Income may arise from service, labor or capital.

C. Tax Rates
1. Individuals
a. Graduated income tax rates on taxable income
b. Capital gains flat rate
i . on sales of shares of stock of domestic corporation (except dealers in securities)
aa. of 1% Gross Selling price listed shares
bb. 5% for 1st 100,000 and 10% in excess of 100,00 of net Capital gains shares not listed and
exchanged in stock exchange
ii. On sale of real property classified as capital asset by individual flat rate 6%
located in Ph
c. Passive income subject to final tax at preferential rates
tax base is gross income p. 27 syllabus
taxpayers locators of Special Econ Zone tax 5% on Gross income in lieu of all other taxes
(they just pay 1 tax : PCDA SBMA Peza registered, Apeco)
Definition of Gross income is different from that in the tax code: because the locators are governed by
special laws.
Tax bases
taxable income
gross income (deduction of cost of goods sold) NFRC , NRENETB
If on the sale of Rp classified as capital asset whether by ind or corp= tax base = 6% imposed on gross
selling price or zonal value whichever is higher (cost of property is not allowed as deduction)
- gain or loss on the part of seller is immaterial; even if sold at a loss, still liable for 6% FCGT
-Gain from sale of RP ordinary asset tax bases is Gross income (selling price-adjusted basis=
gain)
- engaged in real estate business allowed to claim deductions
Sale of unlisted shares = tax bases is Selling price less basis (cost of shaires) = gain
gain may be offset of capital loss to obtain capital gain
first 100k 5%, next = 10%
Listed and traded shares = gain derived is exempt, but subject to stock transaction tax (10%?)= tax base
is GSP, tax rate of 1%
listed not traded =
2. Corporations
a. Domestic
i . Regular of normal income tax rate flat rate 30% starting 2009
ii. MCIT
SEC 27 NIRC Rates of Income tax on Domestic Corporations. (E) Minimum Corporate Income Tax on Domestic Corporations. (1) Imposition of Tax. - A minimum corporate income tax of two percent (2%0 of the gross income as of the
end of the taxable year, as defined herein, is hereby imposed on a corporation taxable under this Title,
beginning on the fourth taxable year immediately following the year in which such corporation
commenced its business operations, when the minimum income tax is greater than the tax computed
under Subsection (A) of this Section for the taxable year.
(2) Carry Froward of Excess Minimum Tax. - Any excess of the minimum corporate income tax over the
normal income tax as computed under Subsection (A) of this Section shall be carried forward and credited
against the normal income tax for the three (3) immediately succeeding taxable years.

(3) Relief from the Minimum Corporate Income Tax Under Certain Conditions. - The Secretary of Finance is
hereby authorized to suspend the imposition of the minimum corporate income tax on any corporation
which suffers losses on account of prolonged labor dispute, or because of force majeure, or because of
legitimate business reverses.
The Secretary of Finance is hereby authorized to promulgate, upon recommendation of the Commissioner,
the necessary rules and regulation that shall define the terms and conditions under which he may suspend
the imposition of the minimum corporate income tax in a meritorious case.
(4) Gross Income Defined. - For purposes of applying the minimum corporate income tax provided
under Subsection (E) hereof, the term 'gross income' shall mean gross sales less sales returns,
discounts and allowances and cost of goods sold. "Cost of goods sold' shall include all business
expenses directly incurred to produce the merchandise to bring them to their present location and
use.

REVENUE REGULATIONS 12-07 SEC. 2. AMENDATORY PROVISION. Pertinent

portions of
of Revenue Regulations No. 9-98

are hereby amended

Sec.
2.27(E)
MINIMUM
DOMESTIC CORPORATIONS

CORPORATE

Sec.

2.
2
7(
E)

to read as follows:
INCOME

TAX

(MCIT)

(1) Imposition of the Tax. - A minimum corporate income tax (MCIT) of two percent
(2%) of the gross income as of the end of the taxable year (whether calendar or fiscal year,
depending on the accounting period employed) is hereby imposed upon any domestic corporation
beginning on the fourth (4th) taxable year immediately following the taxable year in which such
corporation commenced its business operations. The MCIT shall be imposed whenever such
corporation has zero or negative taxable income or whenever the amount of minimum corporate
income tax is greater than the normal income tax due from such corporation. XXX
For purposes of these Regulations, the term, normal income tax means the income tax rates
prescribed under Sec. 27 (A) and Sec. 28(A)(1) of the Code at 34% on January 1, 1998; 33% effective
January 1, 1999; at 32% effective January 1, 2000 and 35% effective November 1, 2005 and
thereafter.
Provided, however, that effective January 1, 2009 the rate of income tax shall be thirty
percent (30%), pursuant to RA No. 9337.
In the case of a domestic corporation xxx xxx xxx
(2) Carry forward of excess minimum corporate income tax xxx
xxx xxx
to carry forward excess minimum
Illustration on how
corporate income tax
presented on annualized basis E
xc
es
s
of
MC
IT
Normal Income
O
ve
r
th
e
N

Year

1998
1998
1999
1999
2000

Tax

P50,000
amount of tax payable
P60,000
amount of tax payable
P100,000

MCIT

P 75,000
P 75,000
P100,000
P100,000
P60,000

or
m
al
In
c
o
m
e
Ta
x
P2
5,0
00
P4
0,0
00

Computation of Net Amount of Tax Payable in 2000:

Amount of tax payable
Less:
1998 excess MCIT
(25,000)
1999 excess MCIT
(40,000)
Net amount of tax payable
The taxpayer shall pay the MCIT whenever it is greater than the regular or normal
corporate income tax which is imposed under Sec. 27(A) and Sec. 28(A)(1) of the Code. The final
comparison between the normal income tax payable by the corporation and the MCIT shall be made
at the end of the taxable year and the payable or excess payment in the Annual Income Tax
Return shall be computed taking into consideration corporate income tax payment made
at the time of filing of quarterly corporate income tax returns whether this be MCIT or
normal income tax Thus, under the example, the taxpayer should have paid the MCIT of
P75,000.00 since this amount is greater than the normal income tax of P50,000.00 in 1998.
xx
xxx x

xx
x

(3) Relief from the Minimum Corporate Income Tax under Certain Conditions
xxx xxx xxx
xxx xxx xxx
(4) Definition of Terms
(a) Gross income defined For purposes of the minimum corporate income tax
prescribed under this Subsection, the term gross income means gross sales less sales returns,
discounts, and allowances and cost of goods sold, in case of sale of goods, or gross revenue less
sales returns, discounts, allowances and cost of services/direct cost, in case of sale of services . This
rule, notwithstanding, if apart from deriving income from these core business activities
there are other items of gross income realized or earned by the taxpayer during the
taxable period which are subject to the normal corporate income tax, the same items
must be included as
part of the taxpayers gross income for computing MCIT. This means that the term gross
income will also include all items of gross income enumerated under Section 32(A) of
the Tax Code, as amended, except income exempt from jncome tax and income subject to
final withholding tax described in the succeeding subparagraph.

Gross sales shall include only sales contributory to income taxable under Sec. 27(A) of
the Code. Cost of goods sold shall include all business expenses directly incurred to produce
the merchandise to bring them to their present location and use. Gross Revenue shall include
income from sale of services, likewise, taxable under Sec. 27(A). Cost of Services or Direct Cost of
Services shall include business expenses directly incurred or related to the gross revenue from
rendition of services.
Passive incomes which are subject to final tax at source shall not form part of gross
income for purposes of minimum corporate income tax.
xxx xxx
(5) Specific Rules for Determining the Period When a Corporation
Becomes
Subject to the MCIT xxx xxx xxx
(6) Manner of filing and payment The minimum corporate income tax (MCIT) shall
be paid in the same manner prescribed for the payment of the normal corporate income
tax which is on a quarterly and on a yearly basis. It shall be covered by a tax return designed
for the purpose which will be submitted together with the corporation's annual final adjustment
income tax return. Domestic corporations shall be required to pay the minimum corporate income
tax on a quarterly basis, pursuant to the provisions of Sec. 75 and Sec. 77 of the
Code in relation to Section 245 of the same Code, as amended.
xxx xxx

xxx

XXXXX

MAMALATEO: MCIT
2% of Gross income (no allowable deductions)
When is tax payer liable (RFC / DC has to compute regular income tax and MCIT it has to pay the higher
amount; if MCIT is higher than the Regular Income tax, MCIT shall be paid)
Not applicable to corporations that are subject to special tax rates:
proprietary educational institution
NRFC tax base already GI
non profit hospitals
depository banks under FCD (foreign currency deposit)
ROHQ
locators of special economic zones applied are special laws.
Will only apply on the 4th year of operation, reckoned from the start of its commercial operations;
reckoning point is BIR registration.
Individuals ETB = just like CORPS ETB= file quarterly; and reporting of income is quarterly
RELIEF FROM MCIT
CORP that suffers losses, force majeur, legitimate business losses
Gross receipt and cost of services per industry

For purposes of applying MCIT the gross receipts and cost of services of taxpayers engaged in the
following types of services, or any other kind but of a similar nature, shall be determined as follows:
i) banks and non bank financial intermediaries performing quasi banking activities pursuant to sec V,W,
and X of NIRC xxxx
ii) insurance and pension funding companies
iii) finance companies and other financial intermediaries not performing quasi banking activities
iv) brokers of securities (excluding banks)
v) customs, insurance, real estate, immigration, and commercial brokers
vi) general engineering and/or building contractors
vii) common carriers or transportation contractors
viii)hotel, motel, rest/pension/lodging house and resort operators
ix) food service establishments
x) lessors of property
xi) telephone and telegraph electric gas, and water utilities
xii) radio and/or television broadcasting
xiii) relief from minimum corporate income tax under certain conditions
xv) specific rules for determining period when a corporation becomes subject to MCIT
xvi) manner and filing and payment
xvii) accounting treatment of the excess minimum corporate income tax paid
xviii) exceptions
iii. Improperly Accumulated Earnings Tax (IAET)
DC classified as closely, more than 50% of its outstanding shares or voting shares are held by no more
than 20 individuals
May continue accumulating retained earning! To discourage them, IAET was imposed at 10% of Improperly
accumulated earnings, regardless of the composition or identity of shareholders
The 10% is in the form of penalty because when the corporation declares dividends, shareholders will
pay again the taxes, withholding of taxes based on the different rates.
Not applicable:
1. RFC
2. NRFC
3. DC - publicly-held
4. Bank and non-bank 5. Insurance companies common to accumulate earnings for 3, 4 and 5
6. Taxable partnerships and JV's constructive receipt principle ; income taxable to partners whether
actually received or not (6, 7, 8)
7. GPP
8. exempt JV
9. PEZA, SBMA, BCDA subject to 5% in lieu of all other taxes

WHEN IS ACCUMULATION PROPER

IF RETAINED EARNINGS ARE MORE THAN PAID IN CAPITAL IMPROPER

EX : PAID IN 10M , AND R.E. IS GREATER THAN 10M

IF EQUAL OR LESS THAN PAID IN CAPITAL NO NEED TO TEST IF ACCUMULATION IS PROPER OR

IMPROPER
JUSTIFY BY BOARD RESOLUTION THAT EARNINGS WERE RETAINED FOR BUSINESS EXPANSION,
CONSTRUCTION OF BLDGS, ACQUISITION OF LAND, CAPITAL EXPENDITURES, OR DUE TO
LEGAL REQUIREMENTS;
LOAN AGREEMENTS BY CREDITORS, COVENANTS WHICH WOULD RESTRICT TP FROM
DECLARING DIVIDENDS
OR BY REQUIREMENTS OF THE LAW.

WHEN IMPROPER
immediacy test To determine the reasonable needs of the business in order to justify an accumulation
of earnings, these Regulations hereby adhere to the so-called Immediacy test.

Accordingly, the term reasonable needs means the immidate needs of the business,
including reasonably anticipated needs.

In either case, the corporation should be able to prove an immediate need for the accumulation of
the earnings and profits , or the direct correlation of anticipated needs to such accumulation of
profits.
Otherwise such accumulation would be deemed to be not for the reasonable needs of the business, and
the penalty tax would apply.

IF IN THE BALANCE SHEET, THE TOTAL ASSETS WILL BE FUNDED BY LIABILITIES OR EQUITY: (A = L + E)
AND EQUITY IS COMPOSED OF ADDITIONAL CAPITAL PAID IN CAPITAL AND RETAINED EARNINGS
THESE RETAINED EARNINGS WILL HAVE A COUNTER PART ASSET
IF THERE R. EARNINGS WERE EARMARKED FOR UNRELATED ACTIVITIES WITH THE BUSINESS
INDICATION THAT THE RETENTION IS NOT REASONABLE BECAUSE IT IS INVESTED THAT IS
UNRELATED.
ADDITIONAL PAID IN CAPITAL PAID IN CAPITAL AND RETAINED EARNINGS
THE PORTION ALLOCATED FOR STOCK DIVIDENDS WILL BE RECLASSIFIED INTO PAID IN CAPITAL
SO THE PAID IN CAPITAL REPRESENTS THE TOTAL PAR VALUE OF THE SHARES ISSUED
ADDITIONAL PAID IN CAPITAL IS PREMIUM OVER PAR (EXCESS OVER PAR)

Section 29. Imposition of Improperly Accumulated Earnings Tax. (A) In General. - In addition to other taxes imposed by this Title, there is hereby imposed for each taxable
year on the improperly accumulated taxable income of each corporation described in Subsection B hereof,
an improperly accumulated earnings tax equal to ten percent (10%) of the improperly
accumulated taxable income.
(B) Tax on Corporations Subject to Improperly Accumulated Earnings Tax. (1) In General. - The improperly accumulated earnings tax imposed in the preceding Section shall apply to
every corporation formed or availed for the purpose of avoiding 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.
(2) Exceptions. - The improperly accumulated earnings tax as provided for under this Section shall not
apply to:
(a) Publicly-held corporations;
(b) Banks and other nonbank financial intermediaries; and
(c) Insurance companies.
(C) Evidence of Purpose to Avoid Income Tax. (1) Prima Facie Evidence. - the fact that any corporation is a mere holding company or investment
company shall be prima facie evidence of a purpose to avoid the tax upon its shareholders or members.
(2) Evidence Determinative of Purpose. - The fact that the earnings or profits of a corporation are
permitted to accumulate beyond the reasonable needs of the business shall be determinative of the
purpose to avoid the tax upon its shareholders or members unless the corporation, by the clear
preponderance of evidence, shall prove to the contrary.

