Corporations are subject to income tax on their taxable income (gross income less allowable deductions). Under the CREATE law, the regular corporate income tax (RCIT) rate was reduced, with a lower rate for smaller domestic corporations meeting the conditions on assets and taxable income, and the standard rate for others. To ensure that corporations pay at least some tax even when they report little or no net taxable income, the law imposes a minimum corporate income tax (MCIT): a percentage of the corporation's gross income, applicable beginning on the fourth taxable year following the year of commencement of business, and payable when the MCIT exceeds the RCIT. The excess of the MCIT over the RCIT in a given year may be carried forward and credited against the RCIT in the succeeding years, within the limit the law provides. There are also special rules for certain corporations and preferential rates for those enjoying tax incentives. Domestic corporations are taxed on worldwide income, while resident foreign corporations are taxed only on Philippine-source income. The interplay of RCIT and MCIT, and the availability of incentives, means the specific rate applicable to a corporation should be verified against the current tax rules.
Tax on Taxable Income
Corporations pay income tax on taxable income (gross income less deductions). Under CREATE, the regular corporate income tax (RCIT) was reduced, with a lower rate for smaller domestic corporations.
The Minimum Corporate Income Tax
The MCIT is a percentage of gross income, applicable from the fourth taxable year after starting business, payable when it exceeds the RCIT — ensuring some tax is paid even with little net income.
Carry-Forward and Scope
The excess of MCIT over RCIT may be carried forward and credited in later years. Domestic corporations are taxed on worldwide income; resident foreign corporations on Philippine-source income.
Practical Takeaways
- Corporations pay RCIT on net taxable income (lower rate for small domestic corps under CREATE);
- The MCIT is a floor tax on gross income from the 4th year, when it exceeds the RCIT;
- Excess MCIT is carried forward — verify the current rate.
Frequently Asked Questions
How are corporations taxed on income? On their taxable income, which is gross income less allowable deductions, at the regular corporate income tax rate, reduced under the CREATE law with a lower rate for smaller qualifying domestic corporations.
What is the MCIT? The minimum corporate income tax, a percentage of the corporation's gross income, applicable from the fourth taxable year after starting business and payable when it exceeds the regular corporate income tax.
Can excess MCIT be recovered? Yes. The excess of the MCIT over the regular corporate income tax in a given year may be carried forward and credited against the RCIT in succeeding years, within the limit the law provides.
Are domestic and foreign corporations taxed the same? No. Domestic corporations are taxed on worldwide income, while resident foreign corporations are taxed only on Philippine-source income.
This commentary is for general informational purposes only and does not constitute legal advice. For guidance specific to your situation, please consult a licensed attorney.
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