How Are General Co-Partnerships (Not GPPs) Taxed by the BIR?

Most partnerships in the Philippines are not taxed the way many people assume — under NIRC Section 22(B), a partnership is treated as a corporation for BIR purposes unless it’s a general professional partnership (GPP) or a narrow category of government-contract joint venture. That means an ordinary business partnership pays corporate-rate income tax on its own net income, and then its partners pay a separate final tax when that after-tax income is actually distributed to them.

This guide covers how a taxable (non-GPP) partnership is taxed at both the entity and partner level, and how that differs from a GPP — see How GPP Partners Report and Pay Income Tax on Their Distributive Share for the professional-partnership side of this distinction.

What does NIRC Section 22(B) actually say? #

Section 22(B) is the definitional provision that decides whether a partnership gets taxed like a corporation or passes income through to its partners untaxed at the entity level. It states:

“The term ‘corporation’ shall include partnerships, no matter how created or organized…”

— except general professional partnerships, and except certain joint ventures or consortiums formed for construction projects, or for engaging in petroleum, coal, geothermal, and other energy operations under a government service contract. Every other partnership — a merchandising partnership, a manufacturing partnership, a partnership that mixes professional services with a trade or business — falls under the “corporation” definition and is taxed accordingly.

GPP vs taxable partnership: two very different tax outcomes #

The dividing line is the purpose of the partnership, not its legal form. A general professional partnership (GPP) is formed solely for persons to exercise a common profession, with no part of its income coming from engaging in any trade or business. A law firm partnership or an accounting firm partnership that only renders professional services typically qualifies. A partnership that also runs a commercial operation — buying and selling goods, manufacturing, or providing non-professional services — does not.

For the GPP side of this table, see Withholding Tax on GPP Professional Fees and How GPP Partners Report and Pay Income Tax on Their Distributive Share.

How a taxable partnership is taxed at the entity level #

A taxable (non-GPP) partnership computes and pays income tax exactly the way a regular corporation does, because Section 22(B) puts it in that category. That means:

• Filing corporate income tax returns ( BIR Form 1702-series) rather than an individual return for the partnership’s own business income
• Paying the applicable corporate income tax rate under the CREATE Act — see Corporate Income Tax Rates in the Philippines for the current 25%/20% bracket structure
• Being subject to the Minimum Corporate Income Tax (MCIT) like any other corporation
• Being subject to the same withholding tax obligations as a corporate withholding agent when it pays suppliers, contractors, or professionals

How a partner’s distributive share is taxed #

After the partnership itself pays income tax, whatever after-tax net income is actually distributed (or deemed distributed) to each partner is treated as a dividend, not as ordinary business income the partner separately reports and pays graduated rates on. For citizens and resident aliens, that distributive share is subject to a 10% final withholding tax — final, meaning the partner does not report it again as taxable income subject to graduated rates, since the tax withheld already closes out the liability on that amount.

This is the key practical difference from a GPP partner, whose share is subject to creditable (not final) withholding, gets folded into the partner’s own gross income, and is taxed at graduated individual rates with the withholding tax credited against that liability.

Worked example: a two-partner trading business #

Two individuals form an ordinary (non-GPP) partnership to import and resell construction supplies — a trade or business, not the practice of a common profession — splitting profits 50/50.

Step 1 — partnership-level income tax

Step 2 — partner-level final tax on distribution

Combined, the ₱2,000,000 in partnership income is taxed twice before it reaches the partners’ pockets — once at the entity level (25%) and again at the partner level (10% final tax on the after-tax distribution) — which is exactly the corporate-style treatment Section 22(B) imposes and a GPP structure avoids.

Frequently asked questions #

Does a business partnership pay income tax the same way a general professional partnership does? #

No. Under NIRC Section 22(B), “corporation” includes partnerships no matter how created or organized, except general professional partnerships (GPPs) and certain government-contract joint ventures. A business (non-GPP) partnership is taxed as a corporation, filing its own income tax return and paying corporate rates on its net income.

What income tax rate applies to a taxable (non-GPP) partnership? #

The same corporate income tax rates that apply to regular corporations under the CREATE Act — generally 25%, or 20% for qualifying MSME corporations meeting the net taxable income and asset thresholds — since Section 22(B) treats the partnership as a corporation for tax purposes.

Do partners pay tax again when they receive their share of a taxable partnership’s income? #

Yes. A partner’s share in the distributable after-tax net income of a taxable partnership is treated as a dividend and is subject to a separate final withholding tax — 10% for citizens and resident aliens — on top of the income tax the partnership itself already paid.

What makes a partnership a “general professional partnership” instead of a taxable partnership? #

A GPP is formed by persons for the sole purpose of exercising a common profession, with no part of its income derived from engaging in any trade or business. A partnership that engages in trade or business activity — such as merchandising, manufacturing, or a mixed professional-and-commercial operation — falls outside the GPP definition and is taxed as a corporation instead.

Is a taxable partnership subject to the Minimum Corporate Income Tax (MCIT)? #

Yes. Because Section 22(B) classifies a taxable (non-GPP) partnership as a corporation for BIR purposes, it is subject to the same MCIT rules that apply to regular corporations, unlike a GPP, which is not a taxable entity at all.

Summary #

A partnership that isn’t a GPP is taxed as a corporation under NIRC Section 22(B) — corporate income tax at the entity level, then a 10% final tax on each partner’s share of the after-tax distribution. That two-layer result is very different from a GPP, where the entity pays no income tax and partners are taxed once, at graduated rates, on their share. Confirm which category a partnership actually falls into — purpose and activity, not just the word “partnership” in its name — before assuming GPP treatment applies. For the GPP comparison, see How GPP Partners Report and Pay Income Tax on Their Distributive Share and Corporate Income Tax Rates in the Philippines