Taxation of Proprietary Educational Institutions and Hospitals
- Nonprofit proprietary educational institutions and hospitals pay a 10% tax on taxable income, except if more than 50% of gross income comes from unrelated trade or business, in which case, the regular corporate tax rate applies.
- Clarifies the definition of unrelated trade or business and proprietary educational institutions.
Taxation of Government-Owned or Controlled Corporations (GOCCs)
- GOCCs pay income tax at rates applicable to similar private corporations except for GSIS, SSS, PHIC, and PCSO.
Rates of Tax on Certain Passive Incomes
- Imposes final tax rates: 20% on interest from currency bank deposits and royalties, with 7.5% final tax on interest from deposit substitutes.
- Capital gains on sale of non-stock exchange shares taxed progressively (5% up to ₱100,000; 10% above).
- Income from expanded foreign currency deposit system exempt from taxes except final tax on interest from loans to residents at 10%.
- Dividends between domestic corporations are exempt from tax.
- Capital gains on sale of land/buildings not used in business taxed at 6% final tax based on gross selling price or market value.
Minimum Corporate Income Tax (MCIT)
- Imposes MCIT at 2% of gross income beginning on the fourth taxable year of business operation if MCIT exceeds regular income tax.
- Excess MCIT over regular tax can be carried over for three years.
- Secretary of Finance authorized to suspend MCIT under specified hardships.
- Provides detailed definition of gross income for MCIT calculation purposes.
Income Tax on Resident Foreign Corporations
- Taxed at the same rates as domestic corporations, including options for taxation on gross income.
- Specific taxation rules for international carriers, offshore banking units.
- Provides for a 15% tax on branch profits remitted to foreign head offices.
- Dividends received from domestic corporations by resident foreign corporations are exempt.
Income Tax on Nonresident Foreign Corporations
- Taxed on gross income at 35% (30% effective 2009) from Philippine sources including various income types like interests, rents, royalties, capital gains.
- Special rates for cinematographic film owners (25%), owners or lessors of vessels (4.5%), aircraft, and equipment (7.5%).
- Imposes withholding taxes on interests and dividends with credit provisions.
Deductions from Gross Income
- Allows deduction of ordinary and necessary business expenses including compensation, travel, rentals, entertainment within prescribed limits.
- Requires substantiation for deductions.
- Explicitly disallows deductions for bribes, kickbacks, and similar payments.
- Private educational institutions may elect to deduct capital outlays on school facilities.
- Interest expense deductions reduced by a percentage of interest income subject to final tax.
Value-Added Tax (VAT) on Sale of Goods
- VAT of 10% on sales, barter or exchange of goods; provision to increase to 12% after meeting economic conditions.
- Definition of goods includes tangible and intangible properties, rights, and privileges.
- Specifies sales subject to zero percent rate such as export sales, foreign currency denominated sales, and sales to exempt persons/entities.
VAT on Importation of Goods
- VAT imposed at 10% on importation, based on value used for customs duties plus tariffs and excise taxes.
- President may raise VAT to 12% subject to specified economic criteria.
- Purchasers of tax-exempt imports who subsequently transfer goods to non-exempt persons shall be liable for tax.
VAT on Sale of Services and Use or Lease of Properties
- Imposes 10% VAT on gross receipts from services and lease/use of properties with possible increase to 12%.
- Defines "sale or exchange of services" extensively, covering a wide variety of service providers and leased rights.
- Lists services subject to 0% VAT rate including certain export services and services rendered to international shipping.
Exempt Transactions from VAT
- Lists transactions exempt from VAT including sale or importation of certain agricultural and marine food products, fertilizers, personal effects of returning residents, medical and educational services, certain cooperative sales, and small-scale sales below ₱1,500,000.
- VAT-registered persons may irrevocably elect to apply VAT to exempt sales.
Tax Credits for VAT
- Allows crediting of input tax against output tax on qualified purchases and importations.
- Details phased crediting of input VAT for high-cost capital goods.
- Provides for ratable crediting for mixed VAT and non-VAT transactions.
