust funds and similar
arrangements and royalties derived from sources within the Philippines, provided,
however, that interest income derived by a resident foreign corporation from a
depository bank under the expanded foreign currency deposit system shall be subject
to a final income tax at the rate of seven and one-half per cent (7 1/2%) of such
interest income.
 On the net capital gains realized during the taxable year from the sale, exchange or
other disposition of shares of stock in a domestic corporation except shares sold or
disposed of through the stock exchange at the rate of five per cent (5%) for the 1st P
100,000 and ten per cent (10%) for amount in the excess.
Dividends received by a resident foreign corporation from a domestic corporation shall not be
subject to tax. Profits remitted by a branch to its head office abroad shall be subject to a
fifteen per cent (15%) branch profit remittance tax.
As in domestic corporations, the provisions on MCIT shall also be imposed on a resident foreign
corporations. As to the IAET, this appears to apply even to foreign corporations, resident or
non-resident. However, Philippine jurisprudence states that there can be no violation of this
provision if the intended distributees or shareholders are not subject to tax by the Philippine
government.

Resident foreign corporations (RFC) are alien corporations that do businesses or trading in the
Philippines. They also have a physical office in the country. They were brought to the
Philippines and have a license to operate from the Securities and Exchange Commission.
Resident foreign corporations are taxed according to their net taxable income.
Resident foreign corporations are taxed the same rate as local corporations, with the rate
being 30% for regular corporate income tax (RCIT). They can also be taxed 2% of their
corporate income, based on the higher gross taxable income. However, the tax rate for
resident foreign corporations is based on their Philippine net taxable income only.

Below are the income tax rates for other resident foreign corporations:
International carriers – 2.5%
Income from offshore banking – 10%
Regional operating headquarters – 10%
Interest from bank deposits – 20%
Net capital gains from shares of stock – 5% or 10%
3. What are exempt corporations? What is their Primary distinguishing feature?
As a rule, domestic corporations are subject to income tax in the Philippines at the rate of 30%
based on their taxable net income after allowable deductions from gross income. Income tax
liability is then determined after considering the effect of tax credits such as creditable
withholding taxes (BIR Form No. 2307), minimum corporate income taxes paid, and other
allowable tax credits.
Under Section 30 of the Tax Code of the Philippines, as amended, the following corporations or
organizations shall be exempt from income tax in the Philippines in respect to income received
by them as such:
 Labor, agricultural or horticultural organization not organized principally for profit;
 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;
 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 non-stock corporation or their
dependents;
 Cemetery company-owned and operated exclusively for the benefit of its members;
 A 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 to or inure to the benefit of
any member, organizer, officer or any specific person;
 Business league, chamber of commerce, or board of trade, not organized for profit and
no part of the net income of which inures to the benefit of any private stockholder or
individual;
 Civic league or organization not organized for profit but operated exclusively for the
promotion of social welfare;
 A non-stock and nonprofit educational institution;
 Government educational institution;
 Farmers' or other mutual typhoon or fire insurance company, mutual ditch or irrigation
company, mutual or cooperative telephone company, or like the organization 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
 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 to them the
proceeds of sales, less the necessary selling expenses on the basis of the quantity of
produce finished by them;
However, the income of whatever kind and character of the above corporations or
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 this Code.
The Bureau of Internal Revenue (BIR or Tax Authority) is now strict in seeing to it that only
corporations or organization listed above shall be entitled to the income tax exemptions in the
Philippines, and that, only their income as such corporations are covered by the income tax
exemption in the Philippines. Based on the latest issuance of the BIR, the following are not
covered by the above:
 Revenue Memorandum Circular No. 35-2012 — Clubs organized and operated
exclusively for pleasure, recreation, and other non-profit purposes are subject to
income tax in the Philippines despite being a non-stock and non-profit because they do
not fall under any of the above exempt corporations.
 Revenue Memorandum Circular No: 65-2012 — Condominium corporations under the
Condominium Act are subject to income tax with respect to their gross receipts from
association dues, membership fees, and other assessment or charges because they
are the return of tenants and members to the condominium corporations on the
benefits, advantages, and privileges.
As such, it would be prudent for those corporations and organizations claiming income tax
exemptions in the Philippines to review their corporate entities and determine if indeed, they
fall under corporations exempt from income tax in the Philippines as listed above.
4. Explain the classification rule.