(D) Improperly Accumulated Taxable Income. - For purposes of this Section, the term 'improperly
accumulated taxable income' means taxable income' adjusted by:
(1)
(2)
(3)
(4)

Income exempt from tax;

Income excluded from gross income;
Income subject to final tax; and
The amount of net operating loss carry-over deducted;

And reduced by the sum of:

(1) Dividends actually or constructively paid; and
(2) Income tax paid for the taxable year.
Provided, however, That for corporations using the calendar year basis, the accumulated earnings under
tax shall not apply on improperly accumulated income as of December 31, 1997. In the case of
corporations adopting the fiscal year accounting period, the improperly accumulated income not subject to
this tax, shall be reckoned, as of the end of the month comprising the twelve (12)-month period of fiscal
year 1997-1998.
(E) Reasonable Needs of the Business. - For purposes of this Section, the term 'reasonable needs of the
business' includes the reasonably anticipated needs of the business.
Rev Regulations 2-2001 Digest
REVENUE MEMORANDUM ORDER NO. 2-2001 issued January 18, 2001 defines and delineates the functions
and processes of the National Office Management Information System (NOMIS)-Management Reporting
through Executive Information System (EIS) Capability (Release 4).
The following officials will have access on the NOMIS (Release 4):
1) Commissioner;
2) Deputy Commissioners;
3) concerned Assistant Commissioners;
4) concerned Head Revenue Executive Assistants;
5) Regional Directors;
6) Asst. Regional Directors of Metro Manila and Cebu City; and
7) selected Division Chiefs and Section Chiefs.
The reports and screens that can be generated, printed or viewed through NOMIS (Release 4) are specified
in the Order, including the Office Scorecard that will be used in the monitoring of performance of
concerned BIR offices.

Notes: IAET! in addition to other income taxes imposed under Income tax, an improperly accumulated
earnings tax equal to 10% of the improperly accumulated taxable income for each taxable year is
imposed.
CONCEPT OF IMPROPERLY ACCUMULATED EARNINGS TAX
a tax equal to 10% of the improperly accumulated taxable income of corporation formed or availed of for
the purpose of avoiding the income tax with respect to its shareholders or the shareholders of any
corporation to accumulate instead of dividing them among or distributing them to the shareholders is
imposed.

The rationale is that if the earnings and profits were distributed, the shareholders
would then be liable to income tax thereon, whereas if the distribution were not made to
them they would not incur in respect to the undistributed earnings and profits of the corporation.

Thus a tax being imposed in the nature of a penalty to the corporation for the improper
accumulation of its earnings and as a form of deterrent to the avoidance of tax upon shareholders

who are supposed to pay dividends tax on the earnings distributed to them .
If there is a determination that a corporation has accumulated income beyond the reasonable
needs of the business , the 10% improperly accumulated earnings tax shall be imposed.

DETERMINATION OF REASONABLE NEEDS OF THE BUSINESS

An accumulation of earnings or profits (including undistributed earnings or profits of prior years ) is
unreasonable if it is not necessary for the purpose of the business , considering all the
circumstances of the case.
To determine the reasonable needs of the business in order to justify an accumulation of earnings, these
Regulations hereby adhere to the so-called Immediacy test.

Accordingly, the term reasonable needs means the immidate needs of the business,
including reasonably anticipated needs.

In either case, the corporation should be able to prove an immediate need for the accumulation of
the earnings and profits , or the direct correlation of anticipated needs to such accumulation of
profits.

Otherwise such accumulation would be deemed to be not for the reasonable needs of the
business, and the penalty tax would apply.
The following constitute accumulation of earnings for the reasonable needs of the business:
a) allowance for increase in the accumulation of earnings up to 100% of the paid up capital of the
corporation as of Balance sheet date inclusive of accumulations taken from the years.
b) earnings reserved for definite corporate expansion projects or programs requiring considerable capital
expenditures as approved by the BOD or equivalent body
c)Earnings reserved for building, plants or equipment acquisition as approved by the BOD or equiv body
d) earnings body reserved for compliance with any loan covenant or pre existing obligation established
under a legitimate business agreement
e) earnings required by law or applicable regulations to be retained by the corporation or in respect of
which there is a legal prohibition against its distribution
f) in the case of subsidiaries of foreign corporations in the Ph, all undistributed earnings intended or
reserved for investments within the Ph as can be proven by corporate records and / or relevant
documentary evidence.
THE 10% IAET imposed on improperly accumulated taxable income earned starting 1998 Jan 1
by domestic corporation as defined under NIRC and which are classified as closely-held
corporations. However, IAET shall not apply to the ff corps:
a) banks and other non bank financial intermediaries
b) insurance companies
c) publicly held corps
d) taxable partnerships
e) GPP
f) non taxable JVs
g) enterprises duly registered with PEZA under RA 7916 and enterprises registered pursuant to the Bases
Conversion and Devt Act as well as other enterprises duly registered under special economic zones
declared by law which enjoy payment of a special tax rate on their registered operations or activities in
lieu of other taxes, national or local.
For purposes of there Regulations, closely held corporations are those corporations atleast 50% in value of
the OCS or atleast 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 individuals.
Domestic corporations not falling under the aforesaid definitions are, therefore, publicly-held corporations.
When is a corporation a closely held corp = p. 466
Tax base of improperly accumulated earnings tax: For corporations subject to tax, the Improperly
Accumulated Taxable income for a particular year is first determined by adding to that years taxable
income the following:

a) income exempt from tax

b) income excluded from gross income
c) income subject to final tax; and
d) the amount of NOLCO deducted
The taxable income as thus determined shall be reduced by the sum of:
a) income tax paid/payable during the taxable year
b) dividends actually or constructively paid / issued from the applicable years taxable income;
c) amount reserved for the reasonable needs of the business as defined in these Regulations emanating
from the covered years taxable income.
The resulting Improperly Accumulated Taxable income is thereby multiplied by 10% to get the
Improperly accumulated earnings tax.

Once the profit has been subjected to IAET, the same shall no longer be subjected to IAET in later
years even if not declared as dividend.

Profits which have been subjected to IAET when finally declared as dividends shall nevertheless
be subject to Tax on dividends imposed under NIRC except those instances where the recipient

The dividends shall be deemed to have been paid out of the most recently accumulated profits or
surplus and shall constitute a part of the annual income of the distributee for the year in which
received pursuant to Sec 73 C

Dividends must be declared and paid or issue not later than one year following the close of the
taxable year otherwise the IAET if any should be paid within 15 days thereafter.
The following are prima facie instances of accumulation of profits beyond the reasonable needs of a
business and indicative of purpose to avoid income tax upon shareholders:
a) investment of substantial earnings and profits of the corporation in unrelated business or in stock or
securities of unrelated business
b) investment in bonds and other long term securities
c) accumulation of earnings in excess of 100% of paidup capital not otherwise intended for the reasonable
needs of the business as defined in these Regulations.
In order to determine whether profits are accumulated for the reasonable needs of the business as to
avoid the imposition of the improperly accumulated earnings tax, the controlling intention of the taxpayer
is that which is manifested at the time of the accumulation , not subsequently declared intentions which
are merely product of afterthought.

iv. Domestic Corporations entitled to preferential tax rates

aa. Proprietary educational institutions 10% of taxable income
Section 27. Rates of Income tax on Domestic Corporations. (B) Proprietary Educational Institutions and Hospitals. - Proprietary educational institutions and hospitals
which are nonprofit shall pay a tax of ten percent (10%) on their taxable income except those covered by
Subsection (D) hereof:
Provided, that if the gross income from unrelated trade, business or other activity exceeds fifty percent
(50%) of the total gross income derived by such educational institutions or hospitals from all sources, the
tax prescribed in Subsection (A) hereof shall be imposed on the entire taxable income.
For purposes of this Subsection, the term 'unrelated trade, business or other activity' means any trade,
business or other activity, the conduct of which is not substantially related to the exercise or performance
by such educational institution or hospital of its primary purpose or function.
A 'Proprietary educational institution' is any private school maintained and administered by private
individuals or groups with an issued permit to operate from the Department of Education, Culture and

Sports (DECS), or the Commission on Higher Education (CHED), or the Technical Education and Skills
Development Authority (TESDA), as the case may be, in accordance with existing laws and regulations.
bb. Foreign currency deposit unit of local universal or commercial bank - 10% final tax
Section 27. Rates of Income tax on Domestic Corporations. - (D) Rates of Tax on Certain Passive Incomes. (3) Tax on Income Derived under the Expanded Foreign Currency Deposit System. - Income derived by a
depository bank under the expanded foreign currency deposit system from foreign currency transactions
with local commercial banks, including branches of foreign banks that may be authorized by the Bangko
Sentral ng Pilipinas (BSP) to transact business with foreign currency depository system units and other
depository banks under the expanded foreign currency deposit system, including interest income from
foreign currency loans granted by such depository banks under said expanded foreign currency deposit
system to residents, shall be subject to a final income tax at the rate of ten percent (10%) of such income.
Any income of nonresidents, whether individuals or corporations, from transactions with depository banks
under the expanded system shall be exempt from income tax.
cc. Firms taxed under special income tax regimes eg registered entities under PEZA law and Bases
Conversion Development Act - 5% final tax on gross income

v. Resident Foreign Corporations that puts a branch in the Ph

2 corps : Parent company
subsidiary (branch in PH): RFC only one juridical entity; extension of parent company
But Tax Rate also 30% and tax base is taxable income (of the branch)
when it remits branch profits subject to branch profit remiitance tax of 15% imposed on profit
remitted by Ph branch to its foreign office is the total profit applied or earmarked p. 53 book
2 taxpayers subject to income from within and within : RC/DC

aa. General Rule : 30% of the net taxable income from sources within the Philippines
Section 22. Definitions - When used in this Title: (H) The term 'resident foreign corporation' applies to a
foreign corporation engaged in trade or business within the Philippines.
Section 28. Rates of Income Tax on Foreign Corporations. - A) Tax on Resident Foreign Corporations. (1) In General. - Except as otherwise provided in this Code, a corporation organized, authorized, or existing
under the laws of any foreign country, engaged in trade or business within the Philippines, shall be
subject to an income tax equivalent to thirty-five percent (35%) of the taxable income derived
in the preceding taxable year from all sources within the Philippines: provided, That effective
January 1, 1998, the rate of income tax shall be thirty-four percent (34%); effective January 1, 1999, the
rate shall be thirty-three percent (33%), and effective January 1, 2000 and thereafter, the rate shall be
thirty-two percent (32%).
In the case of corporations adopting the fiscal-year accounting period, the taxable income shall be
computed without regard to the specific date when sales, purchases and other transactions occur. Their
income and expenses for the fiscal year shall be deemed to have been earned and spent equally for each
month of the period.
The reduced corporate income tax rates shall be applied on the amount computed by multiplying the
number of months covered by the new rates within the fiscal year by the taxable income of the
corporation for the period, divided by twelve.

Provided, however, That a resident foreign corporation shall be granted the option to be taxed
at fifteen percent (15%) on gross income under the same conditions, as provided in Section 27
(A).
(2) Minimum Corporate Income Tax on Resident Foreign Corporations. - A minimum corporate income
tax of two percent (2%) of gross income, as prescribed under Section 27 (E) of this Code, shall
be imposed, under the same conditions, on a resident foreign corporation taxable under paragraph (1) of
this Subsection.

(5) Tax on Branch Profits Remittances. - Any profit remitted by a branch to its head office shall be
subject to a tax of fifteen (15%) which shall be based on the total profits applied or earmarked for
remittance without any deduction for the tax component thereof (except those activities which are
registered with the Philippine Economic Zone Authority). The tax shall be collected and paid in the same
manner as provided in Sections 57 and 58 of this Code: provided, that interests, dividends, rents, royalties,
including remuneration for technical services, salaries, wages premiums, annuities, emoluments or other
fixed or determinable annual, periodic or casual gains, profits, income and capital gains received by a
foreign corporation during each taxable year from all sources within the Philippines shall not be treated as
branch profits unless the same are effectively connected with the conduct of its trade or business in the
Philippines.
bb. Exempt entities
1. Regional or Area HQs
22 (DD) The term 'regional or area headquarters' shall mean a branch established in the Philippines by
multinational companies and which headquarters do not earn or derive income from the Philippines and
which act as supervisory, communications and coordinating center for their affiliates, subsidiaries, or
branches in the Asia-Pacific Region and other foreign markets.
Section 28. Rates of Income Tax on Foreign Corporations. (A) Tax on Resident Foreign Corporations. (6) Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies. (c) Capital Gains from Sale of Shares of Stock Not Traded in the Stock Exchange. - A final tax at the rates
prescribed below is hereby imposed upon the net capital gains realized during the taxable year from the
sale, barter, exchange or other disposition of shares of stock in a domestic corporation except shares sold
or disposed of through the stock exchange:
Not over P100,000

5%

On any amount in excess of P100,000

10%

2. Representative Office
cc. RFCs subject to preferential tax rates
1. International carrier = 28 A (3) International Carrier. - An international carrier doing business in the
Philippines shall pay a tax of two and one-half percent (2 1/2%) on its 'Gross Philippine Billings'
as defined hereunder: xxxxx
RA 10378. SEC. 28. Rates of Income Tax on Foreign Corporations.
(A) Tax on Resident Foreign Corporations. XX

(3). International Carrier. An international carrier doing business in the Philippines shall pay a tax of
two and one-half percent (21/2 %) on its Gross Philippine Billings as defined hereunder:
(a) International Air Carrier. Gross Philippine Billings refers to the amount of gross revenue derived
from carriage of persons, excess baggage, cargo, and mail originating from the Philippines in a continuous
and uninterrupted flight, irrespective of the place of sale or issue and the place of payment of the ticket or
passage document: Provided, That tickets revalidated, exchanged and/or indorsed to another international
airline form part of the Gross Philippine Billings if the passenger boards a plane in a port or point in the
Philippines: Provided, further, That for a flight which originates from the Philippines, but transshipment of
passenger takes place at any part outside the Philippines on another airline, only the aliquot portion of the
cost of the ticket corresponding to the leg flown from the Philippines to the point of transshipment shall
form part of Gross Philippine Billings.
(b) International Shipping. Gross . Philippine Billings means gross revenue whether for passenger,
cargo or mail originating from the Philippines up to final destination, regardless of the place of sale or
payments of the passage or freight documents.
Provided, That international carriers doing business in the Philippines may avail of a preferential rate or
exemption from the tax herein imposed on their gross revenue derived from the carriage of persons and
their excess baggage on the basis of an applicable tax treaty or international agreement to which the
Philippines is a signatory or on the basis of reciprocity such that an international carrier, whose home
country grants income tax exemption to Philippine carriers, shall likewise be exempt from the tax imposed
under this provision.

