UNIVERSITY OF SAN AGUSTIN

Taxation Review for Qualifying Examination Part 1 of 2

Income Taxation (INDIVIDUAL AND CORPORATE TAXPAYERS) – Basic Income Tax, Final
Withholding Tax, Capital Gains Tax

1. A resident citizen of the Philippines is taxable on income earned:

a. Only within the Philippines
b. Only from employment compensation
c. From sources within and outside the Philippines
d. Only from business and professional services

2. What is the income tax rate on Basic Pay applicable to minimum wage earners (MWEs) in the
Philippines?
a. 5%
b. 10%
c. 20%
d. 0%

3. A self-employed individual earning below ₱3,000,000 annually has the option to be taxed under:
a. 8% income tax on gross sales or receipts
b. 10% income tax on taxable income
c. 25% flat tax rate
d. 12% value-added tax

4. A resident citizen earned the following income during the year:

• Salary from a local company: ₱800,000
• Business income (net of expenses): ₱500,000
• Interest income from bank deposits: ₱50,000 (subject to final tax)

What is the taxpayer’s total taxable income on which the graduated tax table may be
used? a. ₱1,300,000
b. ₱1,350,000
c. ₱1,250,000
d. ₱1,000,000

5. A self-employed individual earning ₱2,500,000 (net of expenses of P500,000) annually is

deciding between two tax options:
• Option 1: Graduated income tax + 3% percentage
tax •

Option 2: 8% flat income tax on gross sales How

much is the tax under Option 2?

a. ₱200,000
b. ₱240,000
c. ₱220,000
d. ₱300,000

*3MILLION LESS 250K TIMES 8 PERCENT

6. In 2022, Mr. Kris Manuel owns a nightclub and videoke bar, with gross sales/receipts of
P2,500,000.00. His cost of sales and operating expenses are P1.000,000.00 and P600,000.00,
respectively. The taxpayer did not opt to be subject to VAT. Can the taxpayer avail of the 8%
income tax rate?
a. Yes. Because his gross receipts do not exceed the VAT threshold.
b. No. Because he is subject to percentage tax under Sec. 125. RECALL SEC 125
 c. Yes. Because night club and videoke bar owners are always allowed to avail of the 8% income
tax rate.
d. No. Because he did not express his intention to be taxed at 8%.

7. Joe is an agricultural producer. An agricultural producer is an individual who is a

supplier/producer/seller, contract grower, or miller of agricultural food products. Under RR 12-
2023, if the annual gross sales/receipts of an agricultural producer do not exceed ₱1,000,000,
such individual shall be exempt from issuing principal receipts/invoices. Joe’s total annual sales
do not exceed ₱400,000 in a taxable year.
a. Joe is not required to file an ITR since his taxable net income when he avails of the 40% OSD is
less than ₱250,000.
b. Joe is not required to file an ITR since he does not issue principal receipts on his sales
transactions.
c. Joe is required to file only the annual ITR.
d. Joe is required to file the quarterly ITRs and the annual ITR.

8. Michael Jordan, a professional basketball player from USA came to the Philippines to participate
in the World Cup from August 25 to September 10, 2023. Jordan’s income from the Philippines
may be?
a. Taxable in the Philippines
b. Taxable in USA
c. Taxable both in the Philippines and USA
d. Exempt from any tax since he is an athlete sanctioned by USA Government.

9. Using the preceding number, may Jordan claim tax exemption under double taxation agreement?
a. No, tax treaty relief application is granted to non-resident who stay more than 183 days.
b. No, tax treaty relief are given to teachers, researchers, artist, students, trainees and directors
only.
c. Yes, provided Jordan applies for tax relief with the BIR.
d. Yes, provided Jordan is sanctioned by Slovenia Sports Commission.

10. Which of the following individuals is NOT subject to income tax in the Philippines?
a. Resident citizens earning income from sources within and outside the Philippines
b. Non-resident citizens earning income from sources outside the Philippines
c. Non-resident aliens earning income from sources within the Philippines
d. Domestic corporations earning income from sources within and outside the Philippines

11. Which of the following income types is NOT subject to income tax?
a. Salaries and wages
b. Prizes exceeding ₱10,000
c. Gains from the sale of capital assets
d. Proceeds from life insurance received by the beneficiary

12. Which of the following interest expenses shall be deductible?

a. Interest expense on bank notes
b. Interest expense on loans extended by stockholders;
c. Interest expense incurred on a loan to buy the company president a car;
d. Interest expense incurred on a loan to build a school building.

13. With respect to optional Standard Deductions (OSD) allowed to individual taxpayers, which of the
following statements is incorrect?

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 a. In lieu of the deductions allowed (itemized), an individual subject to tax under Section 24, other
than a nonresident alien, may elect a standard deduction in an amount not exceeding forty
percent (40%) of his gross sales or gross receipts, as the case may be.

b. Unless the taxpayer signifies in his return his intention to elect the optional standard deduction,
he shall be considered as having availed himself of the itemized deductions allowed.
c. An individual who is entitled to and claimed for the optional standard deduction shall still be
required to submit with his tax return such financial statements required under the Tax Code.
d. The said individual shall keep such records pertaining to his gross sales or gross receipts.

14. Who among the following individual taxpayers is not required to file and income tax return?
a. A partner who received his share in the profits of a taxable partnership.
b. A proprietor of a business who suffered a net loss during the taxable year.
c. A teacher who is employed in two (2) different schools.
d. An author who receives royalty form his books published in Japan.
No longer required to pay

15. The surcharge of 50% on the amount due shall be imposed where there is:
a. failure to file any return and pay the tax due thereon.
b. filing of return with an internal revenue officer other than those with whom the return is required
to be filed.
c. failure to pay the deficiency tax on time as indicated in the notice of assessment.
d. failure to file a return on time due to willful neglect.

