CORPORATE TAXES
SIGNIFICANT DEVELOPMENTS
The Tax Reform Act of 1997, which extensively amended the National Internal Revenue Code, took effect on January 1,1998. The law includes new tax provisions, including the imposition of fringe benefits tax, minimum corporate income tax, and taxes on income derived under foreign currency deposits.
In May 1998 a generally peaceful and orderly national election was held, and Joseph Ejercito Estrada was elected president. He took over from former president Fide Ramos effective July 1,1998, basically continuing the economic and investment policies initiated by the latter.
With the liberalization of the foreign investments law, 100% foreign equity may be allowed in all areas of investment except financial institutions and those included in the Foreign Investment Negative List (FINL). Executive Order No.11 approved the Third FINL, which took effect on October 24,1998.
Deleted from the earlier FINL were activities related to:(a)contracts for the construction of defense-related structures and (b)private construction contracts. Further liberalized were activities of financing companies and investment houses wherein allowable foreign participation was increased from 40% to 60%.
TAXES ON CORPORATE INCOME
Domestic corporations/ %
In general, on net income from all sources (for 1999) (33% for 1999;32% effective for 2000 and thereafter)……………… 33
Minimum corporate income tax(MCIT) on gross income, beginning in the fourth taxable year form the start of business operations………… 2
Proprietary educational institutions and hospitals:
Stock:
On net taxable income if gross income from unrelated trade, business and other activities does not exceed 50% of the total gross income from al sources……………… 10
On net taxable income if gross income from unrelated activities exceeds 50% of income from all sources for 1999(33% for 1999 32% effective for 2000 and thereafter) ………………………… 33
Nonstock, nonprofit (all assets and revenues used actually, directly and exclusively for educational urposes……………Exempt
Mutual life insurance companies (on gross investment income) ………………
………………………………………… 10
Improperly accumulated earnings tax/An improperly accumulated earnings tax of 10% is imposed on improperly accumulated taxable income. The tax applies to every corporation formed or used for used for the purpose of avoiding income tax with respect to its shareholders or the shareholders of any other corporation by permitting earnings and profits to accumulate
instead of being divided or distributed, except publicly held
corporations, banks and nonbank financial intermediaries, and insurance companies.
Resident foreign corporations/Resident foreign corporations are taxed in the same manner as domestic corporations (except on capital gains on the sate of buildings not used in business, which are taxable as ordinary income), but only in Philippine-source income. Intentional carriers are subject to an income tax of 2.5% on their gross Philippine billings. Where there is a tax treaty, The preferential rate provided in it pplies.
Income offshore banking units (OBUs) and foreign currency deposit units (FCDUs) form other OBUs or FCDUs or form foreign currency transactions with other local commercial banks (including branches of foreign banks) authorized by the Bangko Sentral ng Pilipinas(central bank) to transact business with OBUs and FCDUs, as well as interest income form foreign
currency loans granted to residents, are subject to a 10% final income tax.
Nonresident foreign corporations/In general, nonresident corporations are taxed on gross income received form sources within the hilippines at 33% in 1999 (32% effective 2000), except for reinsurance premiums, which are exempt, and on interest on foreign loans, taxed at 20%. Dividends from
domestic corporations are subject to a final withholding tax at the rate of 15% if the country in which the corporation is domiciled does not impose income tax on such div
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