Common-Taxes - Income-Tax VAT OPT WT v2

July 18, 2012 Taxes Common to Taxpayers Page 1
Taxes Common to Taxpayers:

Income Tax, VAT, Other
Percentage Tax, Withholding g g
Taxes
18 July 2012
Discussion Outline
Income Tax
General Principles
Taxability of Individuals Taxability of Individuals
Taxability of Corporations
Gross Income
Allowable Deductions from Gross Income
Unallowable Deductions from Gross Income
Filing of Returns and Administrative Requirements
July 18, 2012 Slide 2 Taxes Common to Taxpayers
Discussion Outline
Value-Added Tax
General Principles
Input VAT on Capital Goods p p
Treatment of Excess Input VAT
Other Percentage Taxes
Persons Subject to Percentage Tax and Percentage Tax Rates
Withholding Taxes
Nature of Different Common Withholding Taxes
Nature of Different Common Withholding Taxes
Withholding Agents
Withholding Tax Rates
Income Tax
General Principles
Individuals
Resident citizen: taxable on all income derived from sources within and
without the Philippines
N id t iti t bl l i d i d f ithi
General Principles
Non-resident citizen: taxable only on income derived from sources within
the Philippines
Corporations
Domestic corporation - taxable on all income derived from sources within
and without the Philippines
Foreign Corporations (resident and non-resident) taxable only on
Philippine sourced income
Philippine-sourced income
Taxability of Individuals
Graduated tax rates:
Over But Not Over Amount / Rate Of Excess Over
Not over 10,000 5% -
10,000 30,000 500 + 10% 10,000
30,000 70,000 2,500 + 15% 30,000
70,000 140,000 8,500 + 20% 70,000
140,000 250,000 22,500 + 25% 140,000
250,000 500,000 50,000 + 30% 250,000
500,000 over 125,000 + 32% 500,000
Married individuals:
Husband and Wife compute separately individual income tax
Income which cannot be directly attributed to either of the spouse, divided
equally between them.
Personal exemptions:
Basic personal exemption - P50,000 for each individual taxpayer
Additional personal exemption - P25,000 for each dependent
not exceeding four (4)
Husband proper claimant of additional personal exemption for
children except:
a. Husband is unemployed
b. Husband is non-resident citizen deriving income from foreign
sources
c Husband waives his right to claim the exemptions of children
c. Husband waives his right to claim the exemptions of children
(waiver should be for all children) in a sworn statement to be
attached to his Application for Registration (BIR Form No.
1902) and that of his wife's
Interests, royalties, prizes and other winnings 20% final tax, except if
prizes does not exceed P10,000
Royalties on books literary works and musical compositions 10% final
tax
Passive Income Subject to Final Tax for
Individuals
tax
Interest income received by an individual taxpayer from a depository bank
under the expanded foreign currency deposit system 7.5% final tax
Interest income from long term investment held for more than 5 years and
in accordance with the prescribed rules exempt
Cash and/or property dividends 10% final tax
Capital gains from sale of shares of stocks not traded in the stock
exchange 5% for not over P100,000 and 10% for in excess of P100,000
g , ,
Capital gains from sale of real property 6% based on the gross selling
price or current fair market value, whichever is higher.
Domestic corporation:
30% Regular Corporate Income Tax (RCIT)
based on taxable income derived during each taxable year from all
sources within and without the Philippines.
2% Minimum Corporate Income Tax (MCIT)
Applicable if greater than 30% RCIT
Beginning on the fourth taxable year immediately following the year in
which such corporation commenced its operation.
2% MCIT (contd):
Excess MCIT over RCIT
Carried forward and credited against the normal income tax for the three
(3) i di t l di t bl
(3) immediately succeeding taxable years.
Secretary of Finance - authorized to suspend imposition of MCIT on any
corporation which suffers losses on account of prolonged labor dispute, or
because of force majeure, or because of legitimate business reverses.
Computed in quarterly income tax return and annual income tax return.
Interests, royalties, prizes and other winnings 20% final tax
Interest income received by an domestic corporation from a depository
bank under the expanded foreign currency deposit system 7.5% final tax
I t t di id d di id d i d b d ti ti
Passive Income Subject to Final Tax for
Corporations
Intercorporate dividends dividends received by a domestic corporation
from another domestic corporation shall not be subject to tax
Capital gains from sale of shares of stocks not traded in the stock
exchange a final tax on the net capital gains realized as follows:
Not over P100,000 5%
Amount in excess of P100,000 10%
Capital gains from sale of real property 6% based on the gross selling
price or current fair market value whichever is higher
price or current fair market value, whichever is higher.
10% of the improperly accumulated taxable income
Applies to every corporation formed or availed for the purpose of avoiding
th i t ith t t it h h ld th h h ld f
10% Improperly Accumulated Earnings Tax
(IAET)
the income tax with respect to its shareholders or the shareholders of any
other corporation by permitting earnings and profits to accumulate instead of
being divided or distributed.
Exempt from IAET
Banks and other non-bank financial intermediaries
Insurance companies
P bli l h ld ti
Publicly-held corporations
Taxable partnerships
Exempt from IAET (contd):
Non-taxable joint ventures
PEZA-registered enterprises
(IAET)
BCDA-registered enterprises
Other entities registered under special economic zones enjoying special
tax rates on their registered operations or activities in lieu of other taxes,
national or local
Branches of a foreign corporation or resident foreign corporation.
Closely-held corporations
Corporations at least 50% in value of the outstanding capital stock or at
least 50% of the total combined voting power of all classes of stock
entitled to vote is owned directly or indirectly by or for not more than 20
individuals.
Domestic corporations not falling under this definition considered publicly-
held corporations.