2. OBUS 10% FINAL TAX

28 A (4) Offshore Banking Units. - The provisions of any law to the contrary notwithstanding, income
derived by offshore banking units authorized by the Bangko Sentral ng Pilipinas (BSP) to transact business
with offshore banking units, including any interest income derived from foreign currency loans granted to
residents, shall be subject to a final income tax at the rate of ten percent (10%) of such income.
Any income of nonresidents, whether individuals or corporations, from transactions with said offshore
banking units shall be exempt from income tax.
3. Regional Operating HQs - 10% taxable income
Section 28. Rates of Income Tax on Foreign Corporations. (A) Tax on Resident Foreign Corporations. - (6) Regional or Area Headquarters and Regional Operating
Headquarters of Multinational Companies. - (b) Regional operating headquarters as defined in Section
22(EE) shall pay a tax of ten percent (10%) of their taxable income.
Section 28. Rates of Income Tax on Foreign Corporations. (A) Tax on Resident Foreign Corporations. (6) Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies. (b) Regional operating headquarters as defined in Section 22(EE) shall pay a tax of ten percent (10%) of
their taxable income.
4. Foreign currency deposit unit in Ph of foreign bank 10% final tax
Section 28. Rates of Income Tax on Foreign Corporations. - (A) Tax on Resident Foreign Corporations. - (7)
Tax on Certain Incomes Received by a Resident Foreign Corporation. (b) Income Derived under the Expanded Foreign Currency Deposit System. - Income derived by a
depository bank under the expanded foreign currency deposit system from foreign currency transactions

with local commercial banks including branches of foreign banks that may be authorized by the Bangko
Sentral ng Pilipinas (BSP) to transact business with foreign currency deposit system units, including
interest income from foreign currency loans granted by such depository banks under said expanded
foreign currency deposit system to residents, shall be subject to a final income tax at the rate of ten
percent (10%) of such income.
Any income of nonresidents, whether individuals or corporations, from transactions with depository banks
under the expanded system shall be exempt from income tax.
5. Branch of foreign corp registered with PEZA, SBMA , CDA, etc 5% final tax on gross income
6. Qualified service contractor or subcontractor engaged in petroleum operations in the PH
8% of gross income in lieu of any and all local and international taxes
PD 87, PD 1354

dd. Branch Profits remittance tax (BPRT)

Section 28. Rates of Income Tax on Foreign Corporations. (A) Tax on Resident Foreign Corporations. (5) Tax on Branch Profits Remittances. - Any profit remitted by a branch to its head office shall be
subject to a tax of fifteen (15%) which shall be based on the total profits applied or earmarked
for remittance without any deduction for the tax component thereof (except those activities
which are registered with the Philippine Economic Zone Authority). The tax shall be collected and
paid in the same manner as provided in Sections 57 and 58 of this Code: provided, that interests,
dividends, rents, royalties, including remuneration for technical services, salaries, wages premiums,
annuities, emoluments or other fixed or determinable annual, periodic or casual gains, profits, income and
capital gains received by a foreign corporation during each taxable year from all sources within the
Philippines shall not be treated as branch profits unless the same are effectively connected with the
conduct of its trade or business in the Philippines.
1. Entities exempt from BPRT: PEZA, SBMA registered entities
2. Not deemed remittance of profit: remittable profit transferred to Ph Corporation; remittance of assigned
capital
3. Deemed Profit remittance
Revenue Memo Ruling No 1-2001
MARUBENI V CIR : Marubeni Corporation is a Japanese corporation licensed to engage in business in the
Philippines.
When the profits on Marubenis investments in Atlantic Gulf and Pacific Co. of Manila were declared, a 10%
final dividend tax was withheld from it, and another 15% profit remittance tax based on the remittable
amount after the final 10% withholding tax were paid to the Bureau of Internal Revenue. Marubeni Corp.
now claims for a refund or tax credit for the amount which it has allegedly overpaid the BIR
Issues and Ruling:
1. W/N the dividends Marubeni received from Atlantic Gulf are effectively connected with its conduct or
business in the Philippines as to be considered branch profits subject to 15%profit remittance tax imposed
under NIRC 24(b)(2) NO!
Pursuant to Sec 24(b)(2), only profits remitted abroad by a branch office to its head office which are
effectively connected with its trade or business in the Philippines are subject to the 15% profit remittance
tax. The dividends received by Marubeni from Atlantic Gulf are not income arising from the business
activity in which Marubeni is engaged. Accordingly, said dividends if remitted abroad are not considered

branch profits for purposes of the 15% profit remittance tax imposed by Section 24(b)(2).
2. Whether Marubeni is a resident or NRFC -- NRFC, with respect to the transaction.
Marubenis head office in Japan is a separate and distinct income taxpayer from the branch in the Phil. The
investment on Atlantic Gulf was made for purposes peculiarly germane to the conduct of the corporate
affairs of Marubeni in Japan, but certainly not of the branch in the Phil.
3. At what rate should Marubeni be taxed? 15%.
The applicable provision is Sec 24(b)(1)(iii) in conjunction with the Philippine-Japan Tax Treaty of 1980.
As a general rule, it is taxed 35% of its gross income from all sources within the Phil. However, a
discounted rate of 15% is given to Marubeni on dividends received from Atlantic Gulf on the condition that
Japan, its domicile state, extends in favor of Marubeni a tax credit of not less than 20% of the dividends
received. This 15% tax rate imposed on the dividends received under Section 24(b)(1)(iii) is easily within
the maximum ceiling of 25% of the gross amount of the dividends as decreed in Article 10(2)(b) of the Tax
Treaty.
Notes:
Each tax has a different tax basis. Under the Philippine-Japan Tax Convention, the 25% rate fixed is the
maximum rate, as reflected in the phrase shallnot exceed. This means that any tax imposable by the
contracting state concerned should not exceed the 25%limitation and said rate would apply only if the tax
imposed by our laws exceeds the same.

vi. Non-resident Foreign corporations NRFC

aa. General Rule: 30% of gross income
Section 22. Definitions - When used in this Title:
(I) The term 'nonresident foreign corporation' applies to a foreign corporation not engaged in trade or
business within the Philippines.
Section 28. Rates of Income Tax on Foreign Corporations. - (B) Tax on Nonresident Foreign Corporation. -xx

bb. NRFCs subject to preferential tax rates

1. Non resident Cinematographic film onwer, lessor, or distributor - 25% gross income
28 B (2) Nonresident Cinematographic Film Owner, Lessor or Distributor. - A cinematographic film owner,
lessor, or distributor shall pay a tax of twenty-five percent (25%) of its gross income from all sources
within the Philippines.
2. Nonresident owner or lessor of vessels chartered of Ph nationals - 4.5% of gross rentals or charter fees
28 B (3) Nonresident Owner or Lessor of Vessels Chartered by Philippine Nationals. - A nonresident owner
or lessor of vessels shall be subject to a tax of four and one-half percent (4 1/2%) of gross rentals, lease or
charter fees from leases or charters to Filipino citizens or corporations, as approved by the Maritime
Industry Authority.
3. Nonresident owner on Lessor of Aircraft Machineries and other Equipment - 7.5% of gross rentals or fees
Section 28. Rates of Income Tax on Foreign Corporations. - (B) Tax on Nonresident Foreign Corporation. (4) Nonresident Owner or Lessor of Aircraft, Machineries and Other Equipment. - Rentals, charters and
other fees derived by a nonresident lessor of aircraft, machineries and other equipment shall be subject to
a tax of seven and one-half percent (7 1/2%) of gross rentals or fees.

VIII. RETURNS AND PAYMENT OF TAX

a. Individual return NIRC 51, 56, 74

1. Who are required to file
(a) Every Filipino citizen residing in the Philippines;
(b) Every Filipino citizen residing outside the Philippines, on his income from sources within the Philippines;
(c) Every alien residing in the Philippines, on income derived from sources within the Philippines; and
(d) Every nonresident alien engaged in trade or business or in the exercise of profession in the Philippines.

2. Who are not required to file ITR:

(a) An individual whose gross income does not exceed his total personal and additional exemptions for
dependents under Section 35: Provided, That a citizen of the Philippines and any alien individual engaged
in business or practice of profession within the Philippine shall file an income tax return, regardless of the
amount of gross income;
(b) An individual with respect to pure compensation income, as defined in Section 32 (A)(1), derived from
sources within the Philippines, the income tax on which has been correctly withheld under the provisions
of Section 79 of this Code: Provided, That an individual deriving compensation concurrently from two or
more employers at any time during the taxable year shall file an income tax return: Provided, further, That
an individual whose compensation income derived from sources within the Philippines exceeds Sixty
thousand pesos (P60,000) shall also file an income tax return;
(c) An individual whose sole income has been subjected to final withholding tax pursuant to Section 57(A)
of this Code; and
(d) An individual who is exempt from income tax pursuant to the provisions of this Code and other laws,
general or special.
3. Where to file: Except in cases where the Commissioner otherwise permits, the return shall be filed with
an authorized agent bank, Revenue District Officer, 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 or place of business in the Philippines, with the Office of the
Commissioner.

4. When to file:
(1) The return of any individual specified above shall be filed on or before the fifteenth (15th) day of April
of each year covering income for the preceding taxable year.
(2) Individuals subject to tax on capital gains;
(a) From the sale or exchange of shares of stock not traded thru a local stock exchange as prescribed
under Section 24(c) shall file a return within thirty (30) days after each transaction and a final consolidated
return on or before April 15 of each year covering all stock transactions of the preceding taxable year; and
(b) From the sale or disposition of real property under Section 24(D) shall file a return within thirty (30)
days following each sale or other disposition.
5. Where to pay:

Section 56. Payment and Assessment of Income Tax for Individuals and Corporation. (A) Payment of Tax. (1) In General. - The total amount of tax imposed by this Title shall be paid by the person subject thereto
at the time the return is filed. In the case of tramp vessels, the shipping agents and/or the husbanding
agents, and in their absence, the captains thereof are required to file the return herein provided and pay
the tax due thereon before their departure. Upon failure of the said agents or captains to file the return
and pay the tax, the Bureau of Customs is hereby authorized to hold the vessel and prevent its departure
until proof of payment of the tax is presented or a sufficient bond is filed to answer for the tax due.
(2) Installment of Payment. - When the tax due is in excess of Two thousand pesos (P2,000), the taxpayer
other than a corporation may elect to pay the tax in two (2) equal installments in which case, the first
installment shall be paid at the time the return is filed and the second installment, on or before July 15
following the close of the calendar year. If any installment is not paid on or before the date fixed for its
payment, the whole amount of the tax unpaid becomes due and payable, together with the delinquency
penalties.

6. Capital gains on shares of stock and real estate: 56 (3)

(3) Payment of Capital Gains Tax. - The total amount of tax imposed and prescribed under Section 24 (c),
24(D), 27(E)(2), 28(A)(8)(c) and 28(B)(5)(c) shall be paid on the date the return prescribed therefor is filed
by the person liable thereto: Provided, That if the seller submits proof of his intention to avail himself of
the benefit of exemption of capital gains under existing special laws, no such payments shall be required :
Provided, further, That in case of failure to qualify for exemption under such special laws and
implementing rules and regulations, the tax due on the gains realized from the original transaction shall
immediately become due and payable, subject to the penalties prescribed under applicable provisions of
this Code: Provided, finally, That if the seller, having paid the tax, submits such proof of intent within six
(6) months from the registration of the document transferring the real property, he shall be entitled to a
refund of such tax upon verification of his compliance with the requirements for such exemption.
"In case the taxpayer elects and is qualified to report the gain by installments under Section 49 of this
Code, the tax due from each installment payment shall be paid within (30) days from the receipt of such
payments.

7. Quarterly declaration of income tax - Section 74

Section 74. Declaration of Income Tax for Individuals. (A) In General. - Except as otherwise provided in this Section, every individual subject to income tax under
Sections 24 and 25(A) of this Title, who is receiving self-employment income, whether it constitutes the
sole source of his income or in combination with salaries, wages and other fixed or determinable income,
shall make and file a declaration of his estimated income for the current taxable year on or before April 15
of the same taxable year. In general, self-employment income consists of the earnings derived by the
individual from the practice of profession or conduct of trade or business carried on by him as a sole
proprietor or by a partnership of which he is a member. Nonresident Filipino citizens, with respect to
income from without the Philippines, and nonresident aliens not engaged in trade or business in the
Philippines, are not required to render a declaration of estimated income tax. The declaration shall contain
such pertinent information as the Secretary of Finance, upon recommendation of the Commissioner, may,
by rules and regulations prescribe. An individual may make amendments of a declaration filed during the
taxable year under the rules and regulations prescribed by the Secretary of Finance, upon
recommendation of the Commissioner.
(B) Return and Payment of Estimated Income Tax by Individuals. - The amount of estimated income as

defined in Subsection (C) with respect to which a declaration is required under Subsection (A) shall be paid
in four (4) installments. The first installment shall be paid at the time of the declaration and the second
and third shall be paid on August 15 and November 15 of the current year, respectively. The fourth
installment shall be paid on or before April 15 of the following calendar year when the final adjusted
income tax return is due to be filed.
(C) Definition of Estimated Tax. - In the case of an individual, the term 'estimated tax' means the amount
which the individual declared as income tax in his final adjusted and annual income tax return for the
preceding taxable year minus the sum of the credits allowed under this Title against the said tax. If, during
the current taxable year, the taxpayer reasonable expects to pay a bigger income tax, he shall file an
amended declaration during any interval of installment payment dates.
NOTES:
Income tax returns covering income, profits, and gains
1. Individuals deriving purely compensation income must file his income tax return (BIR FORM
1701) not later than April 15 of the following year.
2. This requirement of filing tax returns is no longer required beginning 2002.
3. SUBSTITUTED FILING OF TAX RETURNS: is allowed where an employee receives purely
compensation income from a single employer who deducted and remitted to the BIR the
correct amount of withtholding tax from the employees compensation income during the year.
4. In lieu of the regular tax returns to be filed by the employees, BIR FORM 1643 shall
be filed by the employer with the BIR.
5. NRC who receive purely foreign source income are no longer required to file their PH
income tax returns, although they must still file an income tax return covering the income
from sources within the PH
6. MARRIED INDIVIUDAL ETB may die during the year in this case two income tax returns must
be filed by his executor or administrator
(1) regular ITR covering his business from Jan 1 up to date he lived, and
(2) regular ITR to be filed by the estate of the deceased covering business income from the
date of death up to December 31.

