Corporations Exempt from Income Tax in the Philippines

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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

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2012 VAT Audit Program for Large Taxpayers in Philippines

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In an effort to enhance  taxpayers’ voluntary compliance of value added tax in the Philippines and prescribe certain audit of VAT returns of large value added taxpayers in the Philippines with the end view of increasing the collection, the Bureau of Internal Revenue (BIR) has recently launched a 2012 value added tax (VAT) audit program in the Philippines covering large taxpayers under Revenue Memorandum Order No. 19-2012 dated July 31 2012 (RMO No. 19-2012). Under RMO No. 19-2012, one (1) e-Letter of Authority (eLA) duly approved  by the ACIR, LTS upon the  recommendation of the VAT Audit Team Heads shall be issued for each taxable  quarter or semester. If a taxpayer has already been issued an eLA for all internal revenue tax liabilities for a particular period and a significant finding/s on VAT was uncovered, it should be communicated to the VAT Audit Team for possible risk identification in the current period

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Taxation of Reimbursable Expenses in the Philippines

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Reimbursable expense is an expense a taxpayer pays for and in behalf of another. It involves two (2) things where tax implications may come in – one is the payment of the expense for and in behalf of another, and the second is the receipt of the reimbursement of such amount. Payment for reimbursable expenses in behalf of another Under this, the agent (the one paying in behalf of another) will pay the third party for and in behalf of the principal (the one actually bound to pay and in whose payment is accommodated by another). The tax implication is the application of withholding taxes on reimbursable expenses in the Philippines. While the amount paid by the agent is not its expense, it is nevertheless bound to account for the withholding taxes (most especially income payments of top twenty thousand principals). Under the rules, the person in control of payment of an

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Dissolution and Liquidation of Corporations in the Philippines

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Not all corporations are successful in its business operations in the Philippines and not all domestic corporations in the Philippines are meant forever. Like humans, corporate life comes to an end and this is what is technically referred to as dissolution and liquidation. Dissolution in the Philippines is the stage of terminating the life of a corporation and liquidation in the Philippines is the process of winding up the affairs, settlement of corporate obligations / debts and distribution of remaining corporate assets through liquidating dividends in the Philippines. Dissolution of a corporation in the Philippines under the Corporation Code of the Philippines (Batas Bambansa Bilang 68 or BP No. 68) could be involuntary upon Securities and Exchange Commission’s (SEC) complaint coupled with a prescribed process of notice and hearing or voluntary based on the application of the corporation with the SEC. Voluntary dissolution of corporation in the Philippines come in

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Taxation of Educational Institutions in the Philippines

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In the prior post, we shares the types of educational institutions in the Philippines. In this article, let us share some points on the taxation of educational institutions in the Philippines – income taxation, value added taxation, and real property taxation. The Constitution of the Philippines provide for tax exemptions and privileges as follows: “Article XIV, Section 4(3). All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties. Upon the dissolution or cessation of the corporate existence of such institutions, their assets shall be disposed of in the manner provided by law. Proprietary educational institutions, including those cooperatively owned, may likewise be entitled to such exemptions, subject to the limitations provided by law, including restrictions on dividends and provision for reinvestment.” Article XIV, Section 2(4) Subject to conditions prescribed by law, all grants, endowments, donations, or

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Corporate Dividend Declaration in the Philippines

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In a corporate set-up, dividend in the Philippines represents the share of the owners of the corporation – the stockholders. An effective dividend policy in the Philippines would be a coordination of corporate earnings and cash position. A domestic corporation in the Philippines would normally declare dividends in the Philippines to distribute its earnings accumulated through the unrestricted or free retained earnings. More dividend distribution means more earnings for the stockholders and would attract more potential investors. Others would declare dividend as a remedial measure to minimize the impact of 10% improperly accumulated earnings tax in the Philippines (10% IAET), and further avoid SEC sanctions for violation of Section 43 of the Corporation Code of the Philippines on excess of free or unappropriated retained earnings over paid-up capitalization. For some, dividend declaration is simply a capital restructuring device by transferring free retained earnings to capitalization to increase paid-up capitalization in

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Types of Educational Institutions in the Philippines

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Philippines is a largely educated population and the best English speaking country, as we claim it! Do you subscribe to this the way we do? Do not get us wrong and we do not intend to argue on that point. We subscribe to that anyway because as a matter of policy, primary and secondary education is mandatory and English is taught all throughout until college. Nevertheless, this article would tend to share the different broad classifications of educational institutions in the Philippines preparatory towards better appreciation of the applicable tax rules. For tax tax purposes, educational institutions are distinguished from one another based on the nature of its structure or the charter that creates the same. Here are the broad classifications: Proprietary educational institution Proprietary educational institution is one registered with the Securities and Exchange Commission (SEC) as a private stock corporation to engage in maintaining and administering a school –

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Repatriating Foreign Investment Income from the Philippines

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For a successful foreign investments in the Philippines, the common concern is how to repatriate such foreign investment income to his home country. Common factors to be considered is the source of foreign currency, and tax implications of such investment income. For a foreign investment registered with the Bangko Sentral ng Pilipinas (BSP or Central Bank of the Philippines) the source of foreign currency for the purpose of repatriating income from Philippine foreign investment is not much of a problem because it could simply buy foreign currency from BSP authorized agent banks. On the other hand, tax implications of income on such foreign investments in the Philippines could vary depending on the nature of such investments. Notably, there could be lot more ways to structure foreign investments in the Philippines and minimize taxes. Here are some of the few common ways: Dividends income of Foreign corporation in the Philippines Investments

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BSP Registration of Foreign Investments in the Philippines

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For a foreign investor in the Philippines intending to do business in the Philippines, one common question is: Is a foreign investment required to be registered with the Bangko Sentral ng Pilipinas ( BSP or Central Bank of the Philippines)? By foreign investments, it shall mean an equity investment made by non-Philippine national in the form of foreign exchange and/or other assets actually transferred to the Philippines and duly registered with the Central Bank which shall assess and appraise the value of such assets other than foreign exchange (Section 3(c), RA No. 7042 – Foreign Investments Act or FIA). Under the Manual of Regulations for Foreign Transactions of the BSP, inward foreign investments may be in any of the following forms: foreign direct investments in Philippine firms or enterprises either in cash or in kind  (e.g. machinery and equipment; raw materials, supplies, spare parts, and other items including intangible assets necessary for the

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Tax-free Provisions on Agreements in the Philippines

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In some contracts, especially, with non-resident foreign corporations and entities, a provision on taxes is almost always included. This provision normally mentions who among the parties would shoulder the applicable taxes in the Philippines. Some scenario on such contracts and agreements would provide that any and all applicable taxes in the Philippines shall be shouldered by the Philippine company or entity. This would mean that the foreign party will receive the agreed consideration, net of applicable taxes. This is what we call as “tax – free covenant” or “tax-free provision” in the  agreement or contract in the Philippines. Under such scenario, the critical part is the determination of the taxable base because some taxes are chargeable to the payee (the non-resident or foreign party), while some are chargeable to the (resident of Filipino party). This scenario is covered by Section 57(C) and hereunder we quote: “Section 57(C). Tax-free covenant Bonds –

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