16. Individual citizen’s taxable income is P250,000 in 2022. How much is the tax due?
a. 125,000
b. 62,500
c. 30,000
d. 0

17. Individual citizen’s taxable income is P400,000 in 2024. How much is the tax due?
a. 125,000
b. 62,500
c. 22,500
d. 0

18. Individual citizen’s taxable income is P400,000 in 2022. How much is the tax due?
a. 125,000
b. 22,500
c. 30,000
d. 0

19. Individual citizen’s taxable income is P250,000 in 2024. How much is the tax due?
a. 125,000
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 b. 30,000
c. 22,500
d. 0

20. Individual citizen’s taxable income is P900,000 in 2022. How much is the tax due?
a. 130,000
b. 30,000
c. 160,000
d. 127,500

21. Individual citizen’s taxable income is P900,000 in 2024. How much is the tax due?
a. 102,500
b. 22,500
c. 160,000
d. 127,500

Excess = ₱900,000 – ₱800,000 = ₱100,000

Tax = ₱130,000 + (30% × ₱100,000) = ₱130,000 + ₱30,000 = ₱160,000 → (c)

22. In the year 2024, an individual has taxable income from employment of P500,000 and taxable
income from business of P400,000. How much is the tax due? a. 102,500
b. 22,500
c. 160,000
d. 127,500

23. In 2024, A, a minimum wage earner received from her employer a total amount of Php
195,000 inclusive of the 13 month pay of Php 15,000. She also received overtime pay
of Php 48,000 and night shift differential of Php 22,000. She also received commission
income from her employer amounting to Php 25,000, thus the total income received
from her employer amounted to Php 290,000. The taxable income of A is a. Php 0
b. Php 25,000
c. Php 290,000
d. Php 275,000

24. An individual has P1,500,000 compensation income inclusive of P90,000 13th month pay and
other benefits. How much is the tax due?

25. An individual has P1,500,000 compensation income inclusive of P120,000 13th month pay and
other benefits. How much is the tax due?

26. An individual has gross sales of P2,400,000. He opted to use 8% rate on gross sales. How
much is the tax due?

27. An individual owns a convenience store, with gross sales of Php 2,400,000. Her cost of sales and
operating expenses are Php 1,100,000 and Php 500,000, respectively and with nonoperating
income of Php 100,000. How much is the tax due based on the graduated tax table?

28. An individual has P1,410,000 compensation income. He also has a business which has gross
sales of P2,400,000. How much is the tax due?

29. Ms. A, the cost accountant of ABC Corporation, earned annual compensation income of
₱1,500,000, inclusive of 13th month pay and other benefits amounting to ₱120,000, but net
of mandatory contributions to SSS, PhilHealth, and Pag-IBIG of ₱25,000.

Aside from her employment income, she also owns a convenience store with the following
details:

• Gross Sales: ₱2,400,000

• Cost of Sales: ₱1,100,000
• Operating Expenses: ₱500,000

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 • Non-operating Income: ₱100,000

Ms. A opted to be taxed at 8% income tax rate on gross sales for her income from business.

Question:
Based on the above information, how much is Ms. A’s total income tax due for the taxable year?

a. Php 292,800 b. Php 513,000 c. Php 455,000 d. Php 312,800

30. Ms. A, the cost accountant of ABC Corporation, earned annual compensation income of Php
1,500,000, inclusive of 13th" month pay and other benefits in the amount of Php 120,000, but net
of mandatory contributions to SSS, PhilHealth and Pag-ibig of Php 25,000. Aside from
employment income, she owns a convenience store, with gross sales of Php 2,400,000. Her cost
of sales and operating expenses are Php 1,100,000 and Php 500,000, respectively and with non-
operating income of Php 100,000. If Ms. A opted to be taxed under the tax table, her tax due is

a. Php 292,800 b. Php 493,000 c. Php 455,000 d. Php 312,800

31. A is a compensation income earner with an income of P260,000. How much is his taxable
income subject to the rates of the New Schedular Tax Table? P260,000

32. In 2024, A, a minimum wage earner received from her employer a total amount of Php
195,000 inclusive of the 13 month pay of Php 15,000. She also received overtime pay of
Php 48,000 and night shift differential of Php 22,000. She also received commission
income from her employer amounting to Php 25,000, thus the total income received from
her employer amounted to Php 290,000. The taxable income of A is
a. Php 0 b. Php 25,000 c. Php 290,000 d. Php 275,000

33. Mr. Jose Alago signified his intention to be taxed at 8% income tax. In the given year he earned
the following:

Period Monthly Rental Number of Months Total Rental

First 9 months ₱250,000 9 ₱2,250,000
Last 3 months ₱1,000,000 3 ₱3,000,000
Total for the year 12 ₱5,250,000

How much is the tax due on the 3rd quarter

return? a. P160,000
b. P180,000
c. P22,500
d. P25,000

34. How much is the gross receipts/percentage tax due on the 4th quarter?
a. 0
b. P67,500
c. P420,000
d. P525,000

35. How much is the tax due on his final return in case Mr. Fabella opted for OSD?
a. P398,000
b. P548,000
c. P747,500
d. P437,500

36. Gross income in the Philippines of a corporation is P975,000. The expenses in the Philippines is
P750,000. Gross income in Indonesia is P770,000. The expenses Indonesia is P630,000. If the
corporation is a domestic corporation with tax rate of 25%, how much is the income tax due?

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 UNIVERSITY OF SAN AGUSTIN
Taxation Review for Qualifying Examination Tax Part 1 – Material 3

Preferential Taxes and Documentary Stamp Tax

a. 225,000
b. 56,250
c. 365,000
d. 91,250

37. Gross income in the Philippines of a corporation is P975,000. The expenses in

the Philippines is P750,000. Gross income in Indonesia is P770,000. The
expenses Indonesia is P630,000. If the corporation is a resident foreign
corporation whose tax rate is 25%, how much is the income tax due? a. 225,000
b. 56,250
c. 243,750
d. 91,250

USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT

QUESTIONS. Lala Baya, resident citizen, is a real estate
lessor in the Philippines She has the following financial
information in the current taxable year 2024:
(a) Interest income on receivable from her mother ₱ 25,000
(b) Interest expense on loan owed to cousin (operating expense if did not 15,000
opt for OSD)
(c) Royalty income from book, net of FT of 10% 75,000
(d) Rental receipts from real property, gross of 5% CWT amounting to 600,000
P30,000
(e) Cost of revenues related real property leasing (operating expense if 100,000
did not opt for OSD)
(f) Capital loss from investment made in January 2024 in X Corporation 13,000
for 200,000
(g) Dividend received from Microsoft Corporation with headquarters in 75,000
Seattle, Washington, USA (It is from a foreign company. Hence,
taxable using the tax table and not under final tax.)
(h) Dividend from Jollibee Corporation, net of FT of 10% 5,000
(i) Cost of boxing lessons taught by Senator Pacquiao 50,000
(j) Taxes paid in her first 3 quarterly ITRs for 2024 16,700

38. Compute the final taxes withheld from her incomes (from royalty and dividend). a.
₱ 8,889
b. ₱19,306
c. ₱ 8,000
d. None of the above.