There will also be two exemptions allowed :

50 k as married, claimed by the taxpayer in his ITR
50 k claimed by the estate in its tax return.

RMC 1-2003 SUBSTITUTED FILING SYSTEM

The Bureau of Internal Revenue (BIR), in its mission of providing an efficient and convenient service to its
taxpayers, is implementing a hassle-free method of filing Individual Income Tax Returns (BIR Form 1700).
This method of filing recognizes under certain circumstances, the employers Annual Information Return
(BIR Form No. 1604CF) as the substitute income tax return filed by the employee since it contains the
same information found in the income tax return ordinarily filed.
This Circular aims to provide some basic information and answers to questions frequently asked on
substituted filing.

What is Substituted Filing?

Substituted Filing is when the employers annual return (BIR Form 1604CF) may be considered as
the substitute Income Tax Return (ITR) of employee inasmuch as the information provided in his
income tax return (BIR Form 1700) would exactly be the same information contained in the
employers annual return (BIR Form No. 1604-CF).

How is Substituted Filing different from Non-Filing?

Under substituted filing, an individual taxpayer although required under the law to file his
income tax return, will no longer have to personally file his own income tax return but instead the

employers annual information return filed will be considered as the substitute income tax return
of the employee inasmuch as the information in the employers return is exactly the same
information contained in the employees return.
Non-filing is applicable to certain types of individual taxpayers who are not required under the law to
file an income tax return. An example is an employee whose pure compensation income does not
exceed P60,000, and has only one employer for the taxable year and whose tax withheld is equivalent
to his tax due.

Who are qualified and under what conditions will substituted filing of BIR Form No.
1700 apply?
Substituted filing applies only to individuals who meet all the following conditions:
1 The employee receives purely compensation income (regardless of amount) during the taxable
year
2 The employee receives the income only from one employer in the Philippines during the
taxable year
3 The amount of tax due from the employee at the end of the year equals the amount of tax
withheld by the employer
4 The employees spouse also complies with all three (3) conditions stated above.
5 The employer files the annual information return (BIR Form No. 1604-CF)
6 The employer issues BIR Form 2316 (Oct 2002 ENCS) version to each employee

Who are not qualified for substituted filing of BIR Form 1700? The

following individuals are not qualified for substituted filing:

1
2

3
4
5
6

Individuals deriving compensation income from two or more employees, concurrently or

successively at anytime during the taxable year
Employees deriving compensation income, regardless of 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 a collectible or refundable
return
Employees whose monthly gross compensation income does not exceed Five Thousand Pesos
(P5,000) or the statutory minimum wage, whichever is higher, and opted for non-withholding
of tax on said income
Individuals deriving other non-business, non-profession-related income in addition to
compensation not otherwise subject to final tax
Individuals deriving purely compensation income from a single employer, although the income
of which has been correctly subjected to withholding tax, but whose spouse is not entitled to
substituted filing
Non-resident aliens engaged in trade or business in the Philippines deriving purely
compensation income or compensation income and other business or profession related
income

5. What will be presented in case an ITR is required?

BIR Form 2316 (Oct 2002 ENCS version) is a statement signed by both the employee and the employer
and serves the same purpose as if BIR Form No. 1700 had been filed. This, however, is not to be
submitted or filed with the BIR if the employee is qualified for substituted filing.
7. Who shall prepare and issue BIR Form 2316?
In general, every employer or other person who is required to deduct and withhold the tax on
compensation including fringe benefits given to rank and file employees, shall furnish every employee
from whose compensation taxes have
been withheld the Certificate of Compensation Payment/Tax Withheld (BIR Form 2316 Oct 2002 ENCS
version).
8. When should the employer issue BIR Form 2316?

This refers to employees personal information as declared by

him in the Certificate of Update of Exemption and Employers
and Employees Information (BIR Form 2305). The same
information should likewise be consistent with the information
in the Annual Information Return (BIR Form 1604CF).
Employers should issue BIR Form 2316 to the employee on or before January 31 of the succeeding
calendar year, or if employment is terminated before the close of such calendar year, on the day on
which the last payment of compensation is made.
9. What is contained in the Substituted Filing signature box in BIR Form 2316?
The lowest portion of BIR Form 2316 (Oct 2002 ENCS version) shall be accomplished only for
substituted filing. It consists of two parts namely, matters certified to by the employer and matters
certified to by the employee. The employer and employee, under the pain of perjury, shall sign the
boxes for substituted filing.
10. For substituted filing, what are the matters being certified to by the EMPLOYER?
The matters being certified to by the employer are as follows:
a.
That the information contained in BIR Form 2316 (Oct 2002 ENCS version) are the same as
reported and declared in BIR Form 1604 CF, i.e.,

The employees information is the same as that declared by the employee in BIR
Form 2305

If employee had previous employer/s, the previous employers information is the

same as that declared in previous employers BIR Form 2316 issued to said employee

The information pertaining to the present employer is true and correct

The details of compensation and taxes withheld is true and correct

b.
That the employer filed with the BIR the Annual Information Return (BIR Form 1604CF)
11. For substituted filing, what are the matters being certified to by the EMPLOYEE?
The matters being certified to by the employee are as follows:
a.
That the employee is qualified under the substituted filing of income tax returns (BIR Form 1700),
i.e.,

The employee receives purely compensation income (regardless of amount) during

the taxable year

The employee receives the income only from one employer in the Philippines
during the taxable year
The amount of tax due from the employee at the end of the year equals the amount of
tax withheld by the employer
1
If married, that the employees spouse also complies with all three (3) conditions stated above.
2
That the employee has none of the instances for disqualification for substituted filing. (refer to
question no. 4 of this issuance)
3
That the BIR Form 1604CF filed by his employer shall constitute as his income tax return

That BIR Form 2316 (Oct 2002 ENCS version) shall serve as the same purpose as if BIR Form 1700
had been filed pursuant to the provisions of RR 3-2002 as amended by RR 19-2002.

For other government agencies and other offices, public and private, requiring
presentation of individual income tax return (BIR Form 1700) as proof of income earnings,
what would be a replacement for BIR Form 1700 for those qualified for substituted filing?
For those qualified for substituted filing, BIR Form 1700 should no longer be required as proof of
financial capacity or proof of income earnings. Presentation of BIR Form 2316 (Oct 2002 ENCS version)
is sufficient proof of income earnings since it is a statement signed by both the employee and the
employer and it shall serve the same purpose as if BIR Form No. 1700 had been filed.

What is the use of the BIR Form 2316, for those qualified for substituted filing?

The BIR Form 2316 (Oct 2002 ENCS version) can be used for the following purposes:
1.1 As proof of financial capacity for purposes of loan, credit card, or other application
1.2 As proof of payment of tax or for availing tax credit in the employees home country
1.3 In securing travel permits and travel tax exemptions when necessary; and
1.4 For other purposes to meet the requirements of various government/private agencies

When does substituted filing take effect?

It took effect for taxable year 2001 on a voluntary basis and is mandatory for income/compensation
earned starting taxable year 2002. Thus, employees who qualify for substituted filing for taxable year
2002 and beyond will no longer file BIR Form 1700 on or before the 15 th of April of every year.

What will an employee do with BIR Form 2316 issued by the employer?
If the BIR Form 2316 was issued by a previous employer as a result of termination of employment and
the employee has been subsequently employed within the same calendar year, the employee should
submit a copy of BIR Form 2316 issued by the previous employer to his present employer, for
consolidation with his current compensation received from the present employer.
If the employee is qualified for substituted filing, the employee concerned should sign the substituted
filing signature box of BIR Form 2316 and have the same signed by the employer. A copy of BIR Form
2316 signed both by the employer and employee shall be retained and kept by the employer and the
employee.
If an employee is not qualified for substituted filing, he is required by law to file his income tax return
(BIR Form 1700 or BIR Form 1701). BIR Form 2316 should be attached as proof of his compensation
income and withholding taxes as well as other necessary and applicable attachments, like financial
statements, certificate of creditable withholding taxes.

For those qualified for substituted filing, is it necessary to have BIR Form 2316
notarized?
No, it is not necessary to have BIR Form 2316 notarized for those qualified for substituted filing.

Can an employee file an ITR (BIR Form No. 1700) even if he is qualified for substituted
filing?
No, for taxable year 2002 and beyond, substituted filing is mandatory for qualified employees.

B. CORPORATE REGULAR RETURNS (SEC 52, 53, 56 )

1. Quarterly income tax
Section 52. Corporation Returns. (A) Requirements. - Every corporation subject to the tax herein imposed, except foreign corporations not

engaged in trade or business in the Philippines, shall render, in duplicate, a true and accurate quarterly
income tax return and final or adjustment return in accordance with the provisions of Chapter XII of this
Title. The return shall be filed by the president, vice-president or other principal officer, and shall be sworn
to by such officer and by the treasurer or assistant treasurer.
2. Final adjustment return
Section 76. Final Adjustment Return. - Every corporation liable to tax under Section 27 shall file a final
adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of
the quarterly tax payments made during the said taxable year is not equal to the total tax due on the
entire taxable income of that year, the corporation shall either:
(A)Pay the balance of tax still due; or
(B)Carry-over the excess credit; or
(C)Be credited or refunded with the excess amount paid, as the case may be.
In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes
paid, the excess amount shown on its final adjustment return may be carried over and credited against the
estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once
the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable
quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for
that taxable period and no application for cash refund or issuance of a tax credit certificate shall be
allowed therefor.
3. When to file : Section 77. Place and Time of Filing and Payment of Quarterly Corporate Income Tax. - (B)
Time of Filing the Income Tax Return. - The corporate quarterly declaration shall be filed within sixty (60)
days following the close of each of the first three (3) quarters of the taxable year. The final adjustment
return shall be filed on or before the fifteenth (15th) day of April, or on or before the fifteenth (15th) day of
the fourth (4th) month following the close of the fiscal year, as the case may be.
4. Where to file : Section 77. Place and Time of Filing and Payment of Quarterly Corporate Income Tax. (A) Place of Filing. -Except as the Commissioner other wise permits, the quarterly income tax declaration
required in Section 75 and the final adjustment return required I Section 76 shall be filed with the
authorized agent banks or Revenue District Officer or Collection Agent or duly authorized Treasurer of the
city or municipality having jurisdiction over the location of the principal office of the corporation filing the
return or place where its main books of accounts and other data from which the return is prepared are
kept.
5. When to Pay: Section 77. Place and Time of Filing and Payment of Quarterly Corporate Income Tax. (C) Time of Payment of the Income Tax. - The income tax due on the corporate quarterly returns and the
final adjustment income tax returns computed in accordance with Sections 75 and 76 shall be paid at the
time the declaration or return is filed in a manner prescribed by the Commissioner.
6. Capital gains on shares of stock: Shares of stock of a domestic corporation
Listed and traded in a local stock exchange : the transaction is exempt from income tax, but subject
to of 1% stock transaction tax, which is required to be withheld and deducted by the stockbroker
handling the transaction and remitted to the BIR within 5 working days from the date of sale
Unlisted, or listed but traded outside a local stock exchange: the capital gains tax must be filed
within 30 days from the date of sale with the RDO where the principal place of business of the seller is
located.
NOTES: ELECTRONIC FILING AND PAYMENT SYSTEM
3.1 Large Taxpayers. (a) Beginning the calendar year 2001 and all fiscal years as well as calendar years thereafter, Large
Taxpayers shall e-file their final adjustment income tax returns
for the said calendar/fiscal years and e-pay the taxes due
thereon through the EFPS on or before the 15th day of the fourth
month following the close of the taxable year. Nonetheless, epayment shall be optional for tax returns that will be filed until
July 31, 2002. Thus, until July 31, 2002, if a taxpayer does not opt to pay electronically, payment shall be made manually.

(b) Beginning July 1, 2002, Large Taxpayers shall e-file all the
tax returns that can be filed electronically through the EFPS but e-payment shall nonetheless remain optional until July
31,
2002. However, unless otherwise notified by the
Commissioner of Internal Revenue (CIR), for all returns that
will be filed starting August 1, 2002, e-payment of the taxes
due thereon thru EFPS shall become mandatory.
NOTES: thus, based on the above provisions since July 1 2002 there has been no instance where large taxpayers would have manually
filed their tax returns nor would have paid their taxes manually since Aug 1 2002/
8.1 Large Taxpayers. - (a) Large Taxpayers who will e-pay shall enroll with any EFPS AAB authorized to serve them and who is
capable to accept e-payments. E-payments shall be made within
the day the return is electronically filed following the pay-as-youfile principle.
Accreditation of an existing BIR AAB as an EFPS AAB
authorized to service taxpayers classified and notified by the BIR as
large taxpayers shall be opened to such number of
commercial/universal banks as may be necessary to provide
efficient and effective service to all the large taxpayers.
Notes: with respect to payment of large taxpyers the same must be made only thru EFPS authorized agent banks AAB and not thru
Revenue Collection Officers.
Thus all large taxpayers are hereby reminded to refrain from manually paying their taxes thru the RCOs and to strictly comply with
the Regulations mandating them to e-pay their taxes thru their EFPS AABs. Other wise the penalty of 25% surcharge for wrong
venue is provided for under Sec 248 (a)(2) as amended shall be imposed .
9.1 e-Filing and e-Payment. - The return is deemed filed, on the
date appearing in, and after a Filing Reference Number is generated and issued to the taxpayer via the EFPS. The tax due
thereon is deemed paid after a Confirmation Number is issued to the taxpayer and to the BIR by the AAB. In addition, an
Acknowledgement Number shall be issued by the AAB to the BIR to confirm that the tax payment has been credited to the account of
3
the government or recognized as revenue (internal revenue tax collection) by the Bureau of Treasury.