5. Explain the dominance test. What types of taxpayers are covered by the dominance test?

6. Discuss the taxation rules for FCDU and offshore banking units
Section 1. Sec. 27, paragraph (D) (3) of the National Internal Revenue Code, as
amended, is hereby further amended to read as follows:
"Sec. 27. Rates of Income Tax on Domestic Corporations. -
"(D) Rates of Tax on Certain Passive Incomes. -
"(3) Tax on Income Derived under the Expanded Foreign Currency Deposit
System. - Income derived by a depository bank under the expanded foreign
currency deposit system from foreign currency transactions with nonresidents,
offshore banking units in the Philippines, local commercial banks including
branches of foreign banks that may be authorized by the Bangko Sentral ng
Pilipinas (BSP) to transact business with foreign currency deposit system shall
be exempt from all taxes, except net income from such transactions as may be
specified by the Secretary of Finance, upon recommendation by the Monetary
Board to be subject to the regular income tax payable by banks: Provided,
however, That interest income from foreign currency loans granted by such
depository banks under said expanded system to residents other than offshore
banking units in the Philippines or other depository banks under the expanded
system shall be subject to a final tax at the rate of ten percent (10%).
"Any income of nonresidents, whether individuals or corporations, from
transactions with depository banks under the expanded system shall be exempt
from income tax."
Sec. 2. Sec. 28, paragraph (A)(4) and (A)(7)(b) of the same Code are hereby
amended to read as follows:
"Sec. 28. Rates of Income Tax on Foreign Corporations. -
"(A) Tax on Resident Foreign Corporations. -
"(1) In General.-Except as otherwise provided in this Code, a corporation
organized, authorized, or existing under the laws of any foreign country, engaged
in trade or business within the Philippines, shall be subject to an income tax
equivalent to thirty five percent (35%) of the taxable income derived in the
preceding taxable year from all sources within the Philippines: Provided. That
effective January 1, 1998, the rate of income tax shall be thirty-four percent
(34%); effective January 1, 1999, the rate shall be thirty-three percent (33%); and
effective January 1, 2000 and thereafter, the rate shall be thirty-two percent
(32%).
"In the case of corporations adopting the fiscal-year accounting period the
taxable income shall be computed without regard to the specific date when sales,
purchases and other transactions occur. Their income and expenses for the
fiscal year shall be deemed to have been earned and spent equally for each
month of the period.
"The reduced corporate income tax rates shall be applied on the amount
computed by multiplying the number of months covered by the new rates within
the fiscal year by the taxable income of the corporation for the period, divided by
twelve.
"Provided, however, That a resident foreign corporation shall be granted the
option to be taxed at fifteen percent (15%) on gross income under the same
conditions, as provided in Sec. 27(A).
"(2) Minimum Corporate Income Tax on Resident Foreign Corporations. - A
minimum corporate income tax of two percent (2%) of gross income, as
prescribed under Sec. 27(E) of this Code, shall be imposed, under the same
conditions, on a resident foreign corporation taxable under paragraph (1) of this
Sub Sec.
"(3) International Carrier. - An international carrier doing business in the
Philippines shall pay a tax of two and one-half percent (2 1/2%) on this 'Gross
Philippine Billings' as defined hereunder:
"(a) International Air Carrier. - 'Gross Philippine Billings' refers to the amount of
gross revenue derived from carriage of persons, excess baggage, cargo and mail
originating from the Philippines in a continuous and uninterrupted flight,
irrespective of the place of sale or issue and the place of payment of the ticket or
passage document: Provided, That tickets revalidated, exchanged and/or
indorsed to another international airline form part of the Gross Philippine Billings
if the passenger boards a plane in a port or point in the Philippines: Provided,
further, That for a flight which originates from the Philippines, but transshipment
of passenger takes place at any port outside the Philippines on another airline,
only the aliquot portion of the cost of the ticket corresponding to the leg flown
from the Philippines to the point of transshipment shall form part of Gross
Philippine Billings.
"(b) International Shipping. - 'Gross Philippine Billings' means gross revenue
whether for passenger, cargo or mail originating from the Philippines up to final
destination, regardless of the place of sale or payments of the passage or freight
documents.
"(4) Offshore Banking Units. - The provisions of any law to the contrary
notwithstanding, income derived by offshore banking units authorized by the
Bangko Sentral ng Pilipinas (BSP), from foreign currency transactions with
nonresidents, other offshore banking units, local commercial banks, including
branches of foreign banks that may be authorized by the Bangko Sentral ng
Pilipinas (BSP) to transact business with offshore banking units shall be exempt
from all taxes except net income from such transactions as may be specified by
the Secretary of Finance, upon recommendations of the Monetary Board which
shall be subject to the regular income tax payable by banks: Provided, however,
That any interest income derived from foreign currency loans granted to
residents other than offshore banking units or local commercial banks, including