Evidence of purpose to avoid income tax:
Prima Facie Evidence
Mere holding company or investment company
(IAET)
Evidence Determinative of Purpose
Earnings or profits of a corporation are permitted to accumulate
beyond the reasonable needs of the business (i.e., retained earnings is
in excess of 100% of paid up capital) unless proven to the contrary.
Paid-up capital
Par value of the shares of stock (RMC No. 35-2011)
Gross Income
All income derived from whatever source, except certain items as provided by the
Tax Code, including (but not limited to) the following:
Compensation for services in whatever form paid, including, but not limited to
fees, salaries, wages, commissions, and similar items
Gross Income
Gross income derived from the conduct of trade or business or the exercise of a
profession
Gains derived from dealings in property
Interests (except those already subject to final tax or exempt from income tax)
Rents
Royalties
Dividends (except those already subject to final tax or exempt from income tax)
Annuities
Prizes and winnings (except those already subject to final tax or exempt from tax)
Pensions
Partner's distributive share from the net income of the general professional
partnership.
Exclusions:
Life insurance however, interests, if any, shall be included in the gross income
Amounts received by the Insured as return of premiums paid under life insurance
Gift b t d d i
Gross Income
Gifts, bequests and devices
Compensation for injuries and sickness including the amounts of any damages
received, whether by suit or agreement, on account of such injuries and sickness
Income exempt under Treaty
Retirement benefits, pensions, gratuities, etc.
Prizes and awards provided that the recipient was selected without any action
on his part to enter the contest or proceeding and the recipient is not required to
render substantial future services as a condition to receiving the prize or award
g p
Gains from the sale of bonds, debentures or other certificate of indebtedness with
a maturity of more than 5 years (applicable to individuals only)
Gains from redemption of shares in mutual fund
Allowable Deductions from
Gross Income
Expenses
Ordinary and necessary expenses paid or incurred during the taxable year
Directly attributable to, the development, management, operation and/or
d t f th t d b i i f f i
conduct of the trade, business or exercise of a profession
Interests
Paid or incurred during the taxable year
Related to indebtedness in connection with the taxpayer's profession,
trade or business
If taxpayer has interest income subject to final tax
Amount of interest expense reduced by 33% of such interest income.
Interests paid to related parties not allowable deduction
Taxes
Paid or incurred within the taxable year
Related to taxpayer's profession, trade or business
Exception
Income tax under Title II of the Tax Code
Income taxes imposed by authority of any foreign country
Estate and donors taxes
Taxes assessed against local benefits of a kind tending to increase the
value of the property assessed.
Taxes allowed as deduction (e.g., not among the exceptions above) are
refunded or credited
Part of gross income in the year of receipt subject to tax benefit
doctrine
Losses
actually sustained during the taxable year
not compensated for by insurance or other forms of indemnity
Incurred in trade or business
Property connected with trade or business (loss arising from fires, storms,
shipwreck, or other casualties, or from robbery, etc.)
Sworn declaration of loss submit to BIR within 45 days from
discovery of the casualty or robbery, theft or embezzlement
Net Operating Loss Carry-Over (NOLCO) deductible for the next 3
ti t bl i di t l f ll i th f h l
consecutive taxable years immediately following the year of such loss.
Provided:
taxpayer is not exempt from income tax during the year of the loss, and
no substantial change in ownership of the business or enterprise
Capital losses
Deductible up to the extent of capital gains
Individuals: any excess capital losses over the capital gains (in an
amount not in excess of the net income for such year) after
amount not in excess of the net income for such year), after
considering the allowable percentage of deduction, may be carried
over for not more than 12 months.
Wash sales of stocks or securities
Wagering losses
Arising from wagers/betting games (other than those already subject to
other percentage tax, such as illegal gambling, endings, etc.)
Deductible only up to the extent of gains from such transaction
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Abandonment losses
Depreciation
Depletion of oil and gas wells and mines
Charitable and other contributions
Individuals not in excess of 10% of taxable income before donation
Corporations not in excess of 5% of taxable income before donation
Deductible in full donations to:
Government
Certain foreign institutions or international organization
Accredited nongovernment organization subject to compliance with
certain requirements
Certificate/s of Donation required as proof for deductibility
Research and development
Pension trusts
Additional requirements for deductibility of certain payments properly
subjected to appropriate withholding taxes (e.g., expanded withholding tax,
final withholding tax, etc.)
Optional Standard Deduction (OSD)
Available to:
Individuals subject to the graduated tax rates (i.e., individuals who does
not purely derive income from compensation)
40% of his gross sales or gross receipts
40% Optional Standard Deduction (OSD)
g g p
Corporations
40% of its gross income.
Intention to avail of the OSD must be disclosed in 1
st
quarter ITR
Irrevocable for the taxable year
Individuals availing of OSD not required to submit financial statements as
attachment to ITR
Records pertaining to gross sales/receipts or gross income must still be kept
Records pertaining to gross sales/receipts or gross income must still be kept
Unallowable Deductions from
Gross Income
Personal, living or family expenses
Any amount paid out for new buildings or for permanent improvements, or
betterments made to increase the value of any property or estate
Any amount expended in restoring property or in making good the exhaustion
Unallowable Deductions from Gross Income
Any amount expended in restoring property or in making good the exhaustion
thereof for which an allowance is or has been made
Premiums paid on any life insurance policy covering the life of any officer or
employee, or of any person financially interested in any trade or business
carried on by the taxpayer, individual or corporate, when the taxpayer is
directly or indirectly a beneficiary under such policy
Losses from sales or exchanges of property directly or indirectly
Between members of a family
Between an individual and a corporation more than 50% in value of the
outstanding stock of which is owned by the individual
Filing of Returns and
Administrative Requirements
Individuals (contd):
Where to file AAB, RDO, Collection Agent or duly authorized Treasurer of
the city or municipality in which such person has his legal residence or
principal place of business in the Philippines, or if there be no legal residence
Filing of Returns and Administrative
Requirements
p p p pp , g
or place of business in the Philippines, with the Office of the Commissioner.
