How To Compute Minimum Corporate Income Tax (MCIT) in the Philippines

Typically, a corporation is created for profit. This is why one of the most overlooked taxes of corporations is the Minimum Corporate Income Tax (MCIT) because there are only a few instances where a corporation earns so little that they are not subject to the normal income tax rates.

In actuality, most corporations may be subjected to either one of the following income taxes, namely, Regular Corporate Income Tax (RCIT) or Minimum Corporate Income Tax (MCIT).

What Is the Minimum Corporate Income Tax (MCIT)?

Generally, the Minimum Corporate Income Tax or MCIT is a tax imposed on corporations in lieu of the regular income tax (RCIT) when both conditions are present/met:

  1. RCIT is lower than MCIT and;
  2. The corporation is in its 4th year of operations following the year of the start of the business.

Basically, the tax code allows the government to tax most domestic and resident foreign corporations whether or not they earn taxable income.

When Can a Corporation Be Subject to MCIT?

A corporation may be subject to MCIT if the RCIT is lower than the computed MCIT.

How Do I Compute for MCIT?

The MCIT is 2% of Gross Income, which is Net Sales or Revenue (Gross sales or revenue less discounts, returns or allowances) less Cost of Sales or Services;

Cost of Sales or Services is directly incurred in bringing about the revenue or sales.

For a trading or merchandising concern, ‘cost of goods sold’ shall include the invoice cost of the goods sold, plus import duties, freight in transporting the goods to the place where the goods are actually sold, including insurance while the goods are in transit.

For a manufacturing concern, ‘cost of goods manufactured and sold’ shall include all costs of production of finished goods, such as raw materials used, direct labor and manufacturing overhead, freight cost, insurance premiums and other costs incurred to bring the raw materials to the factory or warehouse.

In the case of taxpayers engaged in the sale of service, ‘gross income’ means gross receipts less sales returns, allowances, and discounts



Note, however, that specific industries have different components of the Cost of Sales or Services, as provided under RMC No. 4-2003.

Sample Computation

XYZ is a domestic corporation in its 10th year of business. The following is the company’s income statement for the current taxable year:

minimum corporate income tax

Based on the above, the RCIT shall be 1,500,000 (5,000,000*0.3) while the MCIT shall be 1,600,000 (80,000,000*.02).

Therefore, the company shall pay the higher income tax which is the MCIT amounting to 1,600,000 for the current taxable year.

Related: How to Claim Itemized Deductions in the Philippines: A Complete Guide

When Does a Corporation Start To Be Covered by MCIT?

A company is liable for MCIT starting the 4th year immediately following the year in which it commenced its operations.

Meaning, if the Company started operating in 2016 (regardless of the month), it will be liable for MCIT, provided it is higher than RCIT, starting 2020, which is the 4th year from 2017 (the year following the year in which it commenced operations).

The MCIT does not apply to non-resident foreign corporations. However, resident Foreign Corporations are also liable for MCIT under Sec. 28(A)(2) of the Tax Code.

Related: How to Claim Foreign Tax Credit to Lower Your Tax Liabilities

When To Pay MCIT?

The tax due shall be equivalent to the MCIT whenever it is higher than RCIT. Accordingly, its computation is done quarterly, same as RCIT, on a cumulative basis (i.e., the income from and expenses from the first quarter are included in the preparation of the 2nd quarter return and so on).

Thus, if in a taxable quarter, the MCIT is higher than the RCIT, the former shall be the amount due for payment, less any available tax credits.

Carry-Forward Provision of MCIT

Any excess of the MCIT over the RCIT shall be carried forward


and credited against normal tax (RCIT) for the three (3) immediately succeeding taxable years.

In the period it is to be credited, the RCIT should be higher than the MCIT. Thus, if in the three succeeding taxable years, the MCIT is higher than the RCIT, the excess MCIT carry-over would expire and would no longer be creditable beyond that period.

Accounting entry: the accounting entry for excess MCIT carry-over would be:

Debit: Provision for income tax/Income Tax Expense

Debit: Deferred Charge – MCIT/MCIT Carry-over

Credit: Income Tax Payable/Cash

The provision for income tax or the income tax expense would be equivalent to the normal tax (RCIT), while the Income Tax Payable/Cash would be equivalent to the MCIT. The difference is treated as an asset that may be creditable against the RCIT in the succeeding 3 years where RCIT is higher.

Suspension of MCIT

The Secretary of Finance is authorized to suspend the imposition of the MCIT


on any corporation which suffers losses on account of:

  1. Prolonged labor disputes: losses arising from a strike staged by the employees which lasted more than 6 months within a taxable period and which has caused the temporary shutdown of business operations;
  2. Because of force majeure: means a cause due to irresistible force by “act of God” like lightning, earthquake, storm, flood and the like. This term shall also include armed conflicts like war or insurgency.
  3. Legitimate business reverses: include substantial losses due to fire, robbery, theft or embezzlement, or other economic reasons as determined by the Secretary of Finance.

Which corporations are not subject to MCIT?

The MCIT applies only to corporations subject to the RCIT. Accordingly, the following are not subject to MCIT:

  1. Propriety educational institutions subject to the tax of 10%;
  2. Non-profit hospital subject to 10% tax;
  3. Depository banks under the expanded foreign currency deposit system (Foreign Currency Deposit Units [FCDUs]) for offshore income exempt from income tax and onshore income subject to 10% final tax;
  4. Offshore banking units similarly taxed as FCDUs;
  5. International carriers subject to 2.5% tax on Gross Philippine Billings;
  6. ROHQs subject to 10% tax;
  7. PEZA registered entities’ income subject to ITH or the 5% preferential GIT;
  8. BOI registered entities for income subject to ITH;
  9. REITs. The only corporation that is subject to RCIT but not MCIT


Go back to the main article: How to Compute Your Income Tax Using the New BIR Tax Rate Table

About the Author

Miguel Dar is a CPA and an experienced tax consultant who specializes in tax audits. He provides tax advice to various start-up enterprises and clarified tax concerns of individual taxpayers. This includes assisting clients in registering their businesses, tax and bookkeeping training for start-up businesses, settling open cases, tax planning for future tax compliance and answering tax-related inquiries. Connect with him on Linkedin.


  1. National Internal Revenue Code (1997), Sec. 27(A)
  2. National Internal Revenue Code (1997), Sec. 27[E][2]
  3. National Internal Revenue Code (1997), Sec. 27[E][3]
  4. The Real Estate Investment Trust (REIT) Act of 2009, Section 1, Rule 10