Special Tax Rates For Foreign Corporation

MODULE 13
SPECIAL TAX RATES for FOREIGN CORPORATIONS
Resident Foreign Corporations SPECIAL RATES:

International Carrier. - An international carrier doing business in the Philippines shall pay a tax of two and one-half
percent (2 1/2%) on its 'Gross Philippine Billings'
GROSS PHILIPPINE BILLINGS
For 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;
International Shipping. - 'Gross Philippine Billings' means gross revenue whether for passenger, cargo or mail originating
from the Philippines up to final destination.
Tax on Branch Profits Remittances. - Any profit remitted by a branch to its head office shall be subject to a tax of fifteen
(15%) which shall be based on the total profits applied or earmarked for remittance without any deduction for the tax component
thereof (except those activities which are registered with the Philippine Economic Zone Authority)
OFF SHORE BANKING UNIT (OBU)
Offshore Banking Unit" shall mean a branch, subsidiary or affiliate of a foreign banking corporation which is duly
authorized by the Central Bank of the Philippines to transact offshore banking business in the Philippines.
INCOME TAX LIABILITY
In general – Income derived by OBUs from foreign currency transactions with non-residents, other OBUs,
local commercial banks and branches of foreign banks authorized by BSP, EXEMPT from Income Tax.
On interest income derived from foreign currency loans granted to residents other than offshore
banking units or local commercial banks, local branches of foreign banks authorized by BSP to transact
business with OBUs, FINAL INCOME TAX OF 10% until 4/10/2021
Income derived by resident from foreign currency transaction is subject to final income tax of 15%.
FOREIGN CURRENCY DEPOSIT UNIT - Refers to a unit of a local bank/branch of a foreign bank
authorized by the Bangko Sentral ng Pilipinas (BSP) to engage in foreign-currency denominated transactions,
pursuant to Republic Act No. 6426 (the Foreign Currency Deposit Act of the Philippines), as amended.
APPLICATION
An off shore banking unit, reported the following;
Interest income from foreign currency loan granted to non-resident P1,000,000
Interest income from foreign currency loan granted to resident P4,000,000
Other business income in the Philippines, P2,000,000
How much is the Philippine income tax liability of the OBU?
ANSWER,
Interest income, P4,000,000 X 10% = P400,000
Other business income, P2,000,000 is returnable in 1702 at normal corporate tax rate.
Special Tax Rates on NON RESIDENT FOREIGN CORPORATION
Non-Resident Foreign Corporations SPECIAL RATES:
a) Nonresident Cinematographic Film Owner, Lessor or Distributor. -tax of twenty-five percent (25%) of its gross income from
all sources within the Philippines.
b) Nonresident Owner or Lessor of Vessels Chartered by Philippine Nationals. - tax of four and one-half percent (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.
c) Nonresident Owner or Lessor of Aircraft, Machineries and Other Equipment. - tax of seven and one-half percent (7 1/2%) of
gross rentals or fees.
APPLICATION
An international carrier reported the following for 2019, prior to CREATE Law:
 Gross receipt, transport of passenger, Philippine port to outside port, P100,000,000
 Gross receipt, transport of passenger, Outside port to Philippine port, P100,000,000
 Gross receipt, transport of cargo, Philippine port to outside port, P50,000,000, no revenue from excess baggage is included
A) How much is the Philippine income tax due if it is an air carrier?

ANSWER, P100,000,000 x 2.5% = P 2,500,000
B) How much is the Philippine income tax due if it is an ocean carrier?

ANSWER , (P100,000,000 + 50,000,000) x 2.5% = P 3,750,000
An non-resident foreign corporation reported the following:

 Gross receipt within the Philippines. P1,000,000
 Gross receipt outside the Philippines. P1,000,000
 Expenses in the Philippines, P400,000
A) How much is the Philippine income tax due if it is a regular non-resident foreign corp. ?
ANSWER, P1,000,000 x 30% = P300,000 (effective 7/01/2020, 25%)
B) How much is the Philippine income tax due if it is a non-resident foreign corp. , lessor of machinery?
ANSWER, P1,000,000 x 7.5% = P75,000
C) How much is the Philippine income tax due if it is a non-resident foreign corp. , film owner lessor ?
ANSWER, P1,000,000 x 25% = P250,000

Special Tax Rates For Foreign Corporation

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MODULE 13

SPECIAL TAX RATES for FOREIGN CORPORATIONS

Resident Foreign Corporations SPECIAL RATES:

GROSS PHILIPPINE BILLINGS

from the Philippines up to final destination.

Special Tax Rates on NON RESIDENT FOREIGN CORPORATION

Non-Resident Foreign Corporations SPECIAL RATES:

A) How much is the Philippine income tax due if it is an air carrier?

B) How much is the Philippine income tax due if it is an ocean carrier?

An non-resident foreign corporation reported the following:

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