Navigating Tax Changes: Understanding MCIT Rates for 2024 | CloudCFO PH
Navigating Tax Changes: Understanding MCIT Rates for 2024

Navigating Tax Changes: Understanding MCIT Rates for 2024

Posted on March 12, 2024
3 min mins read

The Bureau of Internal Revenue (BIR) recently released Revenue Memorandum Circular 36-2024 on March 11, shedding light on the computation of Minimum Corporate Income Tax (MCIT) for the taxable year 2023. This update is crucial for businesses, particularly in light of the changes introduced by Republic Act No. 11534, also known as the Corporate Recovery and Tax Incentives for Enterprises Act.

The MCIT, as defined in the National Internal Revenue Code (NIRC) of the Philippines, is a system that requires corporations to pay a minimum income tax, regardless of the company’s actual net income. This safeguards the BIR against tax evasion and other avoidance strategies that some corporations may use to reduce their tax liabilities. 

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What are the changes in MCIT Rates under RMC 36-2024?

The Corporate Recovery and Tax Incentives for Enterprises Act, effective from July 1, 2020, until June 30, 2023, mandated a One Percent (1%) MCIT. However, starting July 1, 2023, the MCIT rate reverted to its original Two Percent (2%) based on the corporation’s gross income.

How to calculate the MCIT? 

To calculate the MCIT, corporations must divide their gross income by 12 months to obtain the average monthly gross income. From January 1 to June 30, 2023, the rate applied is 1%, while from July 1 to December 31, 2023, the rate is 2%.

For ease of computation, the following rates correspond to the taxable period of the taxpayer may be used:

Staying informed about these regulatory adjustments is crucial for businesses to ensure compliance and make informed financial decisions. For further clarification or assistance, CloudCFO is here to guide you through the intricacies of Revenue Memorandum Circular 36-2024 and its impact on your business.

Seize the opportunity to streamline your tax processes, minimize liabilities, and enhance your financial outlook. Whether you’re a current CloudCFO client or exploring our services for the first time, now is the time to take control of your tax strategy.

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FAQs on Navigating Tax Changes: Understanding MCIT Rates for 2024

What is MCIT in the Philippines?

The MCIT, or Minimum Corporate Income Tax, is a mandatory tax imposed on corporations. It becomes applicable from the fourth taxable year following the commencement of business operations. It is levied when the standard 20 percent Corporate Income Tax (CIT) is lower than the two percent MCIT based on the company’s gross income.

Are there any corporations exempted from paying the MCIT?

Yes, the MCIT is not imposed on the following entities:

  • Domestic proprietary educational institutions
  • Domestic non-profit hospitals

Note: Subject to the Predominance Theory, proprietary educational institutions and non-profit hospitals, if their gross income from unrelated trade, business, or activity exceeds fifty percent (50%) of total income, are subject to a 30% Net Corporate Income Tax (NCIT) and MCIT.*

  • Domestic depository banks under the expanded foreign currency deposit system, subject to a final income tax of 10%
  • Resident foreign international carriers, subject to two and one-half percent of Gross Philippine Billings
  • Resident foreign regional operating headquarters, subject to a final income tax of 10%
  • Resident offshore banking units, subject to a final income tax of 10%
  • Firms with special income tax rates under PEZA law, Bases Conversion, and Development Act, and those enjoying income tax holiday incentives
  • Nonresident foreign corporations
  • Real Estate Investment Trust

What is gross income for MCIT purposes?

Gross income, for MCIT purposes, is defined as gross sales (or gross receipts in the case of service-oriented businesses) minus sales returns, discounts, allowances, and cost of goods or services sold. Additionally, apart from core business activities, other items listed under Section 32, par. (A) of the NIRC contribute to gross income for MCIT purposes, excluding income exempt from taxation and income subject to final withholding tax.

DISCLAIMER: This article is strictly for general information purposes only. Nothing in this article constitutes or intends to constitute financial, accounting, regulatory or legal advice and must not be used as a substitute for professional advice. It is still necessary to consult your relevant professional adviser regarding any specific matter referenced above.

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