Let’s face it—nobody loves taxes, but if you’re doing business in the Philippines, understanding how the corporate tax rate Philippines applies to your company is not just important—it’s crucial. Whether you’re a foreign investor, a local entrepreneur, or part of a multinational team, this guide will help you navigate the ins and outs of corporate tax rates in the Philippines in 2025.
Understanding Corporate Tax
What is Corporate Tax?
Corporate tax is the money businesses pay to the government based on their profits. Think of it as your company’s way of chipping in to support public services, infrastructure, and the country’s economic development.
Purpose of Corporate Taxation
It’s more than just collecting money—it helps fund roads, education, health services, and more. Corporate taxes also ensure a level playing field so businesses contribute fairly to society.
Who Pays Corporate Tax in the Philippines?
Generally, all corporations registered under Philippine law, whether domestic or foreign, are subject to corporate income tax—unless they qualify for certain exemptions or incentives.
The Corporate Income Tax Rate in the Philippines
Current Corporate Tax Rates (2025 Update)
As of 2025, here’s a breakdown:
- Regular corporations: 25% on net taxable income
- SMEs (net taxable income not exceeding ₱5 million and total assets not exceeding ₱100 million): 20%
Corporate Tax Rate for Domestic Corporations
Domestic corporations are taxed on their worldwide income. The standard rate is 25%, but as mentioned, SMEs may enjoy a reduced rate of 20%.
Corporate Tax Rate for Foreign Corporations
Foreign corporations are taxed only on their income derived from Philippine sources. These entities generally pay 25%, although branch offices of foreign companies may be subject to a final withholding tax of 15% on profits remitted abroad.
Minimum Corporate Income Tax (MCIT)
MCIT is a 2% tax on gross income, applied if it is higher than the regular corporate income tax. It kicks in starting the fourth taxable year of operations.
Key Changes from the CREATE Law
Overview of the CREATE Act
The Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act was signed in 2021 to help businesses recover from COVID-19 and attract more investors. It’s the largest corporate tax reform in the Philippines.
Reductions in Tax Rates
- Reduced regular CIT from 30% to 25% for large corporations
- SMEs now benefit from a lower 20% rate
Incentives for SMEs and Startups
CREATE also offers:
- Longer loss carry-over (NOLCO) period
- Performance-based, targeted, and time-bound tax incentives
Breakdown of Tax Categories
Regular Corporations
Standard rates apply here—either 25% or 20% depending on size and income.
Proprietary Educational Institutions & Hospitals
These are taxed at a special 1% rate (until June 30, 2024, unless extended).
Non-Stock, Non-Profit Organizations
These are usually exempt but must comply with certain reporting requirements.
PEZA-Registered Enterprises
Businesses registered under PEZA enjoy:
- Income Tax Holidays (ITH)
- Special 5% tax on gross income instead of all national and local taxes
Tax Filing and Payment Guidelines
When and How to File Corporate Tax Returns
Corporations file quarterly and annually. Key dates:
- Quarterly filings: within 60 days after each quarter
- Annual filing: on or before April 15 of the following year
Electronic Filing and Payment System (eFPS)
Large taxpayers and corporations are required to use eFPS for faster, paperless filing.
BIR Forms You’ll Need
- 1702Q: Quarterly Income Tax Return
- 1702-RT: Annual Income Tax Return for regular corporations
Deductions and Allowances
Allowable Business Expenses
Common deductible expenses include:
- Salaries and wages
- Rent
- Utilities
- Depreciation
- Interest on loans
Net Operating Loss Carry-Over (NOLCO)
Losses can be carried over within 5 consecutive years, allowing businesses to offset future income.
Tax Credits vs. Tax Deductions
- Credits directly reduce tax payable
- Deductions lower taxable income
Penalties and Non-Compliance
Late Filing and Payment Penalties
- 25% surcharge on unpaid tax
- 12% interest per annum
- Compromise penalties vary based on the tax due
Common Mistakes to Avoid
- Missing deadlines
- Not registering with the BIR
- Incorrect computation of gross vs. net income
Tax Planning Tips for Corporations
Strategies to Legally Minimize Tax
- Maximize deductible expenses
- Use NOLCO smartly
- Register with investment zones like PEZA or BOI
Hiring a Corporate Tax Consultant
It’s a game-changer. Professionals can help you stay compliant and find tax savings you might overlook.
Comparing the Philippines to Other ASEAN Countries
Corporate Tax Rates Across Southeast Asia
| Country | Corporate Tax Rate |
|---|---|
| Philippines | 25% / 20% (SMEs) |
| Vietnam | 20% |
| Indonesia | 22% |
| Malaysia | 24% |
| Thailand | 20% |
Is the Philippines Competitive for Businesses?
With the reduced rates under CREATE and expanded incentives, yes—the Philippines is becoming more competitive and business-friendly than ever before.
The Future of Corporate Tax in the Philippines
Proposed Reforms
The government continues to review possible changes to:
- Simplify compliance
- Expand digital systems
- Incentivize green and tech-based enterprises
What Business Owners Should Expect
Keep an eye on BIR announcements, new executive orders, and updates to tax forms or systems.
Conclusion
Understanding the corporate tax rate in the Philippines isn’t just about crunching numbers—it’s about empowering your business to thrive in a competitive market. With the CREATE Act’s reforms, SMEs and large corporations alike now have more room to grow while contributing to the country’s progress. So whether you’re launching a startup or managing a multinational, staying informed and compliant is your ticket to success.
FAQs
1. What is the standard corporate income tax rate in the Philippines?
The standard rate is 25%, but SMEs may pay only 20% under certain conditions.
2. Do foreign companies pay the same tax rates?
Not exactly. Foreign corporations are taxed on income sourced within the Philippines, typically at 25%, with a 15% withholding on remittances.
3. What is the MCIT and when does it apply?
The Minimum Corporate Income Tax is 2% of gross income and applies starting the fourth year of operations if it exceeds the regular tax due.
4. How can small businesses benefit under CREATE?
They enjoy lower tax rates (20%), longer NOLCO, and access to performance-based incentives.
5. What are the penalties for failing to pay corporate tax?
Expect a 25% surcharge, 12% annual interest, and compromise penalties if you miss deadlines or underpay.