39. If Lala chose to be taxed under the graduated rates with OSD of 40%, what is the
correct amount that shall be placed on page 2 of BIR Form No. 1701A’s Line 44
of Part IVA, which is allotted for total other income?
a. ₱12,000
b. ₱100,000
c. ₱87,000
d. ₱52,000

40. If Lala chose to be taxed under the graduated rates with OSD of 40%, what is the
correct amount that shall be placed on page 2 of BIR Form No. 1701A’s Line 45
of Part IVA, which is allotted for total taxable income?
a. ₱505,000
b. ₱447,000
c. ₱537,000
d. ₱460,000

41. If Lala chose to be taxed under the graduated rates with OSD, what is the correct
amount that shall be placed on Line 64, Part IVC on page 2 of BIR Form No.
1701A (Total Tax Credits/Payments, which shall include the CWT and income tax
already paid in the previous quarters)?

a. ₱30,000
b. ₱45,200
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 c. ₱46,700

d. P0

42. Gross income in the Philippines of a corporation is P975,000. The expenses in

the Philippines is P955,000. Gross income in Indonesia is P770,000. The
expenses Indonesia is P750,000. If the corporation is a domestic corporation
whose regular corporate income tax (RCIT) rate is 25%, how much is the RCIT?
a. 40,000
b. 20,000
c. 10,000
d. 5,000

43. Gross income in the Philippines of a corporation is P975,000. The expenses in

the Philippines is P955,000. Gross income in Indonesia is P770,000. The
expenses Indonesia is P750,000. A domestic corporation like the company in this
problem has regular a corporate income tax (RCIT) rate is 25%. But, the
government has to collect a minimum of 2% of gross income of the corporation.
Such minimum is called minimum corporate income tax or MCIT. How much is
the MCIT? a. 400
b. 34,900
c. 10,000
d. 5,000

USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT QUESTIONS. XYZ

Corporation is registered as a Regional Operating Headquarters (ROHQ) since 2020.
For taxable years 2020 to 2023, its operations showed the following results:
2020 2021 2022 2023
Gross receipts P75,000,000.00 P120,000,000.00 P130,000,000.00 P75,000,000.00
Cost of services 41,250,000.00 66,000,000.00 71,500,000.00 41,250,000.00
Gross income 33,750,000.00 54,000,000.00 58,500,000.00 33,750,000.00
Less: Allowable
deductions 33,625,000.00 41,200,000.00 42,550,000.00 35,125,000.00
Net taxable
income P 125,000.00 P12,800,000.00 P15,950,000.00 (P1,375,000.00)

44. How much is the minimum corporate income tax (MCIT) in 2020
a. P1,500,000 c. None, not applicable
b. P 675,000 d. None of the choices

45. How much is the minimum corporate income tax (MCIT) in 2022?
a. P2,600,000 c. P585,000
b. P1,170,000 d. None, not applicable

46. CRP is one of the Philippines registered top 20,000 private corporation. As the
company’s accountant you were tasked to account for all payments made
local/resident suppliers. What percentage of withholding tax rates of income
payments made by top 20,000 private corporations to their local/resident
suppliers of goods?
a. 1% of the gross payments.
b. 2% of the gross payments
c. 3% of the gross payments
d. 4% of the gross payments

47. Tan Torres a non-stock and non-profit charitable institution pays for its regular
repairs and maintenance of its facilities to Carmel Manpower Service
Incorporated. As the accountant of the exempt entity, how much withholding tax
will you impose to its supplier (Carmel) for the repairs and maintenance
expense?
a. Exempt from withholding tax.
b. 1% withholding tax on its gross payment.
c. 2% withholding tax on its gross payment.
d. 5% withholding tax on its gross payment.

48. A bought a parcel of land in Manila in 1980 at a price of Php 2M. In 2023, the
land which remained idle had a fair market value of Php 12M. B offered to buy

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 the land for Php 12M. The Assessor of Manila had reassessed the property at
Php 10M in
2023. If A sold the land to B subject to the condition as stated in the Deed of Sale
that the buyer shall assume the capital gains tax thereon, how much is the capital
gains tax? 720,000

49. Statement 1 - There shall be levied, assessed and collected on every sale, barter,
exchange or other disposition of shares of stock listed and traded through the local stock
exchange by a dealer in securities, a tax at a rate of 6/10 of 1% of the gross selling price
or gross value in money of the shares of stock sold, bartered, exchanged or otherwise
disposed.

Statement 2 - The percentage tax on the sale, barter or exchange of shares of

stock listed and traded through the local stock exchange has been increased by
1/10 of 1% of the gross selling price or gross value in money of the shares of
stock sold, bartered, exchanged or otherwise disposed.
a. Both statements are correct
b. Both statements are not correct
c. Only Statement 1 is correct
d. Only Statement 2 is correct

50. Which of the following best describes Capital Gains Tax in the Philippines?

A. A tax imposed on regular income from services rendered

B. A tax imposed on the sale or exchange of capital assets
C. A tax imposed on dividends received from domestic corporations
D. A tax imposed on the fair market value of inherited property

51. Capital Gains Tax is imposed on the sale, exchange, or disposition of:

A. Ordinary assets
B. Capital assets
C. Inventories
D. Livestock

52. What is the Capital Gains Tax rate on the sale of real property located in the Philippines
classified as a capital asset?

A. 6% of the gross selling price or fair market value, whichever is higher

B. 10% of the net gain
C. 15% of the net gain
D. 5% on the first ₱100,000 and 10% on the excess 53. The following are considered capital assets,

except:

A. Land held by a manufacturing company not used in business

B. Building used as a residence by the owner
C. Inventory of merchandise
D. Shares of stock held for investment purposes

54. Which of the following is not a condition for availing of the exemption from CGT under
Section 24(D)(2) of the Tax Code (Sale of Principal Residence)?

