Philippine Corporate Tax Rates in One Table: CIT, MCIT, VAT, Withholding and Incentives

The Full Picture: Nine Taxes a Philippine Company Meets in a Year

A normally operating Philippine company deals with roughly nine taxes a year: corporate income tax, minimum corporate income tax, VAT or percentage tax, three families of withholding tax, dividend or branch remittance tax, local business tax, real property tax and documentary stamp tax. Laying them out together is the only way to see which line you have left out of the budget.

Three things to take from that table. First, 25% is not your tax burden — it is one line. Add local business tax, withholding obligations and remittance tax and the real cash outflow is well above it. Second, much of this is tax you collect for someone else: withholding tax, payroll withholding and output VAT are not your cost, but missing them is your penalty. Third, rates move fast. CREATE (RA 11534, signed 26 March 2021), EOPT (RA 11976, signed 5 January 2024) and CREATE MORE (RA 12066, signed 11 November 2024) rewrote rates, timing bases and invoicing rules inside four years. Anything you find online dated before 2020 is probably unusable.

Corporate Income Tax: 25% and 20%, With Two Conditions That Both Must Hold

The standard rate for a Philippine-registered company is 25%. The 20% bracket applies only to domestic corporations that simultaneously have taxable income of no more than PHP 5 million and total assets of no more than PHP 100 million, excluding the land on which the office or plant sits. Both conditions must hold; meeting one is not enough.

Here is the point most Taiwanese and Hong Kong owners get wrong: a company you register with the Philippine SEC is a "domestic corporation" for tax purposes even if it is 100% owned by foreign shareholders. A "foreign corporation" in the NIRC means one organised outside the Philippines. So a wholly foreign-owned Philippine subsidiary can qualify for 20%, while a branch of your Taiwanese or Hong Kong company — a resident foreign corporation — cannot. That single distinction often outweighs the difference in setup cost, so decide the entity form on the tax outcome rather than on registration convenience.

Three details that are easy to miss. The 25% rate took effect 1 July 2020 under CREATE's retroactive application; non-resident foreign corporations moved from 30% to 25% effective 1 January 2021. The "excluding land" wording in the asset test is statutory, and your auditor has to disclose it separately. And taxable income is computed under Philippine rules, not your group's consolidated figures — disallowed expenses and related-party adjustments push it up, which is why purchases, service fees and royalties billed by the parent need transfer pricing documentation even in a small subsidiary.

MCIT: You Can Owe Income Tax in a Loss-Making Year

From the fourth taxable year following the start of operations, a Philippine company compares 25% of taxable income against 2% of gross income and pays whichever is higher. That is the minimum corporate income tax under NIRC Sec. 27(E), and it means a loss-making company can still owe tax.

• When it starts. The fourth taxable year following commencement of business. A factory ramping up has three clear years, then this test applies every year.
• The rate history. CREATE cut MCIT from 2% to 1% for 1 July 2020 through 30 June 2023. It returned to 2% on 1 July 2023. Plenty of templates still say 1%.
• How gross income is computed. Net sales less cost of goods sold for trading and manufacturing; revenue less direct cost of services for service companies. Administrative and selling expenses are not deducted — which is exactly why a loss-making company can show positive gross income.

Those figures exist to show the mechanism, not to describe any real company. MCIT paid in excess of RCIT is not lost: the excess is creditable against normal income tax in the three immediately succeeding taxable years. Build an MCIT line into the cash-flow model from year four, and carry the credit forward. Registered enterprises are generally not subject to MCIT during an income tax holiday; the length and start date of that holiday follow the certificate of registration issued by your investment promotion agency.

12% VAT or 3% Percentage Tax: The PHP 3 Million Line Decides

If gross sales or receipts over the past 12 months exceed PHP 3 million — or you reasonably expect them to — VAT registration at 12% is mandatory; below that you may stay non-VAT and pay 3% percentage tax under NIRC Sec. 116. The threshold comes from the TRAIN law (RA 10963).

