Question & AnswerQ&A (BIR REGULATIONS NO. 9-98)
The Minimum Corporate Income Tax (MCIT) rate imposed on domestic corporations is two percent (2%) of the gross income at the end of the taxable year, beginning the fourth taxable year following commencement of business operations.
The MCIT applies to any domestic corporation beginning the fourth taxable year immediately after it commences business operations, whenever the corporation has zero or negative taxable income or when the MCIT amount is greater than the normal income tax due.
'Gross income' means gross sales less sales returns, discounts, allowances, and cost of goods sold, including only sales contributory to income taxable under Section 27(A) of the National Internal Revenue Code (NIRC). For services, it means gross receipts less sales returns, allowances, discounts, and cost of services.
Passive incomes that have been subject to a final tax at source are excluded and do not form part of gross income for MCIT purposes.
Yes, any excess MCIT over the normal income tax can be carried forward and credited against the normal income tax for the next three immediately succeeding taxable years.
The Secretary of Finance may suspend MCIT upon recommendation of the Commissioner if the corporation can prove it sustained substantial losses due to prolonged labor dispute, force majeure (like natural calamities or armed conflicts), or legitimate business reverses.
Exemptions include domestic corporations operating as proprietary educational institutions taxed at 10%, nonprofit hospitals at 10%, domestic corporations engaged as depository banks under the expanded foreign currency deposit system in certain transactions, firms taxed under special income regimes like PEZA law, and certain resident foreign corporations like international carriers and Offshore Banking Units.
Resident foreign corporations are subject to a 2% MCIT on gross income from sources within the Philippines, beginning the fourth taxable year after they start business operations, whenever the MCIT exceeds the normal income tax for that year.
The excess MCIT paid shall be recorded as an asset under 'deferred charges-minimum corporate income tax' and may be credited against normal income tax within the succeeding three taxable years. Any unutilized excess MCIT after three years must be removed from the asset account and charged to retained earnings as it is not deductible.
No, domestic corporations are not required to pay the MCIT quarterly. The MCIT is paid on a taxable year basis and filed with the corporation's annual final income tax return.