Foreign-owned corporations operating in the Philippines have a slightly different
way of paying their income taxes compared to domestic corporations.
Here’s what you need to know about income tax for foreign-owned corporations
in the Philippines:
Foreign-owned corporations are taxed on their Philippine income
Foreign-owned corporations are organizations created under foreign laws.
Therefore, when they do business in the Philippines, their only requirement is to
pay taxes based on their Philippine income sources. This is different from
domestic corporations, which are created under Philippine laws and taxed on all
sources of net taxable income.
These are some of the taxable items that are a source of income for foreignowned corporations in the Philippines:
Personal service or labor compensation
Income from offshore banking
Income from rentals or royalties
Income from selling real property in the Philippines
Income from selling personal property in the Philippines
Regional operating headquarters
Kinds of foreign corporations
There are two kinds of foreign-owned corporations:
1. Resident foreign corporations (RFC) and
2. Non-resident foreign corporations (NRFC)
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.
Non-resident foreign corporations (NRFC) are businesses or companies that don’t do business or trading in the Philippines. They also don’t have a physical office in the country. Instead, non-resident foreign companies get passive income from interests, dividends, and royalties.
A company’s status as a resident or non-resident foreign corporation in the Philippines makes a difference when it comes to paying the corporate income tax.
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%
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.
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%
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