Crossing the line later is not automatically cheaper. VAT is creditable; percentage tax is not. A manufacturer or trader that stays non-VAT absorbs the 12% input tax on every purchase as pure cost, and corporate or government customers who need a VAT invoice for their own credit may simply not buy from you. How the threshold is counted, which receipts go into it and when you must update your BIR registration is covered in the VAT registration threshold guide; the two statuses file on 2550Q and 2551Q respectively and their invoicing requirements are not interchangeable.

Three recent changes worth updating your assumptions on:

• Monthly VAT filing is gone. VAT taxpayers file quarterly on BIR Form 2550Q, generally within 25 days after quarter-end.
• EOPT (RA 11976) moved services to an accrual base. VAT on services is now computed on gross sales (billed) rather than gross receipts (collected) — so a service subsidiary billing its parent on 60- or 90-day terms remits VAT before the cash arrives.
• The invoice replaced the official receipt as the primary document, so invoice templates and BIR registration details need to be re-checked against current rules.

Exporters have a third road: qualifying export sales are VAT zero-rated, keeping input tax recoverable — a different thing from VAT-exempt. Zero-rating preserves the input credit while exemption pushes it into cost, and the qualifying tests and supporting documents must be checked line by line against current BIR rules.

Withholding Tax: Every Payment You Make Is a Potential Collection Point

The Philippines pushes a large share of collection onto the payer. Rent, service fees, goods and payroll all carry a withholding obligation plus a monthly or quarterly return filed on the payee's behalf. The legal basis is NIRC Sec. 57, 58 and 79, with the rate schedule in RR 11-2018 and later amendments.

The 1% and 2% on regular suppliers come with a precondition: not every company is a withholding agent. Only taxpayers designated by the BIR as Top Withholding Agents carry that duty, and the list is published and updated periodically. Whether you are on it changes your entire procure-to-pay workflow.

The expensive rule is not in the rate table but in NIRC Sec. 34(K): an expense on which required withholding was not made and remitted is not deductible for income tax. Missing 5% on rent does not cost you 5% — it costs you the deductibility of a full year of rent, taxed back at 25%, plus surcharge and interest.

The classic version: the landlord insists on receiving the full rent, accounting pays it gross and skips the withholding, and the books look clean. Then an examiner reconciles the lease against your 1601-EQ, the whole year of rent is disallowed, and the 25% assessment plus penalties dwarfs the 5% you never withheld. Have Yixing map your payment accounts against the withholding table →

Full rate schedule, return mechanics and the year-end alphalist reconciliation are in the expanded withholding tax guide.

Getting Profit Back to Taipei or Hong Kong: 25%/15% on Dividends, 15% on Branch Remittance

After 25% corporate income tax, there is a second layer when profit leaves the country: dividends to a non-resident foreign corporation carry a 25% final tax under domestic law, reduced to 15% where the tax-sparing condition is met; a branch instead pays a 15% branch profit remittance tax. Both sit in NIRC Sec. 28.

For Taiwanese investors: the 2002 Taiwan–Philippines double taxation agreement was signed but never entered into force, so domestic rates apply with no treaty relief. Getting from 25% to 15% depends on the tax-sparing route, which is not automatic and turns on how the Taiwanese side treats the dividend. Entity choice, the MECO authentication chain and the Taiwan-side outbound investment filing each follow their own rules and should be settled before incorporation.

For Hong Kong investors: Hong Kong's treaty network is separate from mainland China's, so do not assume the China–Philippines treaty applies to a Hong Kong holding company. Whether any arrangement can be invoked should be confirmed against the current treaty lists published by both authorities. Run the numbers on a Hong Kong holding structure under both jurisdictions' current rules rather than importing mainland assumptions.

One practical point that blocks more remittances than the rate does: whether the inbound capital was registered with the central bank (BSP). Registered inward investment has an institutional channel for repatriating dividends and capital; unregistered money faces a much heavier evidentiary burden later. Do it on day one — see profit repatriation and dividend remittance.