local branches of foreign banks that may be authorized by the BSP to transact
business with offshore banking units, shall be subject only to a final tax at the
rate of ten percent (10%).
"Any income of nonresidents, whether individuals or corporations, from
transactions with said offshore banking units shall be exempt from income tax.
"(5) Tax on Branch Profits Remittances. - Any profit remitted by a branch to its
head office shall be subject to a tax of fifteen percent (15%) which shall be based
on the total profits applied or carmarked for remittance without any deduction for
the tax component thereof (except those activities which are registered with the
Philippine Economic Zone Authority). The tax shall be collected and paid in the
same manner as provided in Sec. 57 and 58 of this Code: Provided, That
interests, dividends, rents, royalties, including remuneration for technical
services, salaries, wages, premiums, annuities, emoluments or other fixed or
determinable annual, periodic or casual gains, profits, income and capital gains
received by a foreign corporation during each taxable year from all sources within
the Philippines shall not be treated as branch profits unless the same are
effectively connected with the conduct of its trade or business in the Philippines.
"(6) Regional or Area Headquarters and Regional Operating Headquarters of
Multinational Companies. -
"(a) Regional or area headquarters as defined in Sec. 22(DD) shall not be subject
to income tax.
"(b) Regional operating headquarters as defined in Sec. 22 (EE) shall pay a tax
of ten percent (10%) of their taxable income.
"(7) Tax on Certain Incomes Received by a Resident Foreign Corporation. -
"(a) Interest from Deposits and Yield or any other Monetary Benefit from Deposits
Substitutes, Trust Funds and Similar Arrangements and Royalties. - Interest from
any currency bank deposit and yield or any other monetary benefit from deposit
substitutes and from trust funds and similar arrangements and royalties derived
from sources within the Philippines shall be subject to a final income tax at the
rate of twenty percent (20%) of such interest: Provided, however, That interest
income derived by a resident foreign corporation from a depository bank under
he expanded foreign currency deposit system shall be subject to a final income
tax at the rate of seven and one-half percent (71/2%) of such interest income.
"(b) Income Derived under the Expanded Foreign Currency Deposit System. -
Income derived by a depository bank under the expanded foreign currency
deposit system from foreign currency transactions with nonresidents, offshore
banking units in the Philippines, local commercial banks including branches of
foreign banks that may be authorized by the Bangko Sentral ng Pilipinas (BSP)
to transact business with foreign currency deposit system units and other
depository banks under the expanded foreign currency deposit system shall be
exempt from all taxes, except net income from such transactions as may be
specified by the secretary of Finance, upon recommendation by the Monetary
Board to be subject to the regular tax payable by banks: Provided, however. That
interest income from foreign currency loans granted by such depositors banks
under said expanded system to residents other than offshore banking units in the
Philippines or other depository banks under the expanded system shall be
subject to a final tax at the rate of ten percent (10%).
"Any income of nonresidents, whether individuals or corporations, from
transactions with depository banks under the expanded system shall be exempt
from income tax.
"(c) Capital Gains from Sales of Shares of Stock Not Traded in the Stock
Exchange. - A final tax at the rates prescribed below is hereby imposed upon the
net capital gains realized during the taxable year from the sale, barter, exchange
or other disposition of shares of stock in a domestic corporation except shares
sold or disposed of through the stock exchange:
Not over P100,000 - 5%
Or any amount in excess of P100,000 - 10%
"(d) Intercorporate Dividends. - Dividends received by a resident foreign
corporation from a domestic corporation liable to tax under this Code shall not be
subject to tax under this Title.
"(B) Tax on Nonresident Foreign Corporation. -
"(1) In General. - Except as otherwise provided in this Code, a foreign
corporation not engaged in trade or business in the Philippines shall pay a tax
equal to thirty-five percent (35%) of the gross income received during each
taxable year from all sources within the Philippines, such as interests, dividends,
rents, royalties, salaries, premiums (except reinsurance premiums), annuities,
emoluments or other fixed or determinable annual periodic or casual gains,
profits and income, and capital gains, except capital gains subject to tax under
subparagraphs 5 (c) and (d); Provided, That effective January 1, 1998, the rate of
income tax shall be thirty-four percent (34%); effective January 1, 1999, the rate
shall be thirty-three percent (33%); and, effective January 1, 2000 and thereafter,
the rate shall be thirty-two percent (32%).
"(2) Nonresident Cinematographic Film Owner Lessor or Distributor. - A
cinematographic film owner, lessor, or distributor shall pay a tax of twenty-five
percent (25%) of its gross income from all sources within the Philippines.
"(3) Nonresident Owner or Lessor of Vessels Chartered by Philippine
Nationals. - A nonresident owner or lessor of vessels shall be subject to a tax of
four and one-half percent (41/2%) of gross rentals, lease or charter fees from
leases or charters to Filipino citizens or corporations, as approved by the
Maritime Industry Authority.

