RMC No. 24-2008: Clarifies the scope of the term direct costs and expenses that should comprise the “cost of services” for purposes of computing the gross income subject to the 2% Minimum Corporate Income Tax

Key points

1. Gross income of service sellers. For the 2% MCIT, gross income means gross receipts less sales returns, allowances, discounts and cost of services.
2. What cost of services covers. It covers direct costs necessarily incurred to provide the services, including salaries and benefits of personnel, consultants and specialists directly rendering the service. It also covers facilities directly used, such as depreciation or rental of equipment and cost of supplies.
3. Direct costs defined. Direct costs are those exclusively and directly incurred for the revenue earned, and indispensable to earning it, so that without them no revenue could be generated. Other expenses outside this meaning are not included in cost of services.

Who is affected

• Sellers of services subject to the 2% MCIT