Minimum Corporate Income Tax (MCIT): BIR Rules and When It Applies
Minimum Corporate Income Tax (MCIT) is a 2% tax on gross income that applies to domestic corporations under NIRC Section 27(E) whenever it produces a higher tax bill than the regular corporate income tax computed on net taxable income. It functions as a floor, starting the 4th taxable year after a corporation begins operations, so companies can’t reduce their tax liability toward zero purely through aggressive deductions.
Keep Your Other BIR Filings on Schedule FREE →What is MCIT and when does it start applying? #
MCIT is a safeguard tax computed as 2% of a corporation’s gross income, compared each year against the regular corporate income tax computed the normal way — on net taxable income after allowable deductions. Whichever figure is higher is what the corporation actually owes for that year.
MCIT does not apply from day one of a new business. It begins in the 4th taxable year immediately following the year a corporation started its business operations, giving new corporations a grace period of their first three years to operate without the MCIT floor, even while they’re still building revenue or absorbing startup losses.
How does the 2% MCIT rate compare to the regular corporate income tax rate? #
MCIT exists specifically to catch corporations whose regular income tax computation comes out unusually low relative to their gross revenue — often due to heavy deductions, related-party pricing, or reported losses — by imposing a 2%-of-gross-income floor instead.
| Item | Rule |
|---|---|
| MCIT rate | 2% of gross income |
| Regular corporate income tax rate | 25% of net taxable income (20% for qualifying corporations under the CREATE Act with net taxable income not exceeding ₱5,000,000 and total assets not exceeding ₱100,000,000) |
| When MCIT applies | 4th taxable year onward, whenever MCIT > regular tax |
| Pandemic-era rate | Reduced to 1% of gross income from July 1, 2020 to June 30, 2023 under the CREATE Act (Republic Act No. 11534) |
| Current rate | Reverted to 2% effective July 1, 2023, and remains 2% |
| Excess MCIT carryover | Any MCIT paid in excess of the regular tax due may be credited against regular income tax due in the 3 immediately succeeding taxable years |
The CREATE Act’s temporary 1% MCIT rate was pandemic relief, not a permanent cut — corporations budgeting for 2026 and beyond should plan around the standard 2% rate.
A worked example #
A domestic corporation is in its 5th taxable year of operation — past the 3-year MCIT grace period. For the year, it reports gross income of ₱50,000,000 and net taxable income of ₱2,000,000 after deductions. Comparing the two:
- MCIT: 2% × ₱50,000,000 = ₱1,000,000
- Regular corporate income tax: 25% × ₱2,000,000 = ₱500,000
Because MCIT (₱1,000,000) is higher than the regular tax computed on net income (₱500,000), the corporation pays MCIT for the year. The ₱500,000 difference between the two figures can be carried forward as a tax credit against the corporation’s regular income tax due in the next three taxable years, provided the corporation doesn’t again fall into an MCIT-triggering year.
Can MCIT be suspended for a struggling corporation? #
Yes, but only under specific, documented hardship conditions. The BIR Commissioner may suspend the imposition of MCIT on a corporation that suffered substantial losses on account of a prolonged labor dispute, force majeure, or legitimate business reverses, provided the corporation applies for relief and substantiates the qualifying circumstance. This is an exception granted case by case, not an automatic waiver for any loss-making year.
For registered business enterprises weighing MCIT exposure against incentive-based tax rates, see CREATE MORE Act Incentives: Enhanced Deductions and Tax Breaks for RBEs for how the enhanced deductions regime changes the corporate income tax side of that comparison. For the broader annual filing calendar this return fits into, see 2026 BIR Tax Filing Deadlines Calendar.
Summary #
MCIT is a 2% floor on gross income that applies to domestic corporations from their 4th taxable year onward, whenever it exceeds the regular income tax computed on net taxable income. The rate was temporarily cut to 1% during the pandemic under the CREATE Act but reverted to 2% in mid-2023, and any excess MCIT paid can offset regular income tax for up to three following years.