Business Income Tax Requirements for Corporations in the Philippines

We’re done discussing how to organize and register a corporation in the Philippines and completing legal requirements as well as legal documents.

This time around, we will be discussing the requirements for business income tax for domestic and foreign corporations engaged in trade or business within the Philippines.

A. What is a corporation?

A corporation is a juridical entity separate from that of its shareholders. The Corporation Code of the Philippines defines the corporation as such:

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.¹

B. Which types of corporations are required to file income tax returns?

The classes of corporations required to file income tax returns in the Philippines are the following:

1. Domestic corporations receiving income from sources within and outside the Philippines
2. Foreign corporations engaged in trade or business within the Philippines

C. Income tax requirements

The Bureau of Internal Revenue (BIR) requires corporations to file their business income tax. This may get a bit technical, though this is a condensed version taken from the BIR website:

Annual Income Tax:

a. File BIR Form 1702 (Annual Income Tax Return).
b. If applicable, provide the following documents:
• BIR Form 2304 (Certificate of Income Payments Not Subjected to Withholding Tax)
• BIR Form 2307 (Certificate of Creditable Tax Withheld at Source)
• Duly approved Tax Debit Memo
• Proof of Foreign Tax Credits
• Proof of prior year’s excess tax credits

c. Income tax return previously filed and proof of payment, if amended return is filed for the same taxable year
d. Account Information Form (AIF) and/or the certificate of the independent CPA with audited financial statements, if the gross quarterly sales, earnings, receipts, or output exceed P150,000.00
e. Deadline is on or before the fifteenth day of the fourth month following the close of the taxpayer’s taxable year.

Quarterly Income Tax:

a. File BIR Form 1702 Q (Quarterly Income Tax Return for Corporations)
b. If applicable, provide the following documents:

• BIR Form 2307 (Certificate of Income Tax Withheld at Source)
• BIR Form 2304 (Certificate of Income Payments Not Subjected to Withholding Tax)
• Duly approved Tax Debit Memo

c. Provide previously filed return, if an amended return is filed for the same quarter.
d. Deadline is on or before the sixtieth day following the close of each of the quarters of the taxable year.

Improperly Accumulated Earnings Tax for Corporations:

a. File BIR Form 1704 (IAET for Corporations).
b. Photocopy of the Annual Income Tax Return (BIR Form 1702) with audited financial statements and/or Account Information Form
c. Sworn declaration as to dividends declared
d. Deadline is on the fifteenth day after the close of the taxable year.

Note: The improperly accumulated earnings tax (IAET) is enforced on corporations that permit earnings and profits to accumulate instead of being divided or distributed. The following are exempted from IAET:

(a) Publicly-held corporations;
(b) Banks and other nonbank financial intermediaries; and
(c) Insurance companies

D. What is the importance of complying?

By complying with the business income tax requirements, the Philippine government can easily perform its taxing function with less fuss and generate revenue to carry out its legitimate objectives. Companies/corporations required are free from penalties/liabilities since they are compliant.

_References:
¹ _{Section 2, Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the Philippines.}
²_{Section 29 (B) (2), Republic Act No. 8424, December 11, 1997}