IX. WITHHOLDING TAX

CIR empowered to specify which items of income is subject to withholding tax.
Under this system = payor(withholding agent)-payee (recipient)
Withholding agent of BOTH taxpayer (in behalf of payee)and government (collecting and remitting in behalf of gov)
Taxes are taxes of the payee; mere collection agent
But if withholding agent fails to withholding tax, liable for amount of withholding tax + surcharges
Ex: for rent
When is withholding made BEFORE : upon payment. Since the accrual of tax is upon payment, then between related parties they
dont pay; until payment theyre not subject to withholding
NOW: upon accrual of the income , or upon actual payment whichever comes first; ACCRUED AS EXPENSE
To be subject to withholding, there must be a law
if the withholding agent fails to withhold aside from being liable to withholding tax, then expense as deduction will be disallowed.
Allowance for deduction is subject to the condition that withholding tax must be withheld and remitted to the government.
If exempt entity ; ex: GPP exempt from income tax, so payments to a GPP also exempt from withholding.
Also exempt JV's, cooperatives and other exempt corporations, GSIS , SSS PCSO, PEZA entities
Because withholding is made to implement advanced collection of taxes, so no use in exempt entitities.
Sales of personal properties under installment plan withholding also based on installment plan
But withholding tax will be on Gross seeling price if not withheld

IMPT: for rent = 5%

for payment to contractors = 2%
between a credit card company and a merchant = the credit card company that pays goods , so when it pays merchant, it will withhold
0.5%
if person sold goods to government = government will withhold 1% if its sale of goods, 2% if sale of services, and remits them to BIR
Top 10,000 corporations = revised to Top 20,000 corporations
if client has received notice from BIR that it belongs to top 20000 corps, then all purchases of goods or services will now be subject to
withholding tax. 2% services, 1% goods
real property classified as capital asset 6% FCGT based on GSP = paid by seller; not subject to withholding but in practice its the
buyer that already retains the withholding tax; 6% is seller's liability
WITHHOLDING TAX FOR RP:
If the selling price is below 500 000 1.5%
more than 3%
above 2 million 5%
for those TP habitually engaged in real estate business
if not habitually engage also 6% - creditable withholding tax: paid and claimed as credit against regular income tax
if income payment is below 700,000 10% ; if above 20% (???)
beneficiaries 10%
contractors 2%
pre need to funeral parlors 1%
embalmers1%

withholding taxes of income tax on compensation income on certain income payments made to resident taxpayers and on income
made to NR taxpayers is impt because the obligation to withhold and remit the tax is mandatory.
the amount of withholding tax that should have been withheld and remitted to the BIR plus penalties are assessed by the BIR
against the withholding agent.
expenses claimed as deductions from gross income may however be allowed as deductions
A. final withholding tax at source sec 57 (entire)
Section 57. Withholding of Tax at Source. xx
(B) Withholding of Creditable Tax at Source. - The Secretary of Finance may, upon the recommendation of the Commissioner, require
the withholding of a tax on the items of income payable to natural or juridical persons, residing in the Philippines, by payorcorporation/persons as provided for by law, at the rate of not less than one percent (1%) but not more than thirty-two percent (32%)
thereof, which shall be credited against the income tax liability of the taxpayer for the taxable year.
Notes: Since withholding taxes are deducted by withholding agents (who have control custody or receipt of funds) when the income
payments are paid or payable, they are described as withholding taxes at source.

In other words the income tax of the recipient of the income is withheld and deducted atr the source and at the time of
accrual or payment of the expense by the withholding agent-payor of income

The withholding of income tax is particularly significant where the payee is a NRA ind or NRFC over whom the Ph
gov has no jurisdiction and cannot therefore enforce collection of deficiency tax assessments.

Withholding of tax is also an effective way of collecting income tax on interest on bank deposits of taxpayers who
enjoy confidentiality of their deposits under RA No 1405.
B. CREDITABLE WITHHODOING TAX
here taxes withheld on certain income payments are intended to equal or atleast approximate the tax due of the payee on said
income.
the income tax recipient is still required to file quarterly and annual ITR to report income and/or to pay the difference between the
tax withheld and the tax due on the income.
taxes withheld on income payments covered by the expanded withholding tax and compensation income are creditable in nature
against the income tax liability for the year, provided the same are evidenced by the appropriate withholding tax certificate (BIR 2317)
that is attached to the income tax return filed with the BIR.
There are 3 types of creditable withholding taxes, namely:
(1) expanded withholding tax on certain income payments made by private persons to resident taxpayers;
(2) withholding tax on compensation income for services done in the PH and

(3) withholding tax on money payments made by the government.

1. Expanded withholding tax: 390-392
Essential Requisites for EWT
An income payment is subject to the expanded withholding tax, if the ff conditions concur:
a. An expense is paid or payable by the taxpayer, which is income to the recipient thereof subject to income tax;
b. income is fixed or determinable at the time of payment;
c. the income is one of the income payments listed in the regulations that is subject to withholding tax;
If the payor of income is one of the top 20000 corporations, the income payment, although not listed as subject to EWT under the
regulations is subject to CWT of 1% if it insolves purchase of goods, or 2% if it insolves purchase of services.
d. the income recipient is a resident of the Ph liable to income tax
e. the payor-withholding agent is also a resident of the PH.
An expense is paid or payable by the taxpayer , which is income to the recipient thereof subject to income tax. The payment
must represent income to the recipient thereof and it is subject to income tax. Unless income gain or profit is expressly exempt under
the Tax Code or special law, it is presumed to be taxable.
The withholding of creditable withholding tax shall not apply to income payments made to the ff:
pp 394
REVENUE REGULATION 2-98
Section 28. Rates of Income Tax on Foreign Corporations. SECTION 2.57. Withholding of Tax at Source
(A) Final Withholding Tax. Under the final withholding tax system the amount of income tax withheld by the withholding
agent is constituted as a full and final payment of the income tax due from the payee on the said income. The liability for
payment of the tax rests primarily on the payor as a withholding agent. Thus, in case of his failure to withhold the tax or in case of
under withholding, the deficiency tax shall be collected from the payor/withholding agent. The payee is not required to file an income
tax return for the particular income.
The finality of the withholding tax is limited only to the payee's income tax liability on the particular income. It does not extend to the
payee's other tax liability on said income, such as when the said income is further subject to a percentage tax. For example, if a bank
receives income subject to final withholding tax, the same shall be subject to a percentage tax.
(B) Creditable Withholding Tax. Under the creditable withholding tax system, taxes withheld on certain income payments are
intended to equal or at least approximate the tax due of the payee on said income. The income recipient is still required to file an
income tax return, as prescribed in Sec. 51 and Sec. 52 of the NIRC, as amended, to report the income and/or pay the difference
between the tax withheld and the tax due on the income. Taxes withheld on income payments covered by the expanded withholding
tax (referred to in Sec. 2.57.2 of these regulations) and compensation income (referred to in Sec. 2.78 also of these regulations) are
creditable in nature.
SECTION 2.57.1. Income Payments Subject to Final Withholding Tax. The following forms of income shall be subject to final
withholding tax at the rates herein specified;
(A) Income payments to a citizen or to a resident alien individual;
(1) Interest from any peso bank deposit, and yield or any other monetary benefit from deposit substitutes and from trust funds and
similar arrangements; royalties (except on books as well as other literary works and musical compositions), prizes (except prizes
amounting to ten thousand pesos (P10,000.00) or less which shall be subject to tax under Sec. 24 (A) of the Code) and other winnings
(except Philippine Charity Sweepstakes winnings and lotto winnings) derived from sources within the Philippines Twenty percent
(20%).
(2) Royalties on books, as well as other literary works and musical compositions Ten percent (10%).
(3) Interest income received by a resident individual taxpayer from a depository bank under the Foreign Currency Deposit System
Seven and one-half percent (7.5%).
(4) Interest income from long-term deposit or investment in the form of savings, common or individual trust funds, deposit substitutes,
investment management accounts and other investments evidenced by certificates in such form prescribed by the Bangko Sentral ng
Pilipinas which was pre-terminated by the holder before the fifth (5th) year at the rates herein prescribed to be deducted and withheld

from the proceeds thereof based on the length of time that the instrument was held by the taxpayer
Holding Period Rate
Four (4) years to less than five (5) years 5%
Three (3) years to less than four (4) years 12%
Less than three (3) years 20%
(5) Cash and/or property dividends actually or constructively received from a domestic corporation, joint stock company, insurance or
mutual fund companies or on the share of an individual partner in the distributable net income after tax of a partnership (except
general professional partnership) or on the share of an individual in the net income after tax of an association, a joint account or a joint
venture or consortium of which he is a member or a co-venturer.
6% - beginning January 1, 1998
8% - beginning January 1, 1999 and
10% - beginning January 1, 2000 and thereafter
The tax on cash and property dividends shall only be imposed on dividends which are declared from profits of corporations made after
December 31, 1997.
(6) On capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the
Philippines, classified as capital assets, including pacto de retro sales and other forms of conditional sales based on the gross selling
price or fair market value as determined in accordance with Sec. 6(E) of the Code (i.e. the authority of the Commissioner to prescribe
the real property values), whichever is higher Six percent (6%).
In case of dispositions of real property made by individuals to the government or any of its political subdivisions or agencies or to
government-owned or controlled corporations, the tax to be imposed shall be determined either under Section 24(A) of the Code for
normal income tax for individual citizens and residents or under Section 24(D)(1) of the Code for the final tax on capital gains from
sale of property at six percent (6%), at the option of the taxpayer.
WITHHOLDING AGENT:
SECTION 2.57.3. Persons Required to Deduct and Withhold. The following persons are hereby constituted as withholding agents
for purposes of the creditable tax required to be withheld on income payments enumerated in Section 2.57.2:
(A) In general, any juridical person, whether or not engaged in trade or business;
(B) An individual, with respect to payments made in connection with his trade or business. However, insofar as taxable sale, exchange
or transfer of real property is concerned, individual buyers who are not engaged in trade or business are also constituted as
withholding agents;
(C) All government offices including government-owned or controlled corporations, as well as provincial, city and municipal
governments.
SECTION 2.57.4. Time of Withholding. The obligation of the payor to deduct and withhold the tax under Section 2.57 of these
regulations arises at the time an income is paid or payable, whichever comes first, the term "payable" refers to the date the obligation
become due, demandable or legally enforceable.
SECTION 2.57.5. Exemption from Withholding. The withholding of creditable withholding tax prescribed in these
Regulations shall not apply to income payments made to the following:
(A) National government and its instrumentalities, including provincial, city or municipal governments;
(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 one hundred eighty thousand pesos (P180,000) in Metro Manila and other highly urbanized areas and one hundred fifty
thousand pesos (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 Republic Act No. 7279 and its implementing regulations;
(2) Corporations registered with the Board of Investments and enjoying exemption from the income tax provided by Republic Act No.
7916 and the Omnibus Investment Code of 1987;
(3) Corporations which are exempt from the income tax under Sec. 30 of the NIRC, to wit: the Government Service Insurance System
(GSIS), the Social Security System (SSS), the Philippine Health Insurance Corporation (PHIC), the Philippine Charity Sweepstakes
Office (PCSO) and the Philippine Amusement and Gaming Corporation (PAGCOR); 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.

2. WITHHOLDING TAX ON COMPENSATION

REVREG 2-98
SECTION 2.78. Withholding Tax on Compensation. The withholding of tax on compensation income is a method of
collecting the income tax at source upon receipt of the income. It applies to all employed individuals whether citizens or
aliens, deriving income from compensation for services rendered in the Philippines. The employer is constituted as the
withholding agent.
SECTION 2.78.1. Withholding of Income Tax on Compensation Income.
(A) Compensation Income Defined. In general, the term "compensation" means all remuneration for services
performed by an employee for his employer under an employer-employee relationship, unless specifically excluded by the
Code.
The name by which the remuneration for services is designated is immaterial. Thus, salaries, wages, emoluments and
honoraria, allowances, commissions (e.g. transportation, representation, entertainment and the like); fees including
director's fees, if the director is, at the same time, an employee of the employer/corporation; taxable bonuses and fringe
benefits except those which are subject to the fringe benefits tax under Sec. 33 of the Code; taxable pensions and
retirement pay; and other income of a similar nature constitute compensation income.
The basis upon which the remuneration is paid is immaterial in determining whether the remuneration constitutes
compensation. Thus, it may be paid on the basis of piece-work, or a percentage of profits; and may be paid hourly, daily,
weekly, monthly or annually. rep
Remuneration for services constitutes compensation even if the relationship of employer and employee does not exist any
longer at the time when payment is made between the person in whose employ the services had been performed and the
individual who performed them.
(1) Compensation paid in kind. Compensation may be paid in money or in some medium other than money, as for
example, stocks, bonds or other forms of property. If services are paid for in a medium other than money, the fair market
value of the thing taken in payment is the amount to be included as compensation subject to withholding. If the services
are rendered at a stipulated price, in the absence of evidence to the contrary, such price will be presumed to be the fair
market value of the remuneration received. If a corporation transfers to its employees its own stock as remuneration for
services rendered by the employee, the amount of such remuneration is the fair market value of the stock at the time the
services were rendered.
(2) Living quarters or meals. If a person receives a salary as remuneration for services rendered, and in addition
thereto, living quarters or meals are provided, the value to such person of the quarters and meals so furnished shall be
added to the remuneration paid for the purpose of determining the amount of compensation subject to withholding.
However, if living quarters or meals are furnished to an employee for the convenience of the employer, the value thereof
need not be included as part of compensation income.
(3) Facilities and privileges of a relatively small value. Ordinarily, facilities and privileges (such as entertainment,
medical services, or so called "courtesy" discounts on purchases), furnished or offered by an employer to his employees
generally, are not considered as compensation subject to withholding if such facilities or privileges are of relatively small
value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or
efficiency of his employees.
Where compensation is paid in property other than money, the employer shall make necessary arrangements to ensure
that the amount of the tax required to be withheld is available for payment to the Commissioner.
(4) Tips and gratuities. Tips or gratuities paid directly to an employee by a customer of the employer which are not
accounted for by the employee to the employer are considered as taxable income but not subject to withholding.
(5) Pensions, retirement and separation pay. Pensions, retirement and separation pay constitute compensation subject
to withholding, except those provided under Subsection B of this section.
(6) Fixed or variable transportation, representation and other allowances
(a) IN GENERAL, fixed or variable transportation, representation and other allowances which are received by a public
officer or employee or officer or employee of a private entity, in addition to the regular compensation fixed for his position
or office, is compensation subject to withholding.
(b) Any amount paid specifically, either as advances or reimbursements for travelling, representation and other bonafide
ordinary and necessary expenses incurred or reasonably expected to be incurred by the employee in the performance of
his duties are not compensation subject to withholding, if the following conditions are satisfied:
(i) It is for ordinary and necessary travelling and representation or entertainment expenses paid or incurred by the
employee in the pursuit of the trade, business or profession; and
(ii) The employee is required to account/liquidate for the foregoing expenses in accordance with the specific requirements