When to file and pay:
Declaration of income tax
Every individual receiving self-employment income
On or before April 15 of the same taxable year.
When to file and pay (contd):
Quarterly income tax return payment shall be made in 4 installments.
1
st
installment: at the time of the declaration (on or before April 15)
Requirements
1 installment: at the time of the declaration (on or before April 15)
2
nd
installment: on or before August 15 of the current year
3
rd
installment: on or before November 15 of the current year
4
th
installment: on or before April 15 of the following calendar year
Annual income tax return -
Lump sum payment: on or before April 15 of the following calendar
year
Installment payment: applicable if tax due is in excess of P2,000
p y pp ,
1
st
installment: at the time the return is filed
2
nd
installment: on or before July 15 following the close of the
calendar year.
Married individuals, whether citizens, resident or nonresident aliens, who do
not derive income purely from compensation file a return for the taxable
year to include the income of both spouses,
Requirements
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If impracticable for the spouses to file one return each spouse may
file a separate return of income
BIR shall consolidate the filed returns for verification
Income of unmarried minors derived from property received from a living
parent shall be included in the return of the parent, except:
when the donor's tax has been paid on such property
p p p y
when the transfer of such property is exempt from donor's tax
Corporations:
Deadline for filing and payment:
Quarterly income tax return (BIR Form No. 1702Q): 60 days after the
close of each of the first 3 quarters of the taxable year
Requirements
close of each of the first 3 quarters of the taxable year.
Annual income tax return (BIR Form No. 1702): 15
th
day of the 4
th
month
following the end of the year
Required attachments upon filing to the BIR:
Audited financial statements
Statement of Management Responsibility
Original copies of creditable withholding taxes (CWT), if any
H d ft f th l h li t f ithh ldi t (SAWT)
Hard or softcopy of the summary alphalist of withholding taxes (SAWT), as
applicable
Other supporting schedules, if applicable
Value Added Tax (VAT)
General Principles
Imposed on any person who sells, barters, exchanges, leases goods or
properties and renders services in the course of trade or business
Imposed on any person who imports goods.
General Principles
Indirect tax- amount of tax may be shifted or passed on to the buyer,
transferee or lessee of the goods, properties or services.
In the course of trade or business (Rule of Regularity) regular conduct or
pursuit of a commercial or an economic activity, including transactions
incidental thereto, by any person or government entity.
Incidental something necessary, appertaining to, or depending upon
another which is termed the principal, something incident to the main
purpose.
Annual sales and/or receipts does not exceed P1,919,500 not subject to
VAT, but subject to percentage tax.
VAT Rates
Taxable
General Rate: 12%
S i l R t 0%
General Principles
Special Rate: 0%
Exempt
Zero-rated Sales Exempt Sales
Subject to VAT at 0% rate. Not subject to VAT
Input taxes allocable/ attributable to
the zero-rated sale may be claimed as
Input taxes allocable/ attributable to
th VAT t l t b
the zero-rated sale may be claimed as
input tax credit
the VAT exempt sale cannot be
claimed as input tax credit but shall
form part of costs.
VAT Base
Sale of goods gross selling price
General Principles
Less: sales returns and allowances and sales discounts
Add: charges for packaging, delivery & insurance
Add: excise taxes if goods are subject to excise tax
Sale of services gross receipts
VAT invoice for sale, barter or exchange of goods or properties
VAT OR for lease of goods or properties, and every sale, barter or
exchange of services
The amount of VAT shall be shown as a separate item in the invoice or
Substantiation Requirements
The amount of VAT shall be shown as a separate item in the invoice or
receipt
VAT-exempt sale shall be written or printed prominently on the invoice or
receipt for VAT exempt transactions
Zero-rated sale shall be written or printed prominently on the invoice or
receipt for zero-rated transactions
Domestic purchases of goods or properties made in the course of trade or
business VAT invoice
Domestic purchase of services VAT OR
Importation Original import entry internal revenue declaration (IEIRD) or
Supporting documents for claiming input tax
Importation Original import entry internal revenue declaration (IEIRD) or
other equivalent document showing actual payment of VAT on importation
Transitional input tax inventory of goods as shown in a detailed list to be
submitted to the BIR
Deemed sale transactions required invoices
Payments to non-residents (such as for services, rentals or royalties)
Monthly WVAT Return (BIR Form 1600) filed by the resident payor in behalf
of the non-resident evidencing remittance of VAT due which was withheld by
the payor
Input VAT on Capital Goods
Computation of input tax if the aggregate acquisition cost (exclusive of VAT)
in a calendar month, regardless of acquisition cost of each capital good, shall:
Exceed P1 million:
- If estimated useful life of a capital good is 5 years or more:
Input VAT on depreciable Capital Goods
- If estimated useful life of a capital good is 5 years or more:
- If estimated useful life of a capital good is less than 5 years
NOT d P1 illi
Months 60
Tax Input Total
Tax Input Monthly
Months in Life Useful Estimated
Tax Input Total
Tax Input Monthly
NOT exceed P1 million:
- Total input tax allowed as credit against output tax in the month of
acquisition
Carried-over
Claimed as Refund
Claimed as Tax Credit Certificate (TCC)
Period of application:
Zero-rated and effectively zero-rated sales
Within 2 years after the close of taxable quarter when such sales were
made
Cancellation of VAT registration
Registration is cancelled due to retirement from, cessation of business, or