A. Proceeds must be fully utilized in acquiring or constructing a new principal residence

B. The taxpayer must be a natural person
C. The sale must be made once every ten years
D. The historical cost or adjusted basis must be carried over

55. Capital Gains Tax on the sale of shares of stock not traded in the stock exchange is:

A. 6% of gross selling price

B. 10% of net capital gain
C. 15% of net capital gain
D. Exempt from CGT

56. A domestic corporation sold a parcel of land classified as a capital asset. What tax applies?
A. Final Capital Gains Tax
B. Expanded Withholding Tax
C. Regular Corporate Income Tax on net gain

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 D. Value-Added Tax

57. If the real property sold is located abroad, Capital Gains Tax is:

A. Payable in the Philippines by a resident citizen

B. Payable by a non-resident citizen
C. Not subject to CGT in the Philippines
D. Payable by foreign corporations

58. Which of the following types of income is subject to final withholding tax in the Philippines? a.
Salary income
b. Rental income from property used for business
c. Interest income from a time deposit
d. Business profit from a sole proprietorship

59. The final withholding tax on interest income from a local bank deposit is typically: a. 5%
b. 10%
c. 20%
d. 25%

60. Which of the following passive income types is subject to a final withholding tax rate of 10%
under the Tax Code of the Philippines?

a. Interest from foreign loans

b. Rental income from residential properties
c. Dividends received from a foreign corporation
d. Dividends received from a domestic corporation by a resident individual

CORPORATION

Corporation – Definition, Inclusion, And Exclusion

1. The term “Corporation” shall include:

I. One Person Corporation
II. Partnerships, no matter how created or organized
III. Joint stock companies
IV. Joint accounts (ceuntas en participacion)
V. Associations
VI. Insurance companies
VII. Mutual fund companies
VIII. Regional operating headquarters of multinational corporations
a. I and II only c. I, II, III, IV and V only
b. I, II, and III only d. All of the above

2. Statement 1: Partnerships, no matter how created or organized, are taxable as corporations for
income tax purposes.
Statement 2: Associations and mutual fund companies, for income tax purposes, are excluded in
definition of corporations.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

3. Which of the following is not treated as corporation?

a. General professional partnership
b. A joint venture or consortium formed for the purpose of undertaking construction projects.
c. A joint or consortium for engaging in petroleum, coal, geothermal and other energy
operations pursuant to an operating consortium agreement under a service contract with the
government.
d. All of the above.

Classification of Corporations
4. Which of the following statements is correct?

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 I. The term “domestic”, when applied to a corporation, means created or organized in the
Philippines or under the laws of a foreign country as long as it maintains a Philippine
branch.
II. A corporation which is not domestic may be a resident (engaged in business in the
Philippines) or nonresident corporation (not engaged in business in the Philippines).
III. Resident foreign corporations are subject to income tax based on net income from
sources within the Philippines.
a. I only c. II and III only
b. II only d. I, II and III

5. Which of the following is taxable based on income from all sources, within and without?
a. Domestic Corporations
b. Resident Foreign Corporations
c. Non-Resident Foreign Corporations
d. All of the choices

6. Which of the following does not have the benefit of claiming deduction in computing income tax?
a. Domestic Corporations
b. Resident Foreign Corporations
c. Non-Resident Foreign Corporations
d. All of the choices

7. Aside from the regular corporate income tax, what other tax(es) may be imposed on corporations
under the Philippine income tax laws?
a. Minimum corporate income tax c. Capital gains tax
b. Final tax on passive income d. All of the above

Tax Returns & Tax Deadlines

8. A domestic corporation or resident foreign corporation may employ, as a basis for filing its annual
corporate income tax return the:
a. Calendar year only
b. Fiscal year only
c. Either calendar or fiscal year
d. Neither calendar or fiscal year

9. Annual Income Tax Return for Corporation, Partnership and Other Non-Individual Taxpayer
Subject Only to REGULAR Income Tax Rate
a. BIR Form 1700
b. BIR Form 1701
c. BIR Form 1701-A
d. BIR Form 1702-RT

10. Quarterly Income Tax Return (For Corporations and Partnerships)

a. BIR Form 1701
b. BIR Form 1701-A
c. BIR Form 1702Q
d. BIR Form 1702-RT

11. A corporation files a quarterly return within

a. 30 days after the end of each of the first 3 quarters
b. 60 days after the end of each of the first 3 quarters
c. 30 days, after the end of each of the first 4 quarters
d. 60 days after the end of each of the first 4 quarters

12. A final or annual return is filed on or before the 15th day of the
a. Month following the close of the taxable year
b. 2nd month following the close of the taxable year.
c. 3rd month following the close of the taxable year
d. 4th month following the close of the taxable year

13. Maasahan Corporation, a domestic corporation and a retailer of goods has gross sales of
P14,000,000 with a cost of sales of P7,600,000 and allowable deductions of 2,500,000 for the
calendar year 2022. Its total assets of P150,000,000 as of December 31, 2022 per Audited
Financial Statements includes the land costing P50,000,000 and the building of P25,000,000 in
which the business entity is situated, with an aggregate amount of P75,000,000.00 as Fixed
Assets.

How much is the income tax due in 2022?

a. P60,000,000 c. P975,000
b. P780,000 d. P1,170,000
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 14. Forever Corporation, a resident corporation has gross sales of P14,000,000 with a cost of sales of
P7,600,000 and allowable deductions of 2,500,000 for the calendar year 2022. Its total assets of
P150,000,000 as of December 31, 2022 per Audited Financial Statements includes the land
costing P50,000,000 and the building of P25,000,000 in which the business entity is situated, with
an aggregate amount of P75,000,000.00 as Fixed Assets.