of substantiation for each category of expenses pursuant to Sec. 34 of the Code. The excess of actual expenses over
advances made shall constitute taxable income if such amount is not returned to the employer. Reasonable amounts of
reimbursements/ advances for travelling and entertainment expenses which are pre-computed on a daily basis and are
paid to an employee while he is on an assignment or duty need not be subject to the requirement of substantiation and to
withholding.
(7) Vacation and sick leave allowances. Amounts of "vacation allowances or sick leave credits" which are paid to an
employee constitute compensation. Thus, the salary of an employee on vacation or on sick leave, which are paid
notwithstanding his absence from work, constitutes compensation. However, the monetized value of unutilized vacation
leave credits of ten (10) days or less which were paid to the employee during the year are not subject to income tax and to
the withholding tax.
(8) Deductions made by employer from compensation of employee. Any amount which is required by law to be
deducted by the employer from the compensation of an employee including the withheld tax is considered as part of the
employee's compensation and is deemed to be paid to the employee as compensation at the time the deduction is made.
(9) Remuneration for services as employee of a nonresident alien individual or foreign entity. The term "compensation"
includes remuneration for services performed by an employee of a nonresident alien individual, foreign partnership or
foreign corporation, whether or not such alien individual or foreign entity is engaged in trade or business within the
Philippines. Any person paying compensation on behalf of a non-resident alien individual, foreign partnership, or foreign
corporation which is not engaged in trade or business within the Philippines is subject to all provisions of law and
regulations applicable to an employer.
(10) Compensation for services performed outside the Philippines. Remuneration for services performed outside the
Philippines by a resident citizen for a domestic or a resident foreign corporation or partnership, or for a non-resident
corporation or partnership, or for a non-resident individual not engaged in trade or business in the Philippines shall be
treated as compensation which is subject to tax.
A non-resident citizen as defined in these regulations is taxable only on income derived from sources within the
Philippines. In general, the situs of the income whether within or without the Philippines, is determined by the place where
the service is rendered.
(B) Exemptions from withholding tax on compensation. The following income payments are exempted from the
requirement of withholding tax on compensation:
(1) Remunerations received as an incident of employment, as follows:
(a) Retirement benefits received under Republic Act under 7641 and those received by officials and employees of private
firms, whether individual or corporate, under a reasonable private benefit plan maintained by the employer which meet the
following requirements:
(i) The plan must be reasonable;
(ii) The benefit plan must be approved by the Bureau;
(iii) The retiring official or employee must have been in the service of the same employer for at least ten (10) years and is
not less than fifty (50) years of age at the time of retirement; and
(iv) The retiring official or employee should not have previously availed of the privilege under the retirement benefit plan of
the same or another employer.
(b) Any amount received by an official or employee or by his heirs from the employer due to death, sickness or other
physical disability or for any cause beyond the control of the said official or employee, such as retrenchment, redundancy,
or cessation of business. rep
The phrase "for any cause beyond the control of the said official or employee" connotes involuntariness on the part of the
official or employee. The separation from the service of the official or employee must not be asked for or initiated by him.
The separation was not of his own making. Whether or not the separation is beyond the control of the official or employee,
being essentially a question of fact, shall be determined on the basis of prevailing facts and circumstances. It shall be duly
established by the employer by competent evidence which should be attached to the monthly return for the period in
which the amount paid due to the involuntary separation was made.
Amounts received by reason of involuntary separation remain exempt from income tax even if the official or the employee,
at the time of separation, had rendered less than ten (10) years of service and/or is below fifty (50) years of age.
Any payment made by an employer to an employee on account of dismissal, constitutes compensation regardless of
whether the employer is legally bound by contract, statute, or otherwise, to make such payment.
(c) Social security benefits, retirement gratuities, pensions and other similar benefits received by residents or non-resident
citizens of the Philippines or aliens who come to reside permanently in the Philippines from foreign government agencies
and other institutions private or public;
(d) Payments of benefits due or to become due to any person residing in the Philippines under the law of the United
States administered by the United States Veterans Administration;

(e) Payments of benefits made under the Social Security System Act of 1954 as amended; and
(f) Benefits received from the GSIS Act of 1937, as amended, and the retirement gratuity received by government officials
and employees.
(2) Remuneration paid for agricultural labor
(a) Remuneration for services which constitute agricultural labor and paid entirely in products of the farm where the labor
is performed is not subject to withholding. In general, however, the term, "agricultural labor" does not include services
performed in connection with forestry, lumbering or landscaping.
(b) Remuneration paid entirely in products of the farm where the labor is performed by an employee of any person in
connection with any of the following activities is excepted as remuneration for agricultural labor:
(i) The cultivation of soil;
(ii) The raising, shearing, feeding, caring for, training, or management of livestock, bees, poultry, or wildlife; or
(iii) The raising or harvesting of any other agricultural or horticultural commodity. The term "farm" as used in this
subsection includes, but is not limited to stock, dairy, poultry, fruits and truck farms, plantations, ranches, nurseries
ranges, orchards, and such greenhouse and other similar structures as are used primarily for the raising of agricultural or
horticultural commodities.
(c) The remuneration paid entirely in products of the farm where labor is performed for the following services in the
employ of the owner or tenant or other operator of one or more farms is not considered as remuneration for agricultural
labor, provided the major part of such services is performed on a farm:
(i) Services performed in connection with the operation, management, conservation, improvement, or maintenance of any
such farms or its tools or equipments; or
(ii) Services performed in salvaging timber, or clearing land brush and other debris left by a hurricane or typhoon.
The services described in (i) above may include for example, services performed by carpenters, painters, mechanics,
farm supervisors, irrigation engineers, bookkeepers, and other skilled or semi-skilled workers, which contribute in any way
to the conduct of the farm or farms, as such, operated by the person employing them, as distinguished from any other
enterprise in which such person may be engaged. Since the services described in this paragraph must be performed in
the employ of the owner or tenant or other operator of the farm, the exception does not extend to remuneration paid for
services performed by employees of a commercial painting concern, for example, which contracts with a farmer to
renovate his farm properties.
(d) Remuneration paid entirely in products of the farm where labor is performed by an employee in the employ of any
person in connection with any of the following operations is not considered as remuneration for agricultural labor without
regard to the place where such services are performed:
(i) The making of copra, stripping of abaca, etc.;
(ii) The hatching of poultry;
(ii) The raising of fish;
(iv) The operation or maintenance of ditches, canals, reservoirs, or waterways used exclusively for supplying or storing
water for farming purposes; and
(v) The production or harvesting of crude gum from a living tree or the processing of such crude gum into gum spirits or
turpentine and gum resin, provided such processing is carried on by the original producer of such crude gum.
(e) Remuneration paid entirely in products of the farm where labor is performed by an employee in the employ of a farmer
or a farmer's cooperative, organization or group in the handling, planting, drying, packing, packaging, processing,
freezing, grading, storing or delivering to storage or to market or to carrier for transportation to market, of any agricultural
or horticultural commodity, produced by such farmer or farmer-members of such organization or group, is excepted as
remuneration for agricultural labor. Services performed by employees of such farmer or farmer's organization or group in
handling, planting, drying, packaging, processing, freezing, grading, storing, or delivering to storage or to market or to
carrier for transportation to market of commodities produced by persons other than such farmer or members of such
farmer's organization or group are not performed "as an incident to ordinary farming operation".
All payments made in cash or other forms other than products of the farm where labor is performed, for services
constituting agricultural labor as explained above, are not within the
exception.
(3) Remuneration for domestic services. Remuneration paid for services of a household nature performed by an
employee in or about the private home of the person by whom he is employed is not subject to withholding. However, the
services of household personnel furnished to an employee (except rank and file employees) by an employer shall be
subject to the fringe benefits tax pursuant to Sec. 33 of the Code, as amended.
A private home is the fixed place of abode of an individual or family. If the home is utilized primarily for the purpose of
supplying board or lodging to the public as a business enterprise, it ceases to be a private home and remuneration paid
for services performed therein is not exempted.
In general, services of a household nature in or about a private home include services rendered by cooks, maids, butlers,

valets, laundresses, gardeners, chauffeurs of automobiles for family use.

The remuneration paid for the services above enumerated which are performed in or about rooming or lodging houses,
boarding houses, clubs, hotels, hospitals or commercial offices or establishments is considered as compensation;
Remuneration paid for services performed as a private secretary, even if they are performed in the employer's home is
considered as compensation;
(4) Remuneration for casual labor not in the course of an employer's trade or business. The term "casual labor"
includes labor which is occasional, incidental or regular. The expression "not in the course of the employer's trade or
business" includes labor that does not promote or advance the trade or business of the employer.
Thus, any remuneration paid for labor which is occasional, incidental or irregular, and does not promote or advance the
employer's trade or business, is not considered as compensation.

(5) Compensation for services by a citizen or resident of the Philippines for a foreign government or an international
organization. Remuneration paid for services performed as an employee of a foreign government or an international
organization is exempted. The exemption includes not only remuneration paid for services performed by ambassadors,
ministers and other diplomatic officers and employees but also remuneration paid for services performed as consular or
other officer or employee of a foreign government or as a non-diplomatic representative of such government.
(6) Damages. Actual, moral, exemplary and nominal damages received by an employee or his heirs pursuant to a final
judgment or compromise agreement arising out of or related to an employer-employee relationship.
(7) Life Insurance. The proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the
insured, whether in a single sum or otherwise, provided however, that interest payments agreed under the policy for the
amounts which are held by the insured under such an agreement shall be included in the gross income.
(8) Amount received by the insured as a return of premium. The amount received by the insured, as a return of
premium or premiums paid by him under life insurance, endowment, or annuity contracts either during the term or at the
maturity of the term mentioned in the contract or upon surrender of the contract.
(9) Compensation for injuries or sickness. Amounts received through Accident or Health Insurance or under Workmen's
Compensation Acts, as compensation for personal injuries or sickness, plus the amount of any damages received whether
by suit or agreement on account of such injuries or sickness.
(10) Income exempt under treaty. Income of any kind to the extent required by any treaty obligation binding upon the
Government of the Philippines.
(11) Thirteenth (13th ) month pay and other benefits.
(a) Thirteenth (13th) month pay equivalent to the mandatory one (1) month basic salary of officials and employees of the
government, (whether national or local), including government-owned or controlled corporations, and or private offices
received after the twelfth (12th) month pay; and
(b) Other benefits such as Christmas bonus, productivity incentive bonus, loyalty award, gifts in cash or in kind and other
benefits of similar nature actually received by officials and employees of both government and private offices.
The above stated exclusions (a) and (b) shall cover benefits paid or accrued during the year provided that the total
amount shall not exceed thirty thousand pesos (P30,000.00) which may be increased through rules and regulations
issued by the Secretary of Finance, upon recommendation of the Commissioner, after considering, among others, the
effect on the same of the inflation rate at the end of the taxable year.
(12) GSIS, SSS, Medicare and other contributions. GSIS, SSS, Medicare and Pag-Ibig contributions, and union dues of
individual employees.
SECTION 2.78.2. Payroll Period. The term "payroll period" means the period of services for which a payment of
compensation is ordinarily made to an employee by his employer. It is immaterial that the compensation is not always
paid at regular intervals.
For the purpose of determining the tax, an employee can have but one payroll period with respect to the compensation
paid by any one employer. Thus, if an employee is paid a regular compensation for the weekly payroll and in addition
thereto is paid supplemental compensation (for example taxable bonuses) determined with respect to a different period,
the payroll period is the weekly payroll period.
C. FRINGE BENFIT TAX
Fringe benefits only to managerial and supervisory employees: same tax rate but fringe benefit is subject
to withholding in the form of fringe benefit tax
rank and file subject to regular not subject to withholding

FBT is a tax on the employee but is collected by the employer for remiitance to the BIR; but in reality the
burden is on the employer.
FBT :
say the recipient is a RC
NRC
RA
NRAETB
AMOUNT RECEIVED AS FB BY EMPLOYEE/MANAGER 15000 NET OF FBT ; SO COMPUTE TAX BASE OF FBT ,
WHICH IS THE GROSSED-UP AMOUNT.
TO COMPUTE THE GROSSED-UP AMOUNT
15000 / (100% 32%) = 15000 15000/ 0.68 = P22,059 FB 15000;
222059 15000 FBT 7059
DEDUCTIBLE EXPENSE: 22059, BUT ONLY 15000 WILL GO TO OFFICER, 7059 WILL GO TO BIR.
NRANETB - NTBK
RAQ RAHQ OBU - NTBK
REVENUE REGULATION 3-98
SEC. 2.33.

