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Understanding Partnerships and Taxation

A general professional partnership is defined as a partnership formed by individuals to exercise their common profession, with profits not derived from engaging in trade or business. Corporations cannot be partners in such partnerships, which are taxed similarly to domestic corporations. Income payments to partners from general professional partnerships are subject to withholding taxes based on the amount received.

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5 views3 pages

Understanding Partnerships and Taxation

A general professional partnership is defined as a partnership formed by individuals to exercise their common profession, with profits not derived from engaging in trade or business. Corporations cannot be partners in such partnerships, which are taxed similarly to domestic corporations. Income payments to partners from general professional partnerships are subject to withholding taxes based on the amount received.

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hpaiacc002
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd

GENERAL PROFESSIONAL PARTNERSHIP

Article 1767 of the Civil Code defines a partnership. Thus: “Article 1767.
By the contract of partnership two or more persons bind themselves to contribute money or
industry to a common fund, with the intention of dividing the profit among themselves.”

A partnership exists where two or more individuals’ combine their capital, property, skill or labor, or
all of these, for the transaction of a lawful business for gain, upon an understanding that profits or
losses shall be shared or borne by them in certain proportions.

It bears noting that corporations are not allowed by law to become partners in a partnership.
TYPES of PARTNERSHIPS under the TAX CODE

A general professional partnership is defined in Section 22 (B) of the 1997 Tax Code, as amended, as
follows:
‘General professional partnerships’ are partnerships formed by persons for the sole purpose of
exercising their common profession, not part of the income of which is derived from engaging in any
trade or business.

Regular aprtnership (general commercial partnersip) taxable the same manner as domestic
corporation.

The term ‘corporation’ shall include partnerships, no matter how created or organized, joint-stock
companies, joint accounts (cuentas en participacion), associations, or insurance companies, but does not
include general professional partnerships and a joint venture or consortium formed for the purpose of
undertaking construction projects or engaging in petroleum, coal, geothermal and other energy
operations pursuant to an operating or consortium agreement under a service contract with the
Government.
For purposes of computing the distributive share of the partners, the net income of the partnership
shall be computed in the same manner as a corporation.

Each partner shall report as gross income his distributive share, actually or constructively received, in
the net income of the partnership.”

Section 2.57.5 of Revenue Regulations No. 2-98, as amended, provides that:


The withholding of creditable withholding tax prescribed in these Regulations shall not apply to income
payments made to General Professional Partnerships

Income payments made periodically or at the end of the taxable year by a general professional
partnership to the partners, such as drawings, advances, sharings, allowances, stipends and the like, are
subject to the Fifteen percent (15%) if the payments to the partner for the current year exceeds
P720,000.00; and Ten percent (10%) creditable withholding tax

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