How much is the income tax due in 2022?

a. P60,000,000 c. P975,000
b. P780,000 d. P1,170,000

Use the following data for the next six (6) QUESTIONS – Per Annual Data A
domestic corporation has the following income and expenses for the year:
Phils. Abroad
Gross sales P100,000,000 P50,000,000
Cost of sales P40,000,000 20,000,000
Operating expenses 30,000,000 12,000,000

15. How much is the income tax due assuming the taxable year is 2019?
a. P12,000,000 c. P14,400,000
b. P13,200,000 d. P18,000,000

16. How much is the income tax due assuming the taxable year was 2020?
a. P12,000,000 c. P14,400,000
b. P13,200,000 d. P18,000,000

17. How much is the income tax due assuming the taxable year was 2021?
a. P12,000,000 c. P14,400,000
b. P13,200,000 d. P18,000,000

18. How much is the income tax due assuming the taxable year is 2021 and the Company’s total
assets amounted to P80 million only?
a. P9,600,000 c. P14,400,000
b. P12,000,000 d. P18,000,000

19. How much is the income tax due assuming?

§ The taxable year is 2021; and
§ The Corporation is a resident foreign corporation
a. P7,500,000 c. P14,400,000
b. P13,200,000 d. P18,000,000

20. How much is the income tax due assuming?

§ The taxable year is 2021; and
§ The Corporation is a nonresident foreign corporation
a. P7,500,000 c. P14,400,000
b. P13,200,000 d. P15,000,000

Use the following data for the next two (2) QUESTIONS – Per Quarter Data
21. CREATIVE Corporation, a domestic corporation, has the following income and expenses for 2022
taxable year:

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Gross sales P1,000,000 P1,500,000 P2,500,000 P5,000,000
Cost of sales P600,000 800,000 1,400,000 2,200,000
Operating expenses 200,000 500,000 600,000 700,000

Additional data:
§ The company’s assets amounted to P25,000,000.
How much is the income tax due?
a. P300,000 c. P600,000
b. P450,000 d. P825,000

22. Using the same data in the immediately preceding number and assuming further that the company
is a resident foreign corporation, how much is the correct income tax due?

11
 a. P300,000 c. P750,000
b. P450,000 d. P825,000

23. Hananiah Corporation, a corporation engaged in business in the Philippines and abroad has the
following data for 2022 taxable year:
Gross Income, Philippines P975,000
Expenses, Philippines 750,000

Gross Income, Malaysia 770,000

Expenses, Malaysia 630,000

Interest on bank deposit 25,000

Assets 15,000,000

Determine the income tax due assuming the corporation is:

Domestic Res. Foreign Corp. Non-resident Foreign Corp.
a. P116,800 P72,000 P320,000
b. P109,500 P67,500 P300,000
c. P73,000 P56,250 P250,000
d. P91,250 P56,250 P250,000

Rules on Applicability of Minimum Corporate Income Tax (including transition period)

24. Which of the following statements is correct?
I. A minimum corporate income tax (MCIT) of 1% of gross income from July 1, 2020 to
June 30, 2023 and 2% beginning July 1, 2023 is imposed upon any domestic
corporation and resident foreign corporation beginning on the 4th taxable year
immediately following the taxable year in which such corporation commenced its
business operations.
II. MCIT shall be imposed whenever such corporation has zero or negative taxable
income, or when the amount of MCIT is greater than normal income tax due from such
corporation.
III. The computation and the payment of MCIT, shall likewise apply at the time of filing the
quarterly corporate income tax.

a. I and II only c. I, II and III

b. II and III only d. None of the above

25. A domestic corporation was registered with the BIR in 2018. What year would the first MCIT will be
imposed on such corporation?
a. 2020 c. 2022
b. 2021 d. 2023

26. The minimum corporate income tax is imposed on:

a. Proprietary educational institutions
b. General professional partnerships
c. Business partnerships
d. All of the above

27. Jose, Aquino and Ongpin are classmates during their college days. After five (5) years from their
admission to the accountancy profession, they have decided to form a partnership whose sole
purpose is the joint exercise of their common profession. Five (5) years into the partnership, they
have decided to offer CPA review classes to aspiring CPAs and they did so via JAO CPA Review
Incorporated, a corporation whose shares are owned by them divided equally. Which of the
following conclusions is correct?

a. The professional fees earned by the firm shall be exempt from income tax to the
partnership. However, the respective share of each partner in the net
distributable income shall be subjected to 10% final tax on dividend income.
b. JAO CPA Review Incorporated will be subjected to income tax on its taxable
income whereby the applicable income tax rate shall be 10%.
c. The Firm and the individual partners shall be exempt from income tax.
d. Assuming JAO CPA Review Incorporated is already in its fourth year of
operation, it may be subjected to the minimum corporate income tax (MCIT).

28. The minimum corporate income tax (MCIT) does not apply to a corporation, if
a. Imposition was suspended by the Secretary of Finance due to a corporation’s heavy
losses arising from prolonged labor dispute
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 b. Corporation is in its initial year of operation
c. Corporation is exempt from income tax by virtue of tax holidays granted to it by
Investment Promotion Agency (IPA)
d. All of the above

29. A domestic corporation is generally liable for Minimum Corporate Income Tax. However, Secretary
of Finance may suspend the imposition of MCIT on any corporation which suffers losses on
account of any of the following, except:
a. prolonged labor disputes
b. mismanagement
c. force majeure
d. legitimate business reverses

30. Substantial losses from a “prolonged labor dispute” mean

a. Losses arising from a strike staged by the employees which lasted for more than six (6)
months within a taxable period.
b. The strike resulted to temporary shutdown of business operations.
c. Both of the above
d. None of the above

31. “Force majeure” includes

a. A cause due to irresistible force as by “Act of God”.
b. Lightning, earthquake, storm, flood and the like.
c. Armed conflicts like war or insurgency.
d. All of the above.