d t h i ti f t t VAT t
due to changes in or cessation of status as VAT taxpayer
Within 2 years from date of cancellation
If manual:
Monthly VAT declaration: within 20 days following the end of each month
Quarterly VAT return: within 25 days following the close of each taxable
quarter
Requirements
q
Quarterly returns should reflect the cumulative totals of the sales,
purchases, output tax and input tax for the taxable quarter
Withholding VAT return: on the 10
th
day of the following month
If through Electronic Filing and Payment System (EFPS):
Monthly VAT declaration:
Filing: depends on the industry classification of the taxpayer
g p y p y
Payment: 25 days from the end of the month
Quarterly VAT return: same as the deadline for manual
Withholding VAT return: same as the deadline for manual
Quarterly Summary Lists of Sales (QSLS) and Quarterly Summary Lists of
Purchases (QSLP) are required for the following:
Persons liable for VAT
Requirements
Persons liable for VAT
Before January 1, 2012
Required for taxpayers with quarterly purchases not exceeding
P1,000,000 and quarterly sales not exceeding P2,500,000 are not
required to submit QSLS/P
Beginning January 1, 2012
All taxpayers
Manner of Submission:
Manual:
USB/CD/DVD to the RDO or LTDO or LTAD
Requirements
USB/CD/DVD to the RDO or LTDO or LTAD
within 25 days following the close of each taxable quarter
EFPS
Through EFPS
within 30 days following the close of each taxable quarter
Other Percentage Taxes
Tax on persons exempt from VAT
Gross annual sales and/or receipts do not exceed P1,500,000, and not
VAT-registered
Th h ld i d f P1 500 000 t P1 919 500 b i i
Persons Subject to Percentage Tax and the
Applicable Percentage Tax Rates
Threshold increased from P1,500,000 to P1,919,500 beginning
January 1, 2012 pursuant to RR No. 11-2011
Cooperatives exempt from the 3% gross receipts tax.
Rate: 3% of his gross monthly sales or receipts
Payment: not be later than the 20
th
day following the end of each month.
For person retiring from a business notify nearest RDO, file return and
pay the tax due thereon within 20 days after closing of business
Requirements
Filing shall be made with:
Authorized Agent Bank (AAB) within the territorial jurisdiction of the
Revenue District Office where the taxpayer is required to
register/conducting business.
In case no AABs with the Revenue Collection Officer or duly Authorized
City or Municipal Treasurer within the Revenue District Office where the
taxpayer is required to register/conducting business.
Consolidated return for head office and branches
Consolidated return for head office and branches
Required for large taxpayers
Others may opt to file either consolidated or individual returns
Withholding Taxes
Different Kinds of Common Withholding
Taxes
Kinds
Expanded Withholding Tax
Nature
Income tax withheld on income
payments creditable against income
t d f
Final Withholding Tax
Withholding Value-Added
Tax (VAT)
Fringe Benefit Tax
tax due from payee
Income tax withheld on income
payments full payment of income tax
due from payee
VAT withheld may be final or
creditable against VAT liability of payee
Income tax withheld on benefits of
ffi f ll t f l t d
Fringe Benefit Tax
Withholding Tax on Wages
officers full payment of related
income tax due from officers
Income tax withheld on compensation
of employees payment of income tax
due on compensation to employees
Who are Withholding Agents? Who are Withholding Agents?
Any juridical person, whether or not engaged in trade or business;
An individual, with respect to payments made in connection with his
trade or business trade or business.
In exchanges or transfers of real property, the buyers, whether or
not engaged in trade or business, are constituted as withholding
agents. In any case, no Certificate Authorizing Registration (CAR)/
Tax Clearance Certificate (TCC) shall be issued to the buyer
unless the withholding tax due on the sale, transfer or exchange of
property has been duly paid.
All government offices including government owned or controlled
All government offices including government-owned or controlled
corporations, as well as provincial, city, and municipal governments
and barangays;
Agents, employees, or any person purchasing goods or
services/paying for and in behalf of the aforesaid withholding agents
Provided that the ORs of payment/sales invoice shall be issued in
Who are Withholding Agents? Who are Withholding Agents?
the name of the person whom the former represents and the
corresponding certificate of taxes withheld (BIR Form No. 2307)
shall immediately be issued upon withholding of the tax. (RR 30-
03 dated December 12, 2003)
Person having control over the payment and who, at the same time,
claims the expenses
When the obligation to withhold arises When the obligation to withhold arises
At the time an income payment is:
Paid, or
Payable, or y ,
Accrued or recorded as an expense or asset, whichever is applicable, in the
payors books whichever comes first
(Section 2.57.4 of RR No. 2-98 as amended by Section 4 of RR No. 12-2001)
Expanded Withholding Tax (EWT)
Basic Principles Basic Principles
Only payments enumerated under the EWT regulations are subject to EWT.
Payee and the payor must be residents of the Philippines (except payments
to non-resident aliens engaged in trade or business in the Philippines).
N t fi l t Not a final tax.
EWT Base:
Gross billing on payments made to a Non-VAT registered supplier of
goods or services;
Gross amount paid exclusive or net of VAT on payments made to a
VAT-registered supplier of goods and services
CWT Certificate (BIR Form 2307)
CWT Certificate (BIR Form 2307)
Furnished in triplicate within 20 days following the close of the taxable
quarter employed by the payee in filing his/its quarterly ITR unless
requested by the payee to be submitted simultaneously with the
income payment.
Payments to which entities are not subject
to withholding
to withholding
Section 2.57.5 of RR 2-98
A. National government and its instrumentalities and barangays except
government-owned and controlled corporations.