- Limits the portion of input VAT creditable against output VAT each quarter.
Transitional and Presumptive Input Tax Credits
- Grants transitional input tax credit on beginning inventory to new VAT registrants.
- Permits presumptive input tax credits for specific industries on purchases of primary agricultural products.
Refunds or Tax Credits of Input Tax
- Procedures for applying for input tax credits or refunds for zero-rated sales and upon VAT registration cancellation.
- Sets timelines for approval or denial of claims and the right to appeal.
- Allows refund without Commission on Audit countersignature subject to post audit.
Invoicing and Accounting Requirements for VAT-Registered Persons
- Requires issuance of VAT invoices or official receipts with specific detailed information.
- Maintains subsidiary sales and purchase journals.
- Penalties for erroneous issuance of VAT invoices or failure to indicate tax-exempt or zero-rated sales.
Return and Payment of VAT
- Requires monthly payment and quarterly filing of VAT returns by VAT-registered persons.
- Designates authorized locations for payment and filing.
- Government entities to withhold 5% VAT on payments with 10% withholding on leases to nonresident owners.
Tax on Persons Exempt from VAT
- Imposes 3% gross quarterly sales or receipts tax on non-VAT registered persons exempt from VAT, excluding cooperatives.
Percentage Tax on Domestic Carriers and Keepers of Garages
- Imposes 3% quarterly tax on gross receipts from domestic land transportation and garage operators.
- Specifies minimum gross receipts per type of transportation vehicle.
Tax on Franchises
- Imposes taxes on radio/TV broadcasting and gas/water utilities based on gross receipts at specified rates.
- Broadcasting companies have the option to register as VAT taxpayers irrevocably.
Tax on Banks and Financial Intermediaries
- Taxes gross receipts based on type and maturity of financial receipts, including a 5% rate on most lending activities.
- Exempts dividends and equity shares from tax.
- Applies generally accepted accounting principles for computation.
Excise Taxes on Manufactured Oils and Fuels
- Imposes specific excise taxes on lubricating oils, processed gas, waxes, alcohol, gasoline, turbo jet fuel, and other minerals.
- Provides exemptions and credits relating to excise taxes paid on feedstock and certain uses of fuels.
Excise Taxes on Mineral Products
- Levies excise tax on coal, coke, metallic and non-metallic minerals, quarry resources, and indigenous petroleum.
- Defines gross output and taxable bases.
- Provides tax rates varying depending on mineral type and duration of operation.
Registration Requirements
- Mandates registration for all persons subject to internal revenue tax within specified periods.
- Requires annual registration fee except for certain exempt persons.
- Allows updating, cancellation, and transfer of registration.
- Establishes criteria for mandatory VAT registration.
- Provides for optional VAT registration with conditions on cancellation.
- Requires issuing Taxpayer Identification Numbers (TIN) for identification in tax documents.
Issuance of Receipts or Commercial Invoices
- Requires tax subjects to issue receipts or invoices for sales or services above ₱25, detailing transaction information.
- Allows for exemptions in meritorious cases.
Disposition of Incremental Revenues from Various Taxes
- Allocates incremental revenues from documentary stamp taxes, excise taxes on tobacco and alcohol, and value-added taxes for housing, health insurance, education, infrastructure, agriculture, and public information programs.
- Prescribes specific percentages and purposes for fund utilization.
Franchises of Domestic Airlines
- Abolishes franchise taxes of domestic airlines and subjects them to corporate income and value-added taxes.
- Maintains exemptions from other taxes and fees provided by franchise agreements.
Implementing Rules and Regulations
- Requires the Secretary of Finance to promulgate necessary implementing rules by June 30, 2005.
- Revokes former VAT rules upon issuance of new regulations.
Repealing Clause
- Repeals laws or provisions inconsistent with the Act, including exemptions to VAT for specified entities.
Separability Clause
- Provides that invalidity of any provision does not affect the remaining provisions.
Effectivity Clause
- The Act takes effect on July 1, 2005.