PASSIVE INCOMES SUBJECT TO FWTs BASED ON TRAIN LAW AND CREATE LAW
32. Statement 1: Passive incomes are subject to separate and final tax rates.
Statement 2: Passive incomes are included in the computation of taxable net income from
business operations of a corporation.
A. B. C. D.
Statement 1 True False True False
Statement 2 True False False True

33. Upon effectivity of CREATE law, which of the following dividend is subject to RCIT rate of 25%?
a. Dividend income received by a domestic corporation from another domestic corporation
b. Dividend income received by a domestic corporation from resident foreign corporation
c. Dividend income received by a resident foreign corporation from another resident foreign
corporation
d. All of the above

34. Upon effectivity of CREATE law, which of the following dividend may be exempt from income
tax?
a. Dividend income by a resident foreign corporation from another resident foreign
corporation.
b. Dividend income received by a domestic corporation from resident foreign corporation
c. Dividend income received by a nonresident foreign corporation from resident foreign
corporation
d. All of the above

35. Dividend income received by a domestic corporation from a nonresident foreign corporation may
be exempt from income tax, provided:
a. The dividends actually received or remitted into the Philippines are reinvested in the
business operations of the domestic corporation within the net taxable year from the time
the foreign-source dividends were received or remitted.
b. The dividends received shall only be used to fund the working capital requirements,
capital expenditures, dividend payments, investment in domestic subsidiaries, and
infrastructure project; and
c. The domestic corporation holds directly at least twenty percent (20%) in value of the
outstanding shares of the foreign corporation and has held the shareholdings
uninterruptedly for a minimum of two (2) years at the time of the dividend distribution. In
case the foreign corporation has been in existence for less than two (2) years at the time
of dividends distribution, then the domestic corporation must have continuously held
directly at least twenty percent (20%) in value of the corporation’s outstanding shares
during the entire existence of the corporation.
d. All of the above.

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36. Interest income on bank deposit or investment with maturity period of more than five (5) years
received by a corporation in 2023 taxable year is subject to:
Domestic Res. Foreign Corp. Non-resident Foreign Corp.
a. 20% 20% 25%
b. Exempt Exempt Exempt
c. 20% 20% Exempt
d. 20% Exempt Exempt

37. On January 1, 2020, a domestic corporation invested P1,000,000 to BDO’s 5-year, tax-free time
deposit. The long-term deposit pays 10% annual interest every January 1. In need of cash, she
pre-terminated her investment on July 1, 2023. How much final tax is withheld in the year of
pretermination?
a. P2,500 c. P10,000
b. P6,000 d. P12,000

38. Interest income received by corporations from their deposit under the expanded foreign currency
deposit system (FCDS) prior to the effectivity of CREATE law is subject to FWT rate of:
DC RFC NRFC
a. 20% 20% 20%
b. 7 ½% 7 ½% Exempt
c. 15% 15% Exempt
d. 15% 7 ½% Exempt

39. Interest income received by corporation from their deposit under the expanded foreign currency
deposit system (FCDS) upon the effectivity of CREATE law is subject to FWT rate of:
DC RFC NRFC
a. 20% 20% 20%
b. 7 ½% 7 ½% Exempt
c. 15% 15% Exempt
d. 15% 7 ½% Exempt

40. Royalty income received by a corporation prior to the effectivity of CREATE is subject to FWT of:
DC RFC NRFC
a. 20% 20% 30%
b. 7 ½% 7 ½% Exempt
c. 15% 15% Exempt
d. 15% 7 ½% Exempt

41. Royalty income received by a corporation upon the effectivity of CREATE is subject to:
DC RFC NRFC
a. 20% 20% 30%
b. 7 ½% 7 ½% Exempt
c. 20% 20% 25%
d. 15% 7 ½% Exempt

42. Royalty income from books received by a corporation prior to the effectivity of CREATE is subject
to FWT rate of:
DC RFC NRFC
a. 10% 10% 30%
b. 20% 20% 30%
c. 15% 15% Exempt
d. 15% 7 ½% Exempt

43. Royalty income from books received by a corporation upon the effectivity of CREATE law is
subject to FWT rate of:

DC RFC NRFC
a. 10% 10% 30%
b. 20% 20% 30%
c. 20% 20% 25%
d. 15% 7 ½% Exempt

44. In 2023, a domestic corporation declared and paid dividends to its shareholders as follows:
To Apol, a resident citizen P100,000
To Alex, a nonresident citizen 100,000
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 To George, a resident alien 100,000
To LJ, a nonresident alien engaged in trade in the Philippines 100,000
To Francis, a nonresident alien not engaged in trade in the Philippines 100,000
To Chen, a domestic corporation 100,000
To a resident foreign corporation 100,000
To a nonresident foreign corporation 100,000

Additional information: Assume that the country in which the NRFC is domiciled allows a credit
against the tax due from the said NRFC which are equivalent to taxes deemed to have been paid
in the Philippines equal to ten percent (10%). How much final tax shall be withheld by the
corporation?
a. P80,000 c. P85,000
b. P90,000 d. P95,000

CAPITAL GAINS SUBJECT TO CAPITAL GAINS TAX

45. As a rule, there is no income tax if there is no income. Which of the following is the exception?
a. Capital Gains Tax on sale of land and/or building
b. Capital Gains Tax on sale of share of stock outside the local stock exchange
c. Tax on passive income
d. Regular Corporate Income Tax

46. Statement 1: Gain on sale of all kinds of capital assets are subject to the final tax on capital gains.
Statement 2: Gain from sale of real property classified as capital asset and located in Miami,
Florida, USA is not subject to the final tax on capital gain.

a. Both statements are correct

b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

(REAL PROPERTY) Use the following data for the next three (3) questions
Kris Incorporated sold its vacant lot to Moca Corporation for P10,000,000 which it acquired at a cost of
P5,000,000. The fair market value of the said property per tax declaration was P12,000,000 while its
zonal value was P15,000,000.

47. How much is the income tax applicable on the transaction?

a. P600,000 c. P900,000
b. P720,000 d. P1,500,000

48. Based in the preceding number, if the buyer of the property is the Philippine Government or a
government owned and/or controlled corporation (GOCC), what type of income tax will apply on
the transaction?
a. Basic income tax
b. Capital gains tax
c. Either “a” or “b” at the option of the seller
d. Either “a” or “b” at the option of the buyer

49. If the property is located abroad, what type of income tax will apply on the transaction? a. Basic
income tax
b. Capital gains tax
c. Either “a” or “b” at the option of the seller
d. Either “a” or “b” at the option of the buyer

(SHARES OF STOCKS) Use the following data for the next five (5) questions
East Star, a domestic corporation, sold shares of stock of a domestic corporation for P250,000 in 2023.
The shares were acquired in 2015 for investment purposes at a cost of P100,000 and were sold directly
to a buyer.

