Philippines Corporate Tax Guide 2026

Overview — Corporate Tax in the Philippines

The Philippine corporate income tax system is governed by the National Internal Revenue Code (NIRC) as amended by the TRAIN Law (2018) and the CREATE Act (Republic Act No. 11534, effective 2021). The Bureau of Internal Revenue (BIR) administers corporate taxes. Resident domestic corporations are taxed on worldwide income, while resident foreign corporations (branches of foreign companies) are taxed only on Philippine-source income. The corporate tax year follows the calendar year unless the corporation adopts a different fiscal year with BIR approval. Corporate tax returns (BIR Form 1702/1702-MX/1702-RT) are filed within 60 days after the close of the taxable year.

Standard Corporate Rate — 25%

The regular corporate income tax rate was reduced from 30% to 25% effective 1 July 2020 under the CREATE Act. The 25% rate applies to:

• Domestic corporations not qualifying for the SME rate
• Resident foreign corporations (branches of foreign companies)
• Non-resident foreign corporations doing business in the Philippines

The 25% rate applies to taxable income derived from all sources (for domestic corporations) or Philippine sources only (for foreign corporations). Taxable income is computed as gross income less allowable deductions (itemised or optional standard deduction).

Preferential Rate for SMEs — 20%

Domestic corporations that meet both of the following criteria are entitled to a reduced 20% corporate income tax rate:

• Total assets (excluding land) not exceeding PHP 100,000,000 at the end of the taxable year
• Taxable income (net income) not exceeding PHP 200,000,000 for the taxable year

The 20% SME rate was introduced under the CREATE Act effective 1 July 2020. If a corporation's taxable income exceeds PHP 200 million in any year, the regular 25% rate applies for that year. The asset test is applied at the end of the taxable year; if assets exceed PHP 100 million at that point, the 25% rate applies. SMEs must still file regular corporate tax returns and cannot elect the SME rate in combination with the MCIT exemption.

Minimum Corporate Income Tax (MCIT) — 1%

The minimum corporate income tax (MCIT) is imposed at 1% of gross income when the regular corporate income tax is less than 1% of gross income. Key rules:

• MCIT applies beginning the fourth taxable year following the year of incorporation or start of business
• MCIT is computed as 1% of gross income (as defined by the NIRC)
• If the regular CIT exceeds MCIT, the regular CIT is paid
• Excess MCIT over regular CIT can be carried forward for up to 3 years
• MCIT is suspended for corporations that are newly established or during periods of economic downturn (as declared by the President)
• Non-resident foreign corporations are not subject to MCIT

The MCIT rate was reduced from 2% to 1% by the CREATE Act effective 1 July 2020.

Optional Gross Income Tax — 15%

Under the CREATE Act, certain corporations may elect an optional 15% tax on gross income in lieu of the regular 25% CIT and MCIT. The 15% gross income tax (GIT) is available to:

• Domestic corporations engaged in specific activities as defined by the BIR
• Subject to certain conditions on the ratio of cost of sales to gross sales
• The election is irrevocable for the taxable year once made

This option is designed to simplify compliance for corporations where deductions are limited or where gross income can be clearly determined. The 15% GIT applies to gross income (sales less cost of sales/services), not to gross receipts.

Fiscal Incentives Under the CREATE Act

The CREATE Act (Corporate Recovery and Tax Incentives for Enterprises) rationalised the fiscal incentives system. Registered enterprises under the Investment Priorities Plan (IPP) may qualify for:

• Income Tax Holiday (ITH): 2-7 years of exemption from corporate income tax
• Special Corporate Income Tax (SCIT): 5% tax on gross income after the ITH period, in lieu of all national and local taxes
• Enhanced Deductions: Additional deductions for certain expenses (e.g., training, R&D, capital equipment) after the ITH period
• Duty exemptions: Exemption from import duties on capital equipment, raw materials, and spare parts
• VAT zero-rating: Zero-rating on local purchases of goods and services by registered export enterprises

Incentives are granted by the Fiscal Incentives Review Board (FIRB) for projects registered with the Board of Investments (BOI) or other investment promotion agencies (PEZA, CEZA, etc.).

Dividend Withholding Tax

Dividends paid by domestic corporations are subject to the following withholding tax rates:

• To domestic corporate shareholders: 0% (intercorporate dividends are exempt)
• To resident individual shareholders: 10% final withholding tax
• To non-resident individual shareholders: 15% (subject to treaty relief)
• To non-resident foreign corporate shareholders: 15% (or lower treaty rate)

FAQs

How do I determine if my corporation qualifies for the 20% SME rate?

Check two conditions at year-end: (1) total assets excluding land ≤ PHP 100M, and (2) taxable income ≤ PHP 200M. Both must be satisfied. If either threshold is exceeded, the 25% rate applies for that year.

What is gross income for MCIT purposes?

For MCIT, gross income means gross sales less cost of goods sold (for trading/manufacturing) or gross receipts less direct costs (for services). The BIR provides specific definitions in Revenue Regulations.

Can a corporation that pays MCIT claim refund of excess MCIT?

Excess MCIT can be carried forward for up to 3 years and credited against the regular CIT in those years. If there is still excess after 3 years, it may be claimed as a refund or tax credit.

Are branch profits remitted by a resident foreign corporation taxed?

Yes. Branch profit remittances to the head office are subject to a 15% branch profit remittance tax (BPRT) on the amount remitted, in lieu of dividend tax.

Disclaimer

This guide provides general information about Philippine corporate tax for the 2026 tax year. Tax laws and rates may change. Always consult with a qualified Philippine tax professional or the BIR directly for advice specific to your business. InvestmentKit does not provide tax advice.