Domestic and Foreign Corporation @THINKTANKLIKEBEES

Summary

This video lecture provides an in-depth explanation of income and business taxation for domestic and foreign corporations in the Philippines. It outlines the differences between the two types of corporations, the tax computation process, and the quarterly payment schedule. The lecture covers how both income tax and value-added tax (VAT) are calculated, with detailed examples involving sales and expenses in the Philippines and abroad. The video aims to clarify complex tax concepts, such as the Minimum Corporate Income Tax (MCIT) and the relationship between net income, tax credits, and VAT.

Takeaways

• 😀 Domestic Corporation is a Filipino-owned business or one with 90% Filipino ownership, operating within the Philippines.
• 😀 Foreign Corporation is owned by foreigners (more than 10%) and operates in the Philippines, but only local income is subject to Philippine tax.
• 😀 Domestic and foreign corporations compute their income tax differently, with domestic corporations factoring in both local and foreign sales and expenses.
• 😀 Foreign corporations only compute income tax based on their operations within the Philippines, excluding foreign sales and expenses.
• 😀 Both domestic and foreign corporations are required to file quarterly taxes using the 170 form, with payments due 45 days after the end of each quarter.
• 😀 The deadlines for quarterly tax payments are: May 15 (Q1), August 15 (Q2), November 15 (Q3), and either February 15 or April 15 (Q4).
• 😀 Income tax for corporations is computed by applying a 30% tax rate on operating income after expenses.
• 😀 If a corporation incurs a net loss, the Minimum Corporate Income Tax (MCIT) is applied instead of the regular income tax.
• 😀 VAT (Value Added Tax) is calculated by subtracting the input tax (on expenses) from the output tax (on sales).
• 😀 In addition to income tax, businesses are required to pay VAT on their sales, which is an additional business tax that needs to be calculated quarterly.

Q & A

What is the difference between a domestic corporation and a foreign corporation?

A domestic corporation is primarily owned by Filipino residents or at least 90% of its shares are owned by Filipinos, and it operates within the Philippines. A foreign corporation, on the other hand, is owned by foreigners with more than 10% of shares and conducts business in the Philippines.

How is tax computed for domestic corporations?

For domestic corporations, both sales and expenses within and outside the Philippines are considered. The income tax is calculated at a 30% rate on operating income, and VAT is computed based on sales (output tax) and expenses (input tax) within the Philippines.

What tax credit considerations apply to domestic corporations?

Domestic corporations can only apply tax credits for taxes paid within the Philippines. Tax credits for taxes paid in other countries are not applicable.

How is tax calculated for foreign corporations in the Philippines?

For foreign corporations, tax is calculated based solely on sales and expenses within the Philippines. The income tax is calculated at a 30% rate on operating income, and VAT is computed similarly to domestic corporations but only for the Philippine operations.

What is the due date for tax payments for domestic and foreign corporations?

Tax payments for both domestic and foreign corporations are due 45 days after the end of each quarter. The due dates are: May 15 for Q1 (January-March), August 15 for Q2 (April-June), November 15 for Q3 (July-September), and February 15 or April 15 for Q4 (October-December).

What is the MCIT and when is it applied?

The Minimum Corporate Income Tax (MCIT) applies when a corporation incurs a net loss, instead of calculating the income tax on a net income basis. It is used as a fallback for situations where a corporation doesn't have taxable income.

How is VAT calculated for both domestic and foreign corporations?

To compute VAT, first calculate the output tax by applying the sales figure to the VAT formula (sales divided by 112 * 12). Then calculate the input tax by applying the expenses figure similarly. The VAT is the difference between the output and input taxes.

What is the significance of tax credits in the computation for foreign corporations?

Foreign corporations are eligible for tax credits on taxes paid in other countries, but these credits are not used in the computation of tax within the Philippines. This helps avoid double taxation.

What is the role of quarterly tax filings for corporations in the Philippines?

Corporations must file and pay taxes quarterly. These filings include the income tax (based on operating income) and the VAT (based on sales and expenses), with payments due after 45 days from the end of each quarter.

How do tax credits affect the net income of a corporation?

Tax credits reduce the tax liability of a corporation. For both domestic and foreign corporations, tax credits (whether from local or foreign taxes) reduce the amount of tax payable, ultimately increasing the corporation's net income after tax.