B. Persons enjoying exemption from payment of income taxes pursuant to the
provisions of any law, general or special, such as but not limited to the
following:
1. Sales of real property by a corporation which is registered with and certified by the
Housing and Land Use Regulatory Board (HLURB) or HUDCC as engaged in
socialized housing project where the selling price of the house and lot or only the lot
does not exceed P180,000 in Metro Manila and other highly urbanized areas and
P150,000 in other areas or such adjusted amount of selling price for socialized
P150,000 in other areas or such adjusted amount of selling price for socialized
housing as may later be determined and adopted by the HLURB, as provided under
R.A. No. 7979 and its implementing regulations
(Underscored phrase amendment introduced by RR No. 14-2002)
2. Corporations duly registered with the BOI, PEZA and SBMA enjoying exemption
from income tax
3. Corporations which are exempt from the income tax under Section 30 of the Tax
Code:
Government Service Insurance System (GSIS);
to withholding
to withholding
Government Service Insurance System (GSIS);
Social Security System (SSS);
Philippine Health Insurance Corporation (PHIC);
Philippine Charity Sweepstakes Office (PCSO); and
However, the income payments arising from any activity which is conducted for
profit or income derived from real or personal property shall be subject to a
withholding tax as prescribed in these regulations.
4. General Professional Partnerships (RR 14-2002)
5 Joint ventures or consortia formed for the purpose of undertaking construction
5. Joint ventures or consortia formed for the purpose of undertaking construction
projects or engaging in petroleum, coal, geothermal & other energy operations
pursuant to an operating or consortium agreement under a service contract with
the government (RR 14-2002)
(Underscored phrase amendment introduced by RR No. 14-2002)
EWT Rates EWT Rates
Payee Tax Base Tax Rate
Taxable
Individuals
Gross professional,
promotional and talent fees, or
any other form of
15 %* -- if the current
years gross income of
payee exceeds y
remuneration
(Fees, per diems, allowances,
and any other form of income
payments NOT subject to
withholding tax on
compensation)
p y
P 720,000
10 %* -- if the current
payee does not exceed
P 720,000
10% - if without sworn declaration stating that his gross income has
exceeded P720,000
15% - if without sworn declaration that its gross income did not exceed
P720,000 starting July 1
15% - for the subsequent payments if accumulated payments within the year
exceeding P720,000 to a particular payee,
EWT Rates EWT Rates
Taxable Juridical
Persons
Gross professional,
promotional and talent
fees or any other form
f i f
15% -- if the current
payee exceeds
P 20 000 of remuneration for
services
P720,000
10% -- if the current
payee does not exceed
P720,000
(refer to previous slide)
Lessors of:
a Real Properties
Gross rental 5%
a. Real Properties
b. Personal Properties
c. Poles, satellites, and
transmission facilities
d. Billboards
Gross rental 5%
Rentals of Real Properties

Income Payments EWT Application
Rentals of Real Property 5% Rentals of Real Property 5%
1. Advance Rentals Subject to EWT at the time of payment (RR
No. 2-98, as amended)
2. Subsequent Rental
Payments
Subject to EWT at the time paid, payable, or
accrued (last month of the quarter claimed as
expense), whichever comes first (RR No. 2-98,
as amended)
3.

Security Deposits
Subject to EWT at the time applied as rentals
y p
(BIR Ruling UN-042-2-8-94 dated January 24,
1988)
4. Real Property Taxes If paid by the lessee in behalf of the lessor
subject to EWT (RR No. 2)

EWT Rates EWT Rates
Cinematographic film
owners lessor or
Gross payment 5%
owners, lessor, or
distributors, whether
individual or corporate
General Engineering/
Building/ Specialty
Contractors
Gross payment 2%
Other Contractors Gross payment 2%
p y
RMC No. 39-2007 dated January 22, 2007 RMC No. 39-2007 dated January 22, 2007
Tax Type Treatment
Tax treatment of agency fees and salaries of security guards
Income Tax Agency fees and salaries of the guards - deductible from
gross income (subject to withholding tax rules)
Amount deductible should be net of VAT (except if taxpayer
is not VAT registered)
Value-Added
Tax
Can claim input tax on agency fees, if supported by VAT ORs
(except if taxpayer is non-VAT)
Generally, no input VAT claimable on salaries of the guards
Withholding
Tax
Agency fee subject to 2% EWT
Salaries of guards not subject to EWT if certain conditions
are met
EWT Rates EWT Rates
Customs, insurance,
stock, real estate,
immigration and
Gross commissions
or service fees (RR
17-2003)
10%
immigration and
commercial brokers and
agents of professional
entertainers
17-2003)
Business establishments
on payments made by
credit card companies for
sale of goods/services by
each business entity to
dh ld
One-half (1/2) of
gross payments
1%
cardholders
EWT Rates EWT Rates
Medical practitioners
(including doctors of
medicine veterinarians
Professional fees 15% -- if the income
payments to medical
practitioner exceeds medicine, veterinarians
and dentists)
practitioner exceeds
P720,000
10% -- if the income
payments to medical
practitioner does not
exceed P720,000
EWT Rates EWT Rates
Income payments by Top
20,000 private corporations* to
their local/resident suppliers of their local/resident suppliers of
goods and services other than
those covered by other rates
of withholding tax
a. Supplier of goods
Gross Selling Price,
or total amount of goods
or its equivalent
1%
b. Supplier of goods
Gross Payments
2%
* If notified by the BIR as Top 20,000 Corporation (TTC)
Payments to Meralco by TTC/GO/LT-
EWT base: current amount due appearing in the billing statement.