SPECIAL TREATMENT OF FRINGE BENEFITS

(A)
Imposition of Fringe Benefits Tax A final withholding tax is hereby imposed on the grossed-up
monetary value of fringe benefit furnished, granted or paid by the employer to the employee, except rank
and file employees as defined in these Regulations, whether such employer is an individual, professional
partnership or a corporation, regardless of whether the corporation is taxable or not, or the government
and its instrumentalities except when: (1) the fringe benefit is required by the nature of or necessary to the
trade, business or profession of the employer; or (2) when the fringe benefit is for the convenience or
advantage of the employer. The fringe benefit tax shall be imposed at the following rates:
Effective January 1, 1998
34%
Effective January 1, 1999
33%
Effective January 1, 2000
32%
The tax imposed under Sec. 33 of the Code shall be treated as a final income tax on the employee which
shall be withheld and paid by the employer on a calendar quarterly basis as provided under Sec. 57 (A)
(Withholding of Final Tax on certain Incomes) and Sec. 58 A (Quarterly Returns and Payments of Taxes
Withheld) of the Code.
The grossed-up monetary value of the fringe benefit shall be determined by dividing the monetary value of
the fringe benefit by the following percentages and in accordance with the following schedule:
Effective January 1, 1998
66%
Effective January 1, 1999
67%
Effective January 1, 2000
68%
The grossed-up monetary value of the fringe benefit represents the whole amount of income realized by
the employee which includes the net amount of money or net monetary value of property which has been
received plus the amount of fringe benefit tax thereon otherwise due from the employee but paid by the
employer for and in behalf of his employee, pursuant to the provisions of this Section.
Coverage These Regulations shall cover only those fringe benefits given or furnished to managerial or
supervisory employees and not to the rank and file.
The term, "RANK AND FILE EMPLOYEES" means all employees who are holding neither managerial nor
supervisory position. The Labor Code of the Philippines, as amended, defines "managerial employee" as
one who is vested with powers or prerogatives to lay down and execute management policies and/or to
hire, transfer, suspend, lay-off, recall, discharge, assign or discipline employees. "Supervisory employees"
are those who, in the interest of the employer, effectively recommend such managerial actions if the
exercise of such authority is not merely routinary or clerical in nature but requires the use of independent
judgment. cdtai
Moreover, these regulations do not cover those benefits properly forming part of compensation income

subject to withholding tax on compensation in accordance with Revenue Regulations No. 2-98.
Fringe benefits which have been paid prior to January 1, 1998 shall not be covered by these Regulations.
Determination of the Amount Subject to the Fringe Benefit Tax In general, the computation of the fringe
benefits tax would entail (a) valuation of the benefit granted and (b) determination of the proportion or
percentage of the benefit which is subject to the fringe benefit tax. That the Tax Code allows for the cases
where only a portion (i.e. less than 100 per cent) of the fringe benefit is subject to the fringe benefit tax is
clearly stated in Section 33 (a) of R.A. 8424 which stipulates that fringe benefits which are "required by the
nature of, or necessary to the trade, business or profession of the employer, or when the fringe benefit is
for the convenience or advantage of the employer" are not subject to the fringe benefit tax. Thus, in cases
where the fringe benefits entail joint benefits to the employer and employee, the portion which shall be
subject to the fringe benefits tax and the guidelines for the valuation of fringe benefits are defined under
these rules and regulations.
Unless otherwise provided in these regulations, the valuation of fringe benefits shall be as follows:
(1)
If the fringe benefit is granted in money, or is directly paid for by the employer, then the value is
the amount granted or paid for.
(2)
If the fringe benefit is granted or furnished by the employer in property other than money and
ownership is transferred to the employee, then the value of the fringe benefit shall be equal to the fair
market value of the property as determined in accordance with Sec. 6 (E) of the Code (Authority of the
Commissioner to Prescribe Real Property Values).
(3)
If the fringe benefit is granted or furnished by the employer in property other than money but
ownership is not transferred to the employee, the value of the fringe benefit is equal to the depreciation
value of the property.
Taxation of fringe benefit received by a non-resident alien individual who is not engaged in trade or
business in the Philippines A fringe benefit tax of twenty-five percent (25%) shall be imposed on the
grossed-up monetary value of the fringe benefit. The said tax base shall be computed by dividing the
monetary value of the fringe benefit by seventy-five per cent (75%).
Taxation of fringe benefit received by (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 individual employees who are
employed and occupying the same position as those occupied or held by the alien employees. A fringe
benefit tax of fifteen per cent (15%) shall be imposed on the grossed-up monetary value of the fringe
benefit. The said tax base shall be computed by dividing the monetary value of the fringe benefit by
eighty-five per cent (85%).
Taxation of fringe benefit received by employees in special economic zones Fringe benefits received by
employees in special economic zones, including Clark Special Economic Zone and Subic Special Economic
and Free Trade Zone, are also covered by these regulations and subject to the normal rate of fringe benefit
tax or the special rates of 25% or 15% as provided above.
(B)
Definition of Fringe Benefit In general, except as otherwise provided under these regulations, for
purposes of this Section, the term "FRINGE BENEFIT" means any good, service, or other benefit furnished
or granted by an employer in cash or in kind, in addition to basic salaries, to an individual employee
(except rank and file employee as defined in these regulations) such as, but not limited to the following:
(1)
Housing;
(2)
Expense account;
(3)
Vehicle of any kind;
(4)
Household personnel, such as maid, driver and others;
(5)
Interest on loan at less than market rate to the extent of the difference between the market rate
and actual rate granted;
(6)
Membership fees, dues and other expenses borne by the employer for the employee in social and
athletic clubs or other similar organizations;
(7)
Expenses for foreign travel;
(8)
Holiday and vacation expenses;
(9)
Educational assistance to the employee or his dependents; and
(10)
Life or health insurance and other non-life insurance premiums or similar amounts in excess of
what the law allows.
For this purpose, the guidelines for valuation of specific types of fringe benefits and the determination of
the monetary value of the fringe benefits are give below. The taxable value shall be the grossed-up
monetary value of the fringe benefit.
(1)
Housing privilege

(a)
If the employer leases a residential property for the use of his employee and the said property is
the usual place of residence of the employee, the value of the benefit shall be the amount of rental paid
thereon by the employer, as evidenced by the lease contract. The monetary value of the fringe benefit
shall be fifty per cent (50%) of the value of the benefit.
(b)
If the employer owns a residential property and the same is assigned for the use of his employee as
his usual place of residence, the annual value of the benefit shall be five per cent (5%) of the market value
of the land and improvement, as declared in the Real Property Tax Declaration Form, or zonal value as
determined by the Commissioner pursuant to Section 6(E) of the Code (Authority of the Commissioner to
Prescribe Real Property Values), whichever is higher. The monetary value of the fringe benefit shall be fifty
per cent (50%) of the value of the benefit. cda
The monetary value of the housing fringe benefit is equivalent to the following:
MV = [5%(FMV or ZONAL VALUE] X 50%
WHERE:
MV = MONETARY VALUE
FMV = FAIR MARKET VALUE
(c)
If the employer purchases a residential property on installment basis and allows his employee to
use the same as his usual place of residence, the annual value of the benefit shall be five per cent (5%) of
the acquisition cost, exclusive of interest. The monetary value of fringe benefit shall be fifty per cent (50%)
of the value of the benefit.
(d)
If the employer purchases a residential property and transfers ownership thereof in the name of the
employee, the value of the benefit shall be the employer's acquisition cost or zonal value as determined by
the Commissioner pursuant to Section 6(E) of the Code (Authority of the Commissioner to Prescribe Real
Property Values), whichever is higher. The monetary value of the fringe benefit shall be the entire value of
the benefit.
(e)
If the employer purchases a residential property and transfers ownership thereof to his employee
for the latter's residential use, at a price less than the employer's acquisition cost, the value of the benefit
shall be the difference between the fair market value, as declared in the Real Property Tax Declaration
Form, or zonal value as determined by the Commissioner pursuant to Sec. 6(E) of the Code (Authority of
the Commissioner to Prescribe Real Property Values), whichever is higher, and the cost to the employee.
The monetary value of the fringe benefit shall be the entire value of the benefit.
(f)
Housing privilege of military officials of the Armed Forces of the Philippines (AFP) consisting of
officials of the Philippine Army, Philippine Navy and Philippine Air Force shall not be treated as taxable
fringe benefit in accordance with the existing doctrine that the State shall provide its soldiers with
necessary quarters which are within or accessible from the military camp so that they can be readily on
call to meet the exigencies of their military service.
(g)
A housing unit which is situated inside or adjacent to the premises of a business or factory shall not
be considered as a taxable fringe benefit. A housing unit is considered adjacent to the premises of the
business if it is located within the maximum of fifty (50) meters from the perimeter of the business
premises.
(h)
Temporary housing for an employee who stays in a housing unit for three (3) months or less shall
not be considered a taxable fringe benefit.
(2)
Expense account
(a)
In general, expenses incurred by the employee but which are paid by his employer shall be treated
as taxable fringe benefits, except when the expenditures are duly receipted for and in the name of the
employer and the expenditures do not partake the nature of a personal expense attributable to the
employee.
(b)
Expenses paid for by the employee but reimbursed by his employer shall be treated as taxable
benefits except only when the expenditures are duly receipted for and in the name of the employer and
the expenditures do not partake the nature of a personal expense attributable to the said employee.
(c)
Personal expenses of the employee (like purchases of groceries for the personal consumption of
the employee and his family members) paid for or reimbursed by the employer to the employee shall be
treated as taxable fringe benefits of the employee whether or not the same are duly receipted for in the
name of the employer.
(d)
Representation and transportation allowances which are fixed in amounts and are regular received
by the employees as part of their monthly compensation income shall not be treated as taxable fringe
benefits but the same shall be considered as taxable compensation income subject to the tax imposed
under Sec. 24 of the Code.
(3)
Motor vehicle of any kind
(a)
If the employer purchases the motor vehicle in the name of the employee, the value of the benefit
is the acquisition cost thereof. The monetary value of the fringe benefit shall be the entire value of the
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.
(b)
If the employer provides the employee with cash for the purchase of a motor vehicle, the ownership
of which is placed in the name of the employee, the value of the benefits shall be the amount of cash
received by the employee. The monetary value of the fringe benefit shall be the entire value of the 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, unless the same was subjected to a withholding tax as compensation

income under Revenue Regulations No. 2-98.

(c)
If the employer purchases the car on installment basis, the ownership of which is placed in the
name of the employee, the value of the benefit shall be the acquisition cost exclusive of interest, divided
by five (5) years. The monetary value of the fringe benefit shall be the entire value of the 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.
(d)
If the employer shoulders a portion of the amount of the purchase price of a motor vehicle the
ownership of which is placed in the name of the employee, the value of the benefit shall be the amount
shouldered by the employer. The monetary value of the fringe benefit shall be the entire value of the
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.
(e)
If the employer owns and maintains a fleet of motor vehicles for the use of the business and the
employees, the value of the benefit shall be the acquisition cost of all the motor vehicles not normally used
for sales, freight, delivery service and other non-personal used divided by five (5) years. The monetary
value of the fringe benefit shall be fifty per cent (50%) of the value of the benefit.
The monetary value of the motor vehicle fringe benefit is equivalent to the following:
MV = [(A)/5] X 50%
where:
MV = Monetary value
A = acquisition cost
(f)
If the employer leases and maintains a fleet of motor vehicles for the use of the business and the
employees, the value of the benefit shall be the amount of rental payments for motor vehicles not
normally used for sales, freight, delivery, service and other non-personal use. The monetary value of the
fringe benefit shall be fifty per cent (50%) of the value of the benefit.
(g)
The use of aircraft (including helicopters) owned and maintained by the employer shall be treated
as business use and not be subject to the fringe benefits tax.
(h)
The use of yacht whether owned and maintained or leased by the employer shall be treated as
taxable fringe benefit. The value of the benefit shall be measured based on the depreciation of a yacht at
an estimated useful life of 20 years.
(4)
Household expenses Expenses of the employee which are borne by the employer for household
personnel, such as salaries of household help, personal driver of the employee, or other similar personal
expenses (like payment for homeowners association dues, garbage dues, etc.) shall be treated as taxable
fringe benefits.
(5)
Interest on loan at less than market rate
(a)
If the employer lends money to his employee free of interest or at a rate lower than twelve per
cent (12%), such interest foregone by the employer or the difference of the interest assumed by the
employee and the rate of twelve per cent (12%) shall be treated as a taxable fringe benefit.
(b)
The benchmark interest rate of twelve per cent (12%) shall remain in effect until revised by a
subsequent regulation.
(c)
This regulation shall apply to installment payments or loans with interest rate lower than twelve
per cent (12%) starting January 1, 1998.
(6)
Membership fees, dues, and other expenses borne by the employer for his employee, in social and
athletic clubs or other similar organizations. These expenditures shall be treated as taxable fringe
benefits of the employee in full.
(7)
Expenses for foreign travel
(a)
Reasonable business expenses which are paid for by the employer for the foreign travel of his
employee for the purpose of attending business meetings or conventions shall not be treated as taxable
fringe benefits. In this instance, inland travel expenses (such as expenses for food, beverages and local
transportation) except lodging cost in a hotel (or similar establishments) amounting to an average of
US$300.00 or less per day, shall not be subject to a fringe benefit tax. The expenses should be supported
by documents proving the actual occurrences of the meetings or conventions.
The cost of economy and business class airplane ticket shall not be subject to a fringe benefit tax.
However, 30 percent of the cost of first class airplane ticket shall be subject to a fringe benefit tax.
(b)
In the absence of documentary evidence showing that the employee's travel abroad was in
connection with business meetings or conventions, the entire cost of the ticket, including cost of hotel
accommodations and other expenses incident thereto shouldered by the employer, shall be treated as
taxable fringe benefits. The business meetings shall be evidenced by official communications from
business associates abroad indicating the purpose of the meetings. Business conventions shall be
evidenced by official invitations/communications from the host organization or entity abroad. Otherwise,
the entire cost thereof shouldered by the employer shall be treated as taxable fringe benefits of the
employee.
(c)
Travelling expenses which are paid by the employer for the travel of the family members of the
employee shall be treated as taxable fringe benefits of the employee.
(8)
Holiday and vacation expenses Holiday and vacation expenses of the employee borne by his
employer shall be treated as taxable fringe benefits.
(9)
Educational assistance to the employee or his dependents
(a)
The cost of the educational assistance to the employee which are borne by the employer shall, in

