QuestionsQuestions (BIR REGULATIONS NO. 9-98)
MCIT is imposed beginning the fourth (4th) taxable year immediately following the taxable year in which the domestic corporation commenced business operations.
MCIT is imposed whenever the domestic corporation has zero or negative taxable income or whenever the computed MCIT is greater than the normal corporate income tax due.
It refers to the income tax rates under Sec. 27(A) and Sec. 28(A)(1) of the Code at 34% on January 1, 1998; 33% effective January 1, 1999; and 32% effective January 1, 2000 and thereafter.
MCIT applies only to the operations covered by the regular income tax system; operations under the special income tax system are not covered by MCIT for that portion.
MCIT is 2% of “gross income” as of the end of the taxable year.
Gross income means gross sales less sales returns, discounts and allowances and cost of goods sold, where gross sales include only sales contributory to income taxable under Sec. 27(A) and cost of goods sold for trading/merchandising is invoice cost plus import duties, freight, and insurance while goods are in transit.
No. Passive income that has been subject to final tax at source shall not form part of gross income for MCIT purposes.
It includes all direct costs and expenses necessarily incurred to provide the services (e.g., salaries/employee benefits of personnel directly rendering the service, consultants, specialists, depreciation or rental of equipment used, and supplies), but excludes interest expense except for banks and other financial institutions.
Any excess of MCIT over the normal income tax shall be carried forward and credited against the normal income tax for the three (3) immediately succeeding taxable years.
No. The excess MCIT cannot be credited against the MCIT itself or against any other losses; it may only be credited against normal income tax within the three-year period.
MCIT is paid whenever it is greater than the regular/normal corporate income tax, with the comparison made at the end of the taxable year.
For MCIT purposes, the taxable year in which business operations commenced is the year the domestic corporation registered with the BIR.
The MCIT due for 1998 shall be computed using apportionment: gross income for the entire fiscal year multiplied by the ratio of months in 1998 to twelve (12), then multiplied by 2% MCIT rate.
MCIT shall be paid on a taxable year basis and covered by a specific tax return submitted together with the corporation’s annual final adjustment income tax return; domestic corporations are not required to pay MCIT quarterly.
It is recorded as an asset under “deferred charges-minimum corporate income tax,” carried forward, and may be credited against normal income tax for up to three (3) succeeding taxable years; uncredited amounts lose creditability and are closed to retained earnings.
Exemptions include domestic corporations operating as proprietary educational institutions subject to 10% on taxable income; domestic nonprofit hospital operations subject to 10% on taxable income; depository banks/FCDUs on income from foreign currency transactions with local commercial banks subject to 10% final income tax; and firms taxed under special income tax regimes such as PEZA (RA 7916) and BCDA/Bases Conversion Development Act (RA 7227).
MCIT of 2% is imposed beginning its fourth (4th) taxable year following commencement, but only when MCIT is greater than the normal income tax due; only gross income from sources within the Philippines is considered.
MCIT does not apply to resident foreign corporations subject to special tax treatments: (1) international carriers subject to 2.5% of Gross Philippine Billings; (2) offshore banking units (OBUs) on foreign currency transactions and related interest subject to 10% final income tax; (3) regional operating headquarters subject to 10% of taxable income; and (4) firms taxed under special regimes like PEZA (RA 7916) and BCDA (RA 7227).