Payments to telecommunication companies by TTC/GO/LT on overseas
dispatch message or con ersation originating in the Philippines
EWT Clarifications in RMC No. 72-2004 EWT Clarifications in RMC No. 72-2004
dispatch, message or conversation originating in the Philippines
EWT rate: 2%
EWT base: amount paid less the overseas communications tax.
Payment to Meralco and telecommunications companies by the TTC/GO/LT
EWT rate: 2% as payment for services
Payment for movie/concert tickets
EWT t 2% t f i
Payment of interest on bank loans by the TTC/GO/LT and other fees paid to
the bank
EWT rate: 2%
Payments for life and non-life insurance premium by the TTC/GO/LT to
domestic/resident foreign insurance companies
P i t t i i th h b k t
EWT Clarifications in RMC No. 72-2004 EWT Clarifications in RMC No. 72-2004
Premium payments to insurance companies through brokers or agents or
any other person authorized to receive/collect payment on behalf of the
insurance company
EWT rate: 2%
Withholding agent: payor or person having control over the payment.
However, payor is required to issue the certificate of taxes withheld (BIR
Form No. 2307) in the name of the insurance company, not in the name
of the insurance broker.
Payment made to Health Maintenance Organizations (HMOs) by
TTC/GO/LT
Final Withholding Tax (FWT)
Full and final payment of the income tax due from the payee on a
particular type of income subject to FWT (e.g., interest on deposits,
royalties, etc.)
Limited only to the payees income tax liability and does not extend Limited only to the payee s income tax liability and does not extend
to other taxes that may be imposed on said income.
Liability for the payment of the tax rests primarily on the payor as
withholding agent.
Payee is not required to file an income tax return for the particular
income subjected to FWT.
Commonly used FWT Rates Commonly used FWT Rates
Income Payment Tax Rate Payee
Gross income derived from all
sources within the Philippines such
i t t di id d t
30% Non-resident
Foreign
Corporation
as interests, dividends, rents,
royalties, annuities emoluments, or
other fixed or determinable annual,
periodic or casual gains, profits and
income and capital gains (except
capital gains realized from sale,
exchange, disposition of shares of
stock in any domestic corporation
hi h i bj t t CGT)
Corporation
which is subject to CGT).
Interest income on Foreign Loans
contracted on or after August 1, 1986
20% Non-resident
Foreign
Corporation
Tax Treaty Relief Tax Treaty Relief
RMO No. 72-2010
The following Tax Treaty Relief Applications (TTRAs) forms shall
henceforth be adopted to implement this RMO: henceforth be adopted to implement this RMO:
Form No. Purpose
BIR Form No. 0901-P For Business Profits
BIR Form No. 0901-T For Profits from Shipping and Air Transport
BIR Form No. 0901-D For Dividend Income
BIR Form No. 0901-I For Interest Income
BIR Form No 0901 R For Royalty Income
BIR Form No. 0901-R For Royalty Income
BIR Form No. 0901-C For Capital Gains
BIR Form No. 0901-S For Income from Services
BIR Form No. 0901-O For Other Income Earnings
Tax Treaty Relief Applications: RMO 72-2010 Tax Treaty Relief Applications: RMO 72-2010
Shall only be submitted to and received by the International Tax
Affairs Division (ITAD).
Must be made BEFORE the transaction or before the first taxable
event.
Disqualification failure to file with ITAD within the prescribed
period
Fringe Benefit Tax (FBT)
Fringe benefits furnished or granted to:
Rank and file employees part of the employees gross p y p p y g
compensation income subject to WTW.
Non-rank and file employees subject to FBT.
EMPLOYER is liable to FBT.
Fringe Benefit Tax Rate and Base Fringe Benefit Tax Rate and Base
FBT Rate and FBT Base
Generally FBT rate = 32%; FBT base = monetary value of
benefit divide by 68%
Non-resident alien individual who is not engaged in trade or business
i th Phili i FBT t 25% FBT b t l f in the Philippines FBT rate = 25%; FBT base = monetary value of
benefit divide by 75%
If given to: (1) an alien individual employed by regional or area
headquarters of a multinational company or by regional operating
headquarters of a multinational company; (2) an alien individual
employed by an offshore banking unit of a foreign bank established in
the Philippines; (3) an alien individual employed by a foreign service
contractor or by a foreign service subcontractor engaged in
petroleum operations in the Philippines; and (4) any of their Filipino
petroleum operations in the Philippines; and (4) any of their Filipino
individual employees who are employed and occupying the same
position as those occupied or held by the alien employees. FBT
rate =15%; FBT base = monetary value of benefit divide by 85%
Gross Monetary Value (GMV) = Value of Benefit + FBT
Fringe Benefits NOT Subject to FBT Fringe Benefits NOT Subject to FBT
1. Fringe benefits which are authorized and exempted from income tax
under the Code or under any special law;
2. Contributions of the employer for the benefit of the employee to
retirement insurance and hospitalization benefit plans; retirement, insurance and hospitalization benefit plans;
3. Benefits given to the rank and file, whether granted under a collective
bargaining agreement or not;
4. De minimis benefits as will be discussed in detail in later slides;
5. If the grant of fringe benefits to the employee is required by the nature of,
or necessary to the trade, business or profession of the employer; or
6. If the grant of the fringe benefit is for the convenience or advantage of the
employer.
If fringe benefit is exempt from FBT may still form part of employees
gross compensation income subject to WTW
Valuation of Fringe Benefits (FB) Valuation of Fringe Benefits (FB)
1. If FB is granted in money, or is
directly paid for by the employer
The value of the FB is the amount
granted or paid for.