50. How much was the capital gains tax due?

a. P10,000 c. P22,500
b. P15,000 d. P45,000

51. How much is the capital gains tax assuming the shares sold were shares of a foreign corporation
and the sale was made during the effectivity of CREATE law?
a. P10,000 c. P22,500
b. P15,000 d. nil

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 52. Assume the shares sold were from a domestic corporation but were not held for investment
purposes. Assume further that the seller is a dealer in securities. How much is the capital gains
tax?
a. P10,000 c. P22,500
b. P15,000 d. nil

53. In 2023, Mabuhay Corporation, a domestic corporation, sold shares of stock of another domestic
corporation for P250,000 through the local stock exchange (LSE). The shares were acquired in
2018 at a cost of P100,000 and were held for investment purposes. How much was the applicable
tax due?
a. P1,250 c. P10,000
b. P1,500 d. P15,000

54. Assume the shares sold were not held for investment purposes and the seller is a dealer in
securities, how much is the stock transaction tax (STT)?
a. P1,250 c. P10,000
b. P1,500 d. nil

55. The share of a co-venturer corporation in the net income after a tax joint venture or consortium
taxable as a corporation is
a. Subject to final withholding tax of 20%
b. Subject to regular corporate income tax of 30%
c. Subject to capital gains tax
d. Exempt from income tax

56. The share of a co-venturer corporation in the net income of a tax-exempt joint venture or
consortium is:
a. Subject to final withholding tax
b. Subject to regular corporate income tax
c. Subject to capital gains tax
d. Exempt from income tax

Rules on Co-ownership
57. When their parents died, Romeo and Juliet inherited five (5) hectares of land in Isabela. They
decided to invest capital and developed the land into a subdivision, with small lots being sold
either on installment or cash basis
Q1: Have they formed an unregistered partnership subject to tax?
Q2: Are they subject to final tax on their respective share in the income of the partnership a.
Yes, No
b. No, Yes
c. Yes, Yes
d. No, No

Rules on Partnerships (including GPPs)

58. Partnership is formed by persons for the sole purpose of exercising their common profession, no
part of the income of which is derived from engaging in any trade or business.
a. Joint venture
b. General professional partnership
c. Trading partnership
d. Joint accounts

59. For purposes of taxation, partnership is

I. Classified into two major categories, partnership in trade and general professional partnership.
II. Partnership in trade is treated as corporate taxpayer.
III. General professional partnership is exempt from income tax
a. I, Il and III
b. l and |l only
c. l and l only
d. I only

60. Which of the following statements is false?

a. Registered general professional partnerships are subject to income tax.
b. A partners' share in the net profits of a general professional partnership is not
compensation income.
c. A general partnership is considered, for tax purposes, a corporation and the partners
thereof are likened to stockholders.
d. Income taxation rules application to corporations likewise apply to informal partnerships.

61. A taxable partnership may be subject to the following taxes:

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 I. Minimum corporate income tax
II. Regular corporate income tax
III. Improperly accumulated earnings tax.
a. I, II and III
b. I and II only
c. I and III only
d. I only

62. Which of the following statements is incorrect?

a. A general partnership in trade is not taxable as a corporation.
b. A joint venture for undertaking construction projects is not taxable as a corporation.
c. A consortium for energy operations pursuant to an operating consortium agreement under a
service contract with the government is not taxable as a corporation.
d. A co-ownership where the activities of the co-owners are limited to the preservation of
property and collection of income from the property is not taxable as a corporation.

63. Statement 1: A CPA and a Dentist may form a GPP or an ordinary partnership.
Statement 2: Partnership and Corporation have separate juridical personalities distinct from the
owners.
a. Statements 1 and 2 are false
b. Statement 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true
d. Statements 1 and 2 are true.

64. Statement 1: For purposes of computing the distributive share of the partners of a general
professional partnership, the net income of the partnership shall be computed in the same manner
as a corporation.

Statement 2: Partners of a taxable partnership are considered as shareholders and profits

distributed to them by the partnership is considered as dividends.
a. Statements 1 and 2 are false
b. Statement 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true
d. Statements 1 and 2 are true

SUMMARY NOTES: TAXES OF CORPORATION (CREATE Law Updates)

CREATE LAW OVERVIEW

Corporate Recovery and Tax Incentives for Enterprises Act (RA 11534) Date
Signed: March 26, 2021 (retroactive effect from July 1, 2020)

Objectives:
• Help businesses recover from the COVID-19 pandemic
• Improve the Philippines’ tax competitiveness
• Rationalize the grant of fiscal incentives
• Promote transparency and accountability

CORPORATE INCOME TAX REFORMS

1. Domestic Corporations
Criteria Old CIT Rate New CIT Rate
Regular (Net income > ₱5M or assets > ₱100M) 30% 25%
Small Corp (Net income ≤ ₱5M and assets ≤ ₱100M, excl. 30% 20%
land)

Notes:
• Applies to all taxable domestic corporations including partnerships (except GPPs)
• Retroactive application from July 1, 2020

2. Foreign Corporations
• Resident Foreign Corporations (RFCs): 25%
• Non-Resident Foreign Corporations (NRFCs): Reduced from 30% to 25%

3. Proprietary Educational Institutions and Non-Profit Hospitals

• Special tax rate of 1% (from July 1, 2020, to June 30, 2023)
• Normal rate of 10% resumes after 2023 unless extended

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 4. MINIMUM CORPORATE INCOME TAX (MCIT)
• Applies to corporations after the 4th year of operations
• Old Rate: 2% of gross income
• New Rate: 1% (temporary relief from July 1, 2020 to June 30, 2023)

5. Improperly Accumulated Earnings Tax (IAET)

• REPEALED under CREATE
• Previously applied 10% tax on corporations retaining earnings beyond reasonable needs

6. Regional Operating Headquarters (ROHQs)

• Old Rate: 10% preferential CIT
• New Rule (CREATE): subject to 25% regular CIT (effective Jan 1, 2022)

VALUE-ADDED TAX (VAT) REFORMS

1. VAT-Exempt Transactions (until Dec 31, 2023) Sale/importation
of:
• COVID-19 vaccines
• Medical supplies and equipment for pandemic response