What PEZA and BOI Incentives Actually Leave You Paying

Under CREATE, a registered business enterprise moves through stages: an income tax holiday of 4 to 7 years, then either a 5% special corporate income tax on gross income earned or the enhanced deduction regime. There is no such thing as permanent exemption on registration.

CREATE MORE (RA 12066, signed 11 November 2024) made several changes that matter to manufacturers: registered enterprises electing enhanced deductions are taxed at 20%; the additional deduction for power expenses was increased, which is material for energy-intensive plants; local taxation was consolidated into an RBE local tax computed on gross income and capped at 2%, replacing the patchwork of LGU levies; incentive periods were extended for high-value projects; and work-from-home limits for registered enterprises were relaxed. The investment threshold above which FIRB approval is required was also raised substantially, with smaller projects approved by the investment promotion agency itself — confirm the current threshold and effectivity with FIRB or your IPA.

One recurring misreading: 5% SCIT is 5% of gross income earned, not 5% of profit. For a low-margin, high-opex business the enhanced deduction regime can beat it. Run both against your own P&L — see PEZA versus BOI incentives and the CREATE incentive map.

The Local Layer: Business Tax, Property Tax, Stamp Tax and Employer Contributions

Beyond national taxes you owe local business tax to the city or municipality, real property tax where the property sits, documentary stamp tax on a long list of instruments, and the employer share of social contributions. For many mid-sized companies this layer is not smaller than income tax.

• Local business tax and mayor's permit. RA 7160 Sec. 143 sets graduated rates on the prior year's gross receipts, with separate schedules for manufacturers, wholesalers, retailers and contractors; Sec. 151 lets cities impose up to 50% more than provincial or municipal rates. The same revenue therefore costs more in a city than in a municipality. January is renewal season, and a late renewal draws surcharges and interest under the local revenue code while holding up other permits.
• Real property tax. RA 7160 Sec. 233 caps it at 1% for provinces and 2% for cities within Metro Manila, with an additional 1% special education fund under Sec. 235. Landlords usually pay it, but leases frequently pass it through — read that clause before signing.
• Documentary stamp tax. NIRC Title VII, charged by instrument type: leases, loans, share issuances and insurance policies each have their own computation. DST on share issuance at incorporation and on capital increases is routinely left out of budgets.
• Employer social contributions. The employer shares of SSS, PhilHealth and Pag-IBIG plus the employer-funded employees' compensation contribution. Not taxes, but equally statutory, monthly and non-negotiable — the structure is in Philippine labour cost structure.

Add this layer to the national taxes and you have the real annual compliance cost. The number of deadlines across a year runs into the dozens, so keep a written annual calendar with a named owner rather than relying on memory.

Five Miscalculations, and the Disclaimer

People rarely look up the wrong rate; they routinely model the wrong structure. These five come up again and again:

1. Treating 25% as the whole burden. Local business tax, remittance tax, unrecovered input VAT and employer contributions all sit outside it.
2. Assuming a foreign-owned company cannot use the 20% bracket. A Philippine-registered company is a domestic corporation; if it meets both tests, it qualifies.
3. Ignoring MCIT. Year four arrives, the plant is still ramping up, and 2% of gross income lands on a model that never had that line.
4. Skipping withholding to keep suppliers happy. Convenient now, disallowed deductions later.
5. Reading PEZA's 5% as "nothing else to pay". SCIT is on gross income, it comes after the holiday, and payroll withholding, EWT and contributions continue regardless.

A sequencing reminder too: SEC incorporation is not tax registration. After the certificate you still register with the BIR, register books of accounts and obtain invoicing authority — break that chain and every later return has a problem — finishing only the SEC half means you cannot legally issue a single invoice.

This article is general information and not tax or legal advice. Every rate, threshold and section reference here reflects the general position at the time of writing; Philippine tax law has changed repeatedly in recent years, so rely on current BIR, FIRB and IPA issuances, and on your LGU's current revenue code for the local layer. For individual matters consult a licensed lawyer or accountant — this article does not replace professional advice. To map this table onto your own P&L, start with a tax structure review from the Yixing compliance team.