2. If the FB is granted or furnished by
the employer in property other than
money and ownership is
transferred to the employee
The value of the FB shall be equal to
the FMV of the property as determined
in accordance with Section 6(E) of the
Tax Code (Authority of the Comm. To
Prescribe Real Property Values).
the employer in property other than
The value of FB is equal to the
depreciation value of the property.
p y p p y
money but ownership is not
p p p y
Valuation of Fringe Benefits (FB) Valuation of Fringe Benefits (FB)
Computation of the FBT would entail:
1. valuation of the benefit granted; and
2. determination of the proportion or percentage of the benefit which is
subject to FBT j
Nature of benefit given Valuation of Fringe Benefit
1. If FB is granted in money, or is
directly paid for by the employer
Amount granted or paid for
the employer in property other
than money and ownership is
FMV of the property as determined in
accordance with Section 6(E) of the
Tax Code (Authority of the Comm. To
Prescribe Real Property Values)
p y p y )
the employer in property other
than money but ownership is not
Depreciation of the property
Common Benefits Common Benefits
Housing
Expense account
Motor vehicle of any kind
Household expenses
Interest on loans at less than market rate to the extent of the difference
between the market rate and actual rate granted
Membership fees, dues, and other expenses borne by the employee in
social and athletic clubs or other similar organizations
Foreign travel expenses
Holiday and vacation expenses
Educational assistance to the employee and his dependents
Life or health insurance and other non-life insurance premiums
Stock options
Housing Privileges NRF Housing Privileges NRF
Housing Privilege Monetary Value
a. Lease of residential property for
residential use of employees
MV = 50% x rental payments
Wh MV t l f FB Where: MV = monetary value of FB
b. Assignment of residential property
for use of employee as his usual
place of residence
MV = [5% (FMV or ZV, whichever is
higher)] x 50%
Where: FMV = Fair market value of the land improvement, as declared in the
Real Property Tax Declaration Form
ZV = Zonal Value as determined by the Commissioner of Internal
Revenue
Housing Privileges NRF Housing Privileges NRF
Housing Privilege Monetary Value
c. Purchase of residential property on
installment basis for use of
employees and ownership is not
MV = 5% x AC x 50%
Wh AC A i iti C t
employees and ownership is not
transferred to employees
Where: AC = Acquisition Cost,
exclusive of interest
d. Purchase of residential property
and ownership is transferred in the
name of the employees
MV = AC or ZV, whichever is higher
e. Purchase of residential property
and transfer of ownership to
employees for residential use, at a
MV = FMV or ZV, (whichever is higher)
- Cost to the employees
p y
price less than the employers
acquisition cost
Motor Vehicle NRF Motor Vehicle NRF
Motor vehicles provided by the employer to its employees shall be treated as
follows:
Motor Vehicle Monetary Value
a. Purchase of motor vehicle in the
name of the employee
MV = AC MV = AC
b. Cash is given to the employee for
the purchase of the vehicle,
ownership is placed in the name of
the employee
MV = Cash Received by
the Employee
However, if the cash given by the employer
to its employee is subjected to WTW, the
same shall not be subject to FBT
same shall not be subject to FBT.
c. Purchase of car on installment
basis, the ownership of which is
placed in the name of the
employee
MV = AC / 5
Where:
AC = Acquisition Cost, exclusive of interest
follows:
d Employer shoulders a portion of the MV = Amount shouldered by the d. Employer shoulders a portion of the
purchase price, the ownership of which
is placed in the name of the employee
MV = Amount shouldered by the
employer
e. Employer owns and maintains a fleet
of motor vehicles for use of the
business and the employees
MV = (AC/5) x50%
Exceptions:
Motor vehicles in the fleet which are
used for sales, freight, delivery, service
and other non-personal use.
f. Employer leases and maintains a fleet
of motor vehicles for the use of the
business and the employees
MV = 50% x rental
payments
Exceptions:
Motor vehicles in the fleet which are
used for sales, freight, delivery, service
and other non-personal use
follows:
g. The use of aircraft (including
helicopters) owned and maintained by
the employer shall be treated as used
for business
N/A
(Not subject to FBT)
h. Use of yacht, whether owned or
maintained or leased by the employer
MV = Depreciation over
estimated useful life of 20 years
For a to d
The entire MV of the benefit shall be treated as taxable fringe benefit
regardless of whether the motor vehicle is used by the employee partly for
his personal purpose and partly for the benefit of his employer.
Withholding Tax on Wages (WTW)
Compensation
All remuneration for services performed by an employee for his p y p y
employer under an employer-employee relationship, unless
specifically excluded by the Tax Code.
Even if the relationship of employer and employee does not exist any
longer at the time when payment is made
WTW rate WTW rate
Rates for computation of Annualized Income*
Over But Not Amount Rate Of Excess
Over Over
not o er 10 000 5% not over 10,000 5%
10,000 30,000 500+10% 10,000
30,000 70,000 2,500+15% 30,000
70,000 140,000 8,500+20% 70,000
140,000 250,000 22,500+25% 140,000
250,000 500,000 50,000+30% 250,000
500,000 over 125,000+32% 500,000
* Note that there are different tax tables for monthly/ semi-monthly/ weekly/
bi-weekly rates depending on the payroll period.