"(4) Nonresident Owner or Lessor of Aircraft, Machineries and Other Equipment.

 - Rentals, charter and other fees derived by a nonresident lessor of aircraft,
machineries and other equipment shall be subject to a tax of seven and one-half
percent (71/2%) of gross rentals or fees.
"(5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation. -
"(a) Interest on Foreign Loans. - A final withholding tax at the rate of twenty
percent (20%) is hereby imposed on the amount of interest on foreign loans
contracted on or after August 1, 1996;
"(b) Intercorporate Dividends. - 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 which shall be collected and paid
as provided in Sec. 57(A) Of this Code, subject to the condition that the country
in which the nonresident foreign corporation is domiciled, shall allow a credit
against the tax due from the nonresident foreign corporation taxes deemed to
have been paid in the Philippines equivalent to twenty percent (20%) for 1997,
nineteen percent (19%) for 1998, eighteen percent (18%) for 1999, and
seventeen percent (17%) thereafter, which represents the difference between the
regular income tax of thirty-five percent (35%) in 1997, thirty-four percent (34%)
in 1998, thirty-three percent (33%) in 1999, and thirty-two percent (32%)
thereafter on corporations and the fifteen percent (15%) tax on dividends as
provided in this subparagraph;
"(c) Capital Gains from Sale of Shares of Stock not Traded in the Stock
Exchange. - A final tax at the rates prescribed below is hereby imposed upon the
net capital gains realized during the taxable year from the sale, barter, exchange
or other disposition of shares of stock in a domestic corporation, except shares
sold, or disposed sold, or disposed of through the stock exchange;
Not over P 100,000 - 5%
On any amount in excess of P10,000 - 10%"
Sec. 3. Separability Clause. - If any part or provision of this Act shall be held
unconstitutional or invalid, other provisions hereof which are not affected thereby
shall continue to be in full force and effect.
Sec. 4. Repealing Clause. - All laws, decrees, orders, rules and regulations and
other issuances or parts thereof inconsistent with this Act are hereby repealed or
modified accordingly.
Sec. 5. Effectivity. - This Act shall take effect fifteen (15) days after its publication
in the Official Gazette or in two (2) newspapers of general circulation.
7. Explain the meaning of Gross Philippine billings
International – Carrier. — An international carrier doing business in the Philippines shall pay a
tax of two and one-half percent (21/2 %) on its ‘Gross Philippine Billings’ as defined hereunder:
"(a) International Air Carrier. — ‘Gross Philippine Billings’ refers to the amount of gross revenue
derived from carriage of persons, excess baggage, cargo, and mail originating from the
Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or issue
and the place of payment of the ticket or passage document: Provided, That tickets
revalidated, exchanged and/or indorsed to another international airline form part of the Gross
Philippine Billings if the passenger boards a plane in a port or point in the Philippines: Provided,
further, That for a flight which originates from the Philippines, but transshipment of passenger
takes place at any part outside the Philippines on another airline, only the aliquot portion of
the cost of the ticket corresponding to the leg flown from the Philippines to the point of
transshipment shall form part of Gross Philippine Billings.
"(b) International Shipping. — ‘Gross . Philippine Billings’ means gross revenue whether for
passenger, cargo or mail originating from the Philippines up to final destination, regardless of
the place of sale or payments of the passage or freight documents.