2. Export-related VAT Rules

• Previously: zero-rated VAT on local sales to exporters
• Under CREATE: 12% VAT now imposed unless goods/services are directly and exclusively used
in the exporter’s registered activity

RATIONALIZATION OF FISCAL INCENTIVES

Qualified Activities
• Activities must be registered under the Strategic Investment Priority Plan (SIPP) to be eligible

Tax Incentive Packages

a. Income Tax Holiday (ITH)
Location/Type Duration
Non-pioneer projects in NCR 4 years
High-priority or in less developed areas Up to 7 years

b. After ITH – Two Options

Option Description
Special Corporate Income 5% tax on gross income in lieu of all national/local taxes,
Tax (SCIT) valid for up to 10 years
Enhanced Deductions Option to avail additional allowable deductions from taxable
income

c. Enhanced Deductions Include:

• Additional 50% on:
o Direct labor expense o Research
and development (R&D) o Training o
Domestic input expense o
Depreciation and interest expense

ADMINISTRATIVE REFORMS
1. Fiscal Incentives Review Board (FIRB)
• Authority to approve incentives granted by Investment Promotion Agencies (IPAs)
• Ensures transparency and cost-benefit analysis of granted incentives

2. Investment Promotion Agencies (IPAs) Covered:

• BOI (Board of Investments)
• PEZA (Philippine Economic Zone Authority)
• CEZA, SBMA, Clark Dev. Corp., etc.
• FIRB must approve incentives for investments above ₱1B

SPECIAL SECTORS / ENTITIES

Entity Special Rule
General Professional Partnerships (GPPs) Not subject to CIT or MCIT
Cooperatives Remain exempt under their own special laws
Barangay Micro Business Enterprises (BMBEs) Exempt from income tax

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COMPARISON SUMMARY: BEFORE VS. AFTER CREATE
Category Before After CREATE
Regular CIT 30% 25% / 20%
MCIT 2% 1% (temporary)
ROHQ 10% 25%
IAET Applied Repealed
VAT on exporters’ suppliers 0% 12% (unless directly used)
Incentives duration Varied ITH + SCIT or Enhanced Deductions

KEY TAKEAWAYS FOR CPALE

• Memorize CIT rates and qualifying criteria
• Know the timeline of temporary tax reliefs (e.g., 1% MCIT, 1% for schools)
• Understand options after ITH: SCIT vs. Enhanced Deductions
• Know the role of FIRB and SIPP
• Be familiar with VAT changes, especially for exporters
• Review implications for ROHQ, IAET repeal, and non-profits

SPECIAL CORPORATIONS (Under CREATE Law - RA 11534)

Special corporations are those subject to different or preferential tax treatments under the National
Internal Revenue Code (NIRC), as amended.

The CREATE Law retained or amended various provisions affecting the following entities:

1. Proprietary Educational Institutions and Non-Profit Hospitals

Reference: Section 27(B), NIRC, as amended Definition:
• Proprietary Educational Institution – A private school maintained and administered by private
individuals or groups with a permit to operate from DepEd, CHED, or TESDA.
• Non-Profit Hospital – A medical institution organized as a non-stock, non-profit entity.

Tax Rate:
Period Applicable Rate
July 1, 2020 – June 30, 2023 1% (temporary under CREATE)
After June 30, 2023 Reverts to 10% preferential tax rate

Condition:
If gross income from “unrelated trade, business, or other activity” exceeds 50% of total gross income, the
entity becomes subject to the regular corporate income tax rate of 25%.

2. Government-Owned or Controlled Corporations (GOCCs)

Reference: Section 27(C), NIRC Tax Treatment:
• GOCCs are subject to regular corporate income tax unless specifically exempted by law.
• Examples of exempt GOCCs: GSIS, SSS, PHIC, PCSO, PAGCOR.

3. Non-Stock, Non-Profit Corporations

Reference: Section 30, NIRC
Exempt Entities (subject to compliance):
• Labor, agricultural, and horticultural organizations
• Mutual savings banks, cooperative banks
• Beneficiary societies, mutual aid associations
• Non-stock charitable institutions
• Civic leagues and social welfare organizations
• Non-profit educational institutions

Conditions for Tax Exemption:

• Must not operate for profit
• Income must be used for the purposes for which the entity was created
• Income from activities not related to their exempt purpose may be taxable

4. Offshore Banking Units (OBUs) and Foreign Currency

Deposit Units (FCDUs) Reference: Section 27(D), NIRC Tax
Rates:
• OBUs previously had full tax exemption
• Under CREATE:
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 o Interest income from foreign currency transactions is subject to 15% final tax o
Foreign currency loans to residents (other than banks) are subject to 5% tax on gross
income

5. Regional Operating Headquarters (ROHQs) Reference:

Section 27(E), NIRC Old Rule:
• Subject to 10% preferential CIT CREATE Amendment:
• 10% preferential tax rate repealed
• Effective January 1, 2022, ROHQs are now subject to the 25% regular corporate income tax
• Existing ROHQs were given a transition period

6. Barangay Micro Business Enterprises (BMBEs)

Reference: RA 9178
• Exempt from income tax on income from operations
• Must be registered with DTI and LGU
• CREATE Law does not alter this exemption

7. Cooperatives
Reference: RA 9520 (Cooperative Code)
• Exempt from income tax, VAT, and other taxes on transactions with members
• No amendments under CREATE, but cooperatives must comply with CDA and BIR regulations

8. General Professional Partnerships (GPPs)

Reference: Section 26, NIRC
• Not subject to corporate income tax
• Net income is passed through to partners, who report it in their individual tax returns
Note: Not amended by CREATE but often covered in exams to distinguish from taxable corporations.

SUMMARY TABLE
Entity Type Tax Rate / Treatment Special Notes
Proprietary schools & 1% (temporary); 10% Subject to 50% test
hospitals afterward
ROHQ 25% 10% rate repealed
OBUs 15% / 5% Previously exempt
Non-stock, non-profits Exempt Subject to operational & organizational
tests
GPPs Not taxed as a corporation Pass-through income to partners
Cooperatives Exempt No change under CREATE
BMBEs Exempt Registered under RA 9178
GOCCs Regular CIT Unless exempt by special law

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