List of De Minimis Benefits: RR No. 5-2011 List of De Minimis Benefits: RR No. 5-2011
a) Monetized unused vacation leave credits of private employees not
exceeding 10 days during the year;
b) Monetized value of vacation and sick leave credits paid to government
officials and employees; officials and employees;
c) Medical cash allowance to dependents of employees, not exceeding
P750 per employee per semester or P125 per month;
d) Rice subsidy of P1,500 or 1 sack of 50 kg rice per month amounting to
not more than P1,500;
e) Uniform and clothing allowance not exceeding P4,000 per annum; (Now
P5,000 effective January 1, 2012 per RR No. 8-2012)
f) Actual medical assistance, e.g., medical allowance to cover medical and
) g
healthcare needs, annual medical/executive check-up, maternity
assistance, and routine consultations, not exceeding P10,000 per annum;
g) Laundry allowance not exceeding P300 per month;
List of De Minimis Benefits List of De Minimis Benefits
h) Employees achievement awards, e.g., for length of service or safety
achievement, which must be in the form of a tangible personal property
other than cash or gift certificate, with an annual monetary value not
exceeding P10,000, received by the employee under an established
written plana which does not discriminate in favor of highly paid
employees;
i) Gifts given during Christmas and major anniversary celebrations not
exceeding P5,000 per employee per annum;
j) Daily meal allowance for overtime work and night/graveyard shift not
exceeding 25% of the basic minimum wage on a per region basis.
B fi i h d b
Benefits given that are not enumerated above
Not considered as de minimis benefits,
Shall be subject to income tax as well as withholding tax on
compensation income (shall mean FBT if given to NRF employees)
Employees Qualified for Substituted Filing Employees Qualified for Substituted Filing
a) Receiving purely compensation income (regardless of amount) during the
taxable year
b) Receiving the income only from one employer in the Philippines during b) Receiving the income only from one employer in the Philippines during
the taxable year
c) Amount of tax due from the employee at the end of the year equals the
amount of tax withheld by the employer
d) Spouse also complies with all 3 conditions stated above.
e) Employer files the annual information return (BIR Form No. 1604-CF)
e) Employer files the annual information return (BIR Form No. 1604 CF)
f) Employer issues BIR Form 2316 (Oct 2002 ENCS) version to each
employee
Employees NOT Qualified for Substituted
Filing
Filing
A. Deriving compensation from two or more employers concurrently or
successively at anytime during the taxable year.
B D i i ti i dl f th t h th f B. Deriving compensation income, regardless of the amount, whether from a
single or several employers during the calendar year, the income tax of
which has not been withheld correctly (i.e. tax due is not equal to the tax
withheld) resulting to collectible or refundable return.
C. Whose gross compensation income do not exceed the statutory minimum
wage or Five Thousand Pesos (P5,000.00) per month (Sixty Thousand
Pesos [PHP 60,000] a year, whichever is higher, including employees of
the government of the Philippines or any of its political subdivisions
the government of the Philippines, or any of its political subdivisions,
agencies or instrumentalities, with salary grades 1 to 3.
Filing
Filing
D. Deriving other non-business, non-profession-related income in addition to
compensation income not otherwise subject to a final tax.
E R i i l ti i f i l l lth h E. Receiving purely compensation income from a single employer, although
the income tax of which has been correctly withheld, but whose spouse
falls under Section 2.83A(A), (B), (C) and (D) of these Regulations.
F. Non-resident aliens engaged in trade or business in the Philippines
deriving purely compensation income, or compensation income and other
non-business, non-profession-related income.
Deadlines for Filing and Payment of WT
Information Manual EFPS
1. Monthly Return (BIR
Form 1601)*
Filing - Within 10 days after
the end of each month
except for taxes withheld for
Filing - Within 15 days after
the end of each month
except for taxes withheld for except for taxes withheld for
the month of December
each year, which shall be
filed on or before January
15 of the following year
Payment - within 10 days
after the end of each month,
filed on or before January
Payment - within 15 days
after the end of each month,
paid on or before January
which shall be paid on or
before January 20 of the
following year
* Pursuant to Revenue Regulation (RR) No. 26-2002, taxpayers enrolled in the EFPS shall observe the
staggered filing deadlines of their tax returns of taxpayers based on industry classification.
2. Monthly Alphalist of
Payees (MAP) Whose
Income Recei ed Ha e
Within 10 days after the
end of each month except
for ta es ithheld for the
Within 15 days after the
end of each month except
for ta es ithheld for the
Income Received Have
Been Subjected to
Withholding Tax
for taxes withheld for the
month of December each
year, which shall be filed on
or before January 15 of the
following year
for taxes withheld for the
month of December each
year, which shall be filed on
or before January 20 of the
following year
3. Semestral List of
Regular Suppliers of
Goods and Services**
On or before January 31
and July 31 of each year.
On or before January 31
and July 31 of each year.
** Only applicable to Companies that are considered as one of the Top 10,000
(Now Top 20,000) Private Corporations
4. Annual Information
Return of Creditable
Income Taxes Withheld
(E d d)/I
On or before March 1 of the
following year
On or before March 1 of the
following year
(Expanded)/Income
Payments Exempt from
Withholding Tax (BIR
Form 1604-E)
5. Certificates of Creditable
Tax Withheld (BIR Form
No. 2307) - to be issued
by the payor to the
payee
Within twenty (20) days
following the close of the
taxable quarter employed by
the payee in filing his
quarterly income tax return
Within twenty (20) days
following the close of the
taxable quarter employed by
the payee in filing his
quarterly income tax return
payee quarterly income tax return. quarterly income tax return.
6. Annual Information
Return of Taxes Withheld
(BIR Form No. 1604 -
CF)
to be filed with the revenue
district office on or before
January 31 of the following
year in which payments were
made.
to be filed with the revenue
district office on or before
January 31 of the following
year in which payments were
made.
7. Withholding VAT Return
(BIR Form 1600)
Deadline of filing and
payment: 10
th
day of the
following month
payment: 10
th
day of the
following month
following month following month
8. Fringe Benefit Tax (BIR
Form 1603) - Quarterly
Remittance Return of
Final Income Taxes
Withheld on Fringe
Benefits Paid to
Employees Other than
payment: 10
th
day of the
following month
payment shall be five (5)
days later than the deadline
set under the manual filing
and payment system
Employees Other than
Rank and File
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