Gross Philippine Billings means gross revenue realized from uplifts of passengers anywhere in
the world and excess baggage, cargo and mail originating from the Philippines, covered by
passage documents sold in the Philippines: Provided, That documents sold outside the
Philippines under a "prepaid ticket advice" scheme for passengers originating from the
 Philippines shall be considered as documents sold in the Philippines. Gross revenue from
chartered flights originating in the Philippines shall likewise form part of the "Gross Philippine
Billings" regardless of the place of sale or payment of the passage documents. For purposes of
determining the taxability of revenue from chartered flights, the term "originating from the
Philippines" shall include flights of passengers who stay in the Philippines for more than forty
eight (48) hours prior to embarkation."
8. What are the special types of non- resident foreign corporations and their tax rates?
The following corporate tax rates apply to non-resident foreign corporations with respect to
gross income derived from sources within the Philippines:

Tax type Tax rate (%)

Income tax (in general) 30
Reinsurance premiums Exempt
Interest on foreign loans 20
Dividends from domestic corporations if the 15
country in which the foreign corporation is
domiciled does not impose income tax on
such dividends, or allows a tax deemed paid
credit of 15%
Rentals and charter fees payable to non- 4.5
resident owners of vessels chartered by
Philippine nationals
Rentals, charters, and other fees derived by 7.5
non-resident lessors of aircraft, machinery,
and other equipment
Lower rates or exemption on the above income may be available under an applicable tax
treaty.
Non-resident foreign corporations are taxed according to their gross income. The corporate
income tax for non-resident foreign corporations in the Philippines is also 30%. But this tax is
based on the gross income of the corporation. Nonresident foreign corporations are usually
taxed on rent, dividends, and royalties that come from the Philippines.
However, under certain conditions, non-resident foreign corporations also have to pay a
withholding tax on incomes derived from their passive investment. These tax rates are usually
higher than the rates for domestic corporations and foreign corporations.
In general, a non-resident foreign corporation shall pay a tax equal to thirty-two per cent (32%)
of the gross income received during each taxable year from all sources within the Philippines.
However, the following non-resident foreign corporations shall be subject to a different tax
rate:

 Nonresident Cinematographic Film Owner, Lessor or Distributor - twenty-five per cent

(25%) of its gross income from all sources within the Philippines.
 Nonresident Owner or Lessor of Vessels Chartered by Philippine Nationals - four and
one-half per cent (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.
 Nonresident Owner or Lessor of Aircraft, Machineries and Other Equipment - seven and
one-half per cent (7 1/2%) of gross rentals or fees.
The following passive incomes of a nonresident foreign corporation are subject to a final tax as
follows:
 Twenty per cent (20%) on the amount of interest on foreign loans contracted on or
after August 1, 1986;
 The net capital gains realized during the taxable year from the sale, exchange or other
disposition of shares of stock in a domestic corporation except shares sold or disposed
of through the stock exchange are, in the same manner as domestic and resident
foreign corporations, taxed at the rate of five per cent (5%) for the 1st P 100,000 and
ten per cent (10%) for amount in the excess of P 100,000.
 Fifteen per cent (15%) on the amount of cash and/or property dividends received from
a domestic corporation subject to the condition that the country in which the
 nonresident foreign corporation is domiciled, shall allow a credit against the tax due
from the nonresident foreign corporation taxes deemed to have been paid in the
Philippines equivalent to seventeen per cent (17%), which represents the difference
between the regular income tax of thirty-two per cent (32%) on corporations and the
fifteen per cent (15%) tax on dividends as provided herein;
The income of nonresident foreign corporations from transactions with depository banks under
the expanded foreign currency deposit system shall be exempt from income tax.
There are special laws which provides favorable tax treatments to corporations involved in any
of the activities listed in the Philippines Investment Priority Plan or those locating in special
economic zones throughout the Philippines (i.e. those locating in Subic Bay Freeport, pay 5% of
gross income in lieu of income taxes plus tax free importations). Furthermore, where a foreign
element is involved, applicable tax treaties with which the Philippines is a signatory may
likewise provide a preferential tax treatment. Presently, the Philippines has the tax treaties
with 29 countries.
Below are the income tax rates for other non-resident foreign corporations:
Interest from foreign loans – 20%
Film royalties – 25%
Rentals of vessels – 4.5%
Rentals of aircrafts – 7.5%

Sources:
https://taxsummaries.pwc.com/ID/Philippines-Corporate-Taxes-on-corporate-income
https://www.aseanbriefing.com/news/corporate-taxes-philippines/
https://www.mondaq.com/Tax/9710/Corporate-Taxation-Under-The-National-Internal-Revenue-
Code-Of-The-Philippines
http://www.filepino.com/income-tax-in-the-philippines-for-foreign-owned-corporations/
https://taxacctgcenter.ph/corporations-exempt-from-income-tax-in-the-philippines/
http://www.bsp.gov.ph/downloads/laws/RA9294.pdf
https://www.officialgazette.gov.ph/2013/03/07/republic-act-no-10378/