A domestic corporation’s Philippine income tax has two moving parts: the regular corporate income tax (RCIT) — 25% of net taxable income, or 20% for smaller corporations under the CREATE Act — and, from the fourth year of operations, the minimum corporate income tax (MCIT), a 2% floor on gross income. The corporation pays whichever is higher. This guide walks through both, how taxable income is built, and what happens when the floor binds. Every example runs in our corporate income tax calculator.
The rates after CREATE
| Corporation | RCIT rate | Condition (§27(A), CREATE) |
|---|---|---|
| Standard domestic / resident foreign | 25% | Default on net taxable income |
| Smaller domestic corporation | 20% | Net taxable income ≤ ₱5M and total assets ≤ ₱100M (excluding land) |
| MCIT floor (4th year onward) | 2% | On gross income, if higher than RCIT |
CREATE (RA 11534) cut the old 30% rate to 25% and introduced the 20% tier. The MCIT’s history matters at audit time: TRAIN briefly set 3% (from July 2018), CREATE dropped it to 1% as pandemic relief (July 2020–June 2023), and it reverted to 2% effective July 1, 2023 (BIR RMC 69-2023) — which is the rate for 2026.
How net taxable income is built
- Gross income = gross sales/receipts less returns, discounts, and cost of sales (services generally have no cost of sales).
- Deductions: elect each year between the 40% optional standard deduction (no substantiation, capped at 40% of gross income — see our OSD guide) and itemized deductions (salaries, rent, interest, taxes, depreciation, bad debts, and similar ordinary and necessary expenses).
- NOLCO: net operating losses may be carried forward against gross income for up to 3 consecutive years (longer for losses from casualties). NOLCO reduces RCIT income — it does not reduce the MCIT base.
Worked example — 20% rate
Gross income ₱9M − itemized deductions ₱5M = net taxable income ₱4M. With total assets of ₱60M (ex-land), the corporation qualifies for 20%: RCIT = ₱800,000. The 2% MCIT on ₱9M is only ₱180,000 — regular tax governs.
The MCIT floor in practice
The MCIT exists because a profitable-looking revenue base can hide thin or negative margins. Once it applies, 2% of gross income is the least the corporation remits:
| Loss year (4th year of operations) | Amount |
|---|---|
| Gross income | ₱10,000,000 |
| Net taxable income (after deductions) | ₱0 (net loss) |
| RCIT (25% × 0) | ₱0 |
| MCIT (2% × 10M) — tax due | ₱200,000 |
Three rules govern the floor:
- Timing: the MCIT applies beginning with the fourth taxable year following the year business operations commenced. The first three years are RCIT-only — the grace window for startups to reach profitability.
- Excess is not wasted: when MCIT exceeds RCIT, the excess credits against the regular tax for the three immediately succeeding taxable years. A ₱200,000 excess pre-pays future RCIT; any part unused after three years expires.
- Scope: it covers domestic and resident foreign corporations. Proprietors and professionals are outside it — individuals have no MCIT.
Dividends: the second layer
Corporate profits are taxed at 25%/20%; when distributed as cash or property dividends to individual stockholders, a 10% final withholding tax applies (the corporation withholds and remits). The combined drag — ~32.5% on peso one of a dividend for a standard-rate corporation — is why structure choice matters: a sole proprietorship pays only individual rates (no dividend layer, unlimited personal exposure instead), while a One Person Corporation pays corporate rates plus the 10% when profits are withdrawn as dividends.
Registered enterprises: a different world
Corporations registered with investment boards under CREATE / CREATE MORE incentives — RBEs — may pay special rates instead: the 5% gross income earned regime (export activities) or enhanced-deduction regimes with a 20% rate. Those regimes follow their own registration and reporting rules and are outside both this guide and the calculator. The 25%/20% + MCIT computation here applies to ordinary (unregistered) domestic corporations.
Run your own numbers
Enter net taxable income and gross income — the calculator applies the right rate and checks the 2% MCIT floor, including the excess-credit computation.
Open the Corporate Income Tax CalculatorFrequently Asked Questions
What is the difference between the RCIT and the MCIT?
The regular corporate income tax (RCIT) is 25% — or 20% for smaller corporations — of net taxable income, so it scales with profit. The minimum corporate income tax (MCIT) is 2% of gross income, a floor that applies regardless of profit. From a corporation’s fourth year onward, it pays whichever is higher.
When does a corporation pay MCIT instead of the regular tax?
When 2% of gross income exceeds the regular tax on net income — typically low-margin businesses, break-even years, or outright losses. A corporation with zero net taxable income but ₱10M gross income in its fourth year pays the ₱200,000 MCIT.
Is the excess MCIT lost forever?
No. The excess of the MCIT over the regular tax is carried forward and credited against the regular corporate income tax for the three immediately succeeding taxable years. If regular tax never exceeds the credits within that window, the remainder expires.
What deductions can a corporation use?
Corporations choose per year: the 40% optional standard deduction on gross income, or itemized deductions — salaries, rentals, interest, taxes, depreciation, and similar ordinary and necessary expenses. Net operating loss carry-over (NOLCO) may also be deducted, for up to 3 consecutive years for ordinary losses.
Are One Person Corporations taxed at these rates?
Yes. An OPC is taxed like any domestic corporation — 25% (or 20% under the thresholds), MCIT from the fourth year, plus the 10% final withholding tax when it pays dividends to its single stockholder. This is a key difference from a sole proprietorship, which is taxed at individual rates.
This guide summarizes the National Internal Revenue Code as amended by the CREATE Act (RA 11534), CREATE MORE (RA 12001), and BIR RMC 69-2023, as of 2026. It is not tax advice — consult the BIR or a qualified tax professional for specific cases.