general, be treated as taxable fringe benefit. However, a scholarship grant to the employee by the
employer shall not be treated as taxable fringe benefit if the education or study involved is directly
connected with the employer's trade, business or profession, and there is a written contract between them
that the employee is under obligation to remain in the employ of the employer for period of time that they
have mutually agreed upon. In this case, the expenditure shall be treated as incurred for the convenience
and furtherance of the employer's trade or business.
(b)
The cost of educational assistance extended by an employer to the dependents of an employee
shall be treated as taxable fringe benefits of the employee unless the assistance was provided through a
competitive scheme under the scholarship program of the company.
(10)
Life or health insurance and other non-life insurance premiums or similar amounts in excess of
what the law allows The cost of life or health insurance and other non-life insurance premiums borne by
the employer for his employee shall be treated as taxable fringe benefit, except the following: (a)
contributions of the employer for the benefit of the employee, pursuant to the provisions of existing law,
such as under the Social Security System (SSS), (R.A. No. 8282, as amended) or under the Government
Service Insurance System (GSIS) (R.A. No. 8291), or similar contributions arising from the provisions of any
other existing law; and (b) the cost of premiums borne by the employer for the group insurance of his
employees.
(C)
Fringe Benefits Not Subject to Fringe Benefits Tax In general, the fringe benefits tax shall not be
imposed on the following fringe benefits:
(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;
(3)
Benefits given to the rank and file, whether granted under a collective bargaining agreement or
not;
(4)
De minimis benefits as defined in these Regulations;
(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 of the employer.
The exemption of any fringe benefit from the fringe benefit tax imposed under this Section shall not be
interpreted to mean exemption from any other income tax imposed under the Code except if the same is
likewise expressly exempt from any other income tax imposed under the Code or under any other existing
law. Thus, if the fringe benefit is exempted from the fringe benefits tax, the same may, however, still form
part of the employee's gross compensation income which is subject to income tax, hence, likewise subject
to a withholding tax on compensation income payment.
The term "DE MINIMIS" benefits which are exempt from the fringe benefit tax shall, in general, be limited to
facilities or privileges furnished or offered by an employer to his employees that are of relatively small
value and are offered or furnished by the employer merely as a means of promoting the health, goodwill,
contentment, or efficiency of his employees such as the following:
(1)
Monetized unused vacation leave credits of employees not exceeding ten (10) days during the
year;
(2)
Medical cash allowance to dependents of employees not exceeding P750 per semester or P125 per
month;
(3)
Rice subsidy of P350 per month granted by an employer to his employees;
(4)
Uniforms given to employees by the employer;
(5)
Medical benefits given to the employees by the employer;
(6)
Laundry allowance of P150 per month;
(7)
Employee 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 one-half () month of the basic salary of the employee receiving the award under an
established written plan which does not discriminate in favor of highly paid employees; dctai
(8)
Christmas and major anniversary celebrations for employees and their guests;
(9)
Company picnics and sports tournaments in the Philippines and are participated exclusively by
employees; and
(10)
Flowers, fruits, books or similar items given to employees under special circumstances, e.g. on
account of illness, marriage, birth of a baby, etc
(D)
Tax Accounting for the Fringe Benefit Furnished to the Employee and the Fringe Benefit Tax Due
Thereon. As a general rule, the amount of taxable fringe benefit and the fringe benefits tax shall
constitute allowable deductions from gross income of the employer. However, if the basis for computation
of the fringe benefits tax is the depreciation value, the zonal value as determined by the Commissioner
pursuant to Section 6(E) of the Code or the fair market value as determined in the current real property tax
declaration of a certain property, only the actual fringe benefits tax paid shall constitute a deductible
expense for the employer. The value of the fringe benefit shall not be deductible and shall be presumed to
have been tacked on or actually claimed as depreciation expense by the employer.
Provided, however, that if the aforesaid zonal value or fair market value of the said property is greater than
its cost subject to depreciation, the excess amount shall be allowed as a deduction from the employer's
gross income as fringe benefit expense.

RMC 30 08
REPUBLIC OF THE PHILIPPINES
DEPARTMENT OF FINANCE
BUREAU OF INTERNAL REVENUE
Quezon City

April 1, 2008

REVENUE MEMORANDUM CIRCULAR NO. 30-2008

Subject :

Clarifying the Taxability of Insurance Companies for MCIT,

Business Tax, and Documentary Stamp Tax Purposes.

To

All Internal Revenue Officers and Others Concerned.

The primary and predominant business activity of an insurance company is the writing of
insurance or the reinsuring of risks underwritten by insurance companies which are subject to the
supervision by the Insurance Commission.
Section 2 of Presidential Decree No. 612 (PD 612), otherwise known as the The Insurance Code
defines the term doing an insurance business or transacting an insurance business to include: (a)
making or proposing to make, as insurer, any insurance contract; (b) making or proposing to make, as
surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate
business or activity of the surety; (c) doing any kind of business, including a reinsurance business,
specifically recognized as constituting the doing of an insurance business within the meaning of this Code;
(d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner
designed to evade the provisions of this Code. X x x
In proposing to indemnify another against any loss, damage or liability arising from an unknown or
contingent event through the issuance of insurance policies, these companies engaged in the insurance
business receive, as consideration for the services rendered, premium payment from the
insured/policyholder.
The insurance business may pertain to life insurance or non- life insurance business.

Life insurance company is a company which deals with the insurance on human lives and
insurance appertaining thereto or connected therewith. The service likewise includes soliciting group
insurance, and health and accident insurance policies which the company is nevertheless authorized to
pursue as part of its business activity. Group insurance is essentially a single insurance contract that
provides coverage for many individuals. In its original and most common form, group insurance provides
life or health insurance coverage for the employees of one employer. In an accident insurance,

Page 1 of 11

the insureds beneficiary has the burden of proof in demonstrating that the cause of death is
due to the covered peril. Once the fact is established, the burden then shifts to the insurer to
show any excepted peril that may have been stipulated by the parties. An accident insurance
is not thus to be likened to an ordinary life insurance where the insured's death, regardless of
the cause thereof, would normally be compensable.
Non-life insurance company,
on the secur ity of property such

on the other hand, is one which solicits insurance

as: marine, fire and casualty insurance companies;

surety, fidelity, indemnity and bonding companies; and

such other persons as may be

authorized by the Insurance Commission.

Determination of the Minimum Corporate Income Tax For Life and Non-Life
Insurance Companies. - For purposes of computing the gross income on the sale of services
which shall be the basis of the 2% Minimum Corporate Income Tax (MCIT) imposed under
Section 27(E) and Section 28(A)(2) of the 1997 National Internal Revenue Code (Tax Code), as
amended, of life and non- life insurance companies, their gross revenue shall include direct
premium and reinsurance assumed (net of returns, cancellations); miscellaneous income;
investment income not subject to final tax; released reserve; and, all other items treated as
gross income under Section 32 of the said Tax Code, as amended.
Their costs of services or direct cost and identifiable direct revenue-related deductions
shall refer to those incurred costs which are exclusively related or otherwise considered
indispensable to the creation of the revenue from their business activity as an insurance
company, including the generation of investment income not subject to final taxes, and shall
be limited to the following:
.

01.

Claims, losses, maturities and benefits net of reinsurance recoveries;

Additions required by law to reserve fund; and
Reinsurance ceded.
of Life Insurance
Company

Taxability of the Various Business Activities

for Business Tax and Documentary Stamp Tax. -

core revenue
the source of a
undertakin
life
insurance company
is the
generation
of
premiums
from g life
and
expan
insurance contracts,
its business undertakings have slowly
evolved
ded
main
activit
through the years such
that aside
from the premiums earned
from
its y,
forth
other
types
of
reven
ue
its other ancillary services have likewise brought
like
rental
income, management
fee,
interest income,
other investment income,
(a) Business Tax.

and/or

tax,

While

re- issuance fees, reinstatement

it may be said

that

fees, penalties and the like.

With
regard to these
types of
income,
VAT
or Gross Receipts Tax ) to be imposed

the business tax (i.e.,

will
depe
nd
on
the
natur

whether

e of
the

activity

pursued by the life insurance company

Page 2 of 11

in
produci
ng
such
type of
income
.

(1) Direct Writings/Premiums - Generally, for the premiums received by a life

insurance company in undertaking its insurance activities, the same are subject to
premium tax at the rate of five percent (5%) on its direct writings/premiums pursuant
to Section 123 of the Tax Code, as amended, to wit:

"SEC. 123. Tax on Life Insurance Premiums. There shall be collected

from every person, company or corporation (except purely cooperative companies or
associations) doing life insurance business of any sort in the Philippines a tax of five
percent (5%) of the total premium collected, whether such premiums are paid in
money, notes, credits or any substitute for money; but premiums refunded within six
(6) months after payment on account of rejection of risk or returned for other reason
to a person insured shall not be included in the taxable receipts; nor shall any tax be
paid upon reinsurance by a company that has already paid the tax; nor upon
premiums collected or received by any branch of a domestic corporation, firm or
association doing business outside the Philippines on account of any life insurance of
the insured who is a nonresident, if any tax on such premium is imposed by the foreign
country where the branch is established nor upon premiums collected or received on
account of any reinsurance, if the insured, in case of personal insurance, resides
outside the Philippines, if any tax on such premiums is imposed by the foreign country
where the original insurance has been issued or perfected; nor upon that portion of the
premiums collected or received by the insurance companies on variable contracts [as
defined in Section 232(2) of Presidential Decree No. 612], in excess of the amounts
necessary to insure the lives of the variable contract owners.
" Xxx xxx xxx
Re- insurance fees, reinstatement

fees, renewal fees as well as penalties

paid to the life insurance company which

are incidental to or in connection
with the insurance policy
contracts issued are considered akin to premiums,
thus, such types of income are also covered by the above-quoted provision of
Section 123, subject to the 5%

premium tax for the gross amount

received

on

such fees and/or penalties

(2) Management

Unrelated

Fees,

Services -

Rental Income , or

from

Investment

income,

116 of the same Tax Code, as the case may be.

(3) Investment Income

(3.a)

rental

Income

an
y
oth
er

or
whic
h
can
income earned by
the life insurance company
from services
be
pursued independently
of the insurance business activity,
are thus not
th
e
sa
to the 5% premium tax imposed under Section 123
above but, rather, me
are treated
as income for
services that are subject to the imposition of
to the
percentage
pursuant to Section 108
of the Tax Code, as amended,
or tax
imposed under Section

Management fees,

Other

Income

Realized

from

the

Investment of

Premiums

Earned. -

Income

the premiums earned by

considered

merely

business of contracting

realized

util
izi
ng

incidental

its
ma
in

from investment activities

policyho
the life insurance company from
its lders is

a part of,

insurance services.

Page 3 of 11

to and

is necessary

to

Such
imposition of

investment income is considered

business tax since the premiums,

of the funds

invested had already been

exempt
from the further
which have been the source

subjected to the imposition of the 5%

premium tax pursuant to Section 123 of the Tax Code, as amended.

(3.b)

Investment Income Realized from the Investment

of

Funds

Obtained from Others . The income earned by the life insurance company
whereby it uses
the funds solicited and pooled
from its policyholders to
invest in various marketable securities, instruments, and other financial products,
which
which

funds are recognized as liabilities

by the life insurance company and
can be withdrawn
by the policyholders anytime, is considered as an

income earned from performing

quasi-banking function, thus,

gross receipts tax imposed under Section 121 of the Tax Code,

subject to the
as amended.

(3.c)
Manner
of
Apportionment to
Determine Exempt
Investment Income and Investment Income Subject to Gross Receipts Tax
As has been
discussed above,
investment income that is exempt from
imposition of
business tax only pertains
to that portion of investment income
where

the source of the funds used in the investment activities

the owned

funds (i.e., premiums

For

earned )

that portion of investment income

used was solicited from the policyholders

of the life

comes

insurance company.

of the
whereby the source
funds
than the
for purposes other
payment

of the
funds

current premiums due to the life insurance company and

where
solicited
are treated by the life insurance company as
liabilities,
performing quasiincome
is considered
to have been earned
from banking
function, and therefore,
subject to the imposition of gross receipts tax pursuant
to Section 121 of

the Tax Code,

In order to determine
for the month

as amended.
which portion

of the investment

income
earned

is exempt and which portion is taxable, the investment income

earned for the month shall be allocated between the following:

(i)

liability account balance pertinent the other funds solicited from the
policyholders as of the end of such month; and
the total premiums earned for the month.

(ii)

Exempt/Non Taxable Investment Income

Investment Income x ___Item (ii)_above

for the
Sum of Items (i) & (ii)
month
above

Page 4 of 11

Investment Income Subject to Gross Receipts Tax

Investment Income x ___Item (i)_above

for the

Sum of Items

month

above

Example :
"Akim Life Assurance
during the month of April,
realized
an
P1,000,000.

(i) & (ii)

Corp.", a life insurance company,

investment income
amounting

The investment

funds used in generating this income come from

solicited
both the premiums
earned by the company
and the other funds
from
compa
its policyholders . For the same month,
the premiums earned by
the ny
the
amounted to
P30,000,000 while the liability balance of the end of
said
month pertinent to the other
The exempt

portion

funds solicited amounted to P20,000,000.

of the investment income

and the

portion to

subject to the gross receipts tax are determined as follows:

Exempt

P1,000,000 x P30,000,000
P50,000,000

P600,000
=======
=

Taxable for Gross Receipts Tax = P1,000,000 x P20,000,000

P50,000,000
= P 400,000
========

(b) Documentary Stamp Tax. - With respect to life insurance policies issued by the
life insurance company, the same is subject to documentary stamp tax pursuant to Section 183
of the Tax Code, as amended, as quoted hereunder:
"SEC. 183. Stamp Tax on Life Insurance Policies. On all policies of
insurance or other instruments by whatever name the same may be called, whereby
any insurance shall be made or renewed upon any life or lives, there shall be collected
a documentary stamp tax of Fifty centavos (P0.50) on each Two hundred pesos (P200),
or fractional part thereof, of the amount of premium collected.
For certificates issued, documentary stamp tax is imposed as follows:

Page 5 of 11

SEC. 188. Stamp Tax on Certificates. On each certificate of damage or

otherwise, and on every other certificate or document issued by any customs officer,
marine surveyor, or other person acting as such, and on each certificate issued by a
notary public, and on each certificate of any description required by law or by rules or
regulations of a public office, or which is issued for the purpose of giving information,
or establishing proof of a fact, and not otherwise specified herein, there shall be
collected a documentary stamp tax of Fifteen pesos (P15.00).
For group insurance policies issued, the premium collected therefrom shall be subject
to Section 183 above. For the individual certificates issued to each and every employee
covered by the group insurance policy, the issuance of such certificate shall be subject to
Section 188 above.
However, with regard to health and accident insurance coverage provided, the basis
for the payment of documentary stamp tax shall be the provision prescribed by Section 185 of
the same Tax Code, viz:
SEC. 185. Stamp Tax on Fidelity Bonds and Other Insurance Policies.
On all policies of insurance or bonds or obligations of the nature of indemnity for
loss, damage or liability made or renewed by any person, association, company or
corporation transacting the business of accident, fidelity, employer's liability, plate,
glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance
(except life, marine, inland, and fire insurance), and all bonds, undertakings, or
recognizances, conditioned for the performance of the duties of any office or position,
for the doing or not doing of anything therein specified, and on all obligations
guaranteeing the validity or legality of any bond or other obligations issued by any
province, city, municipality, or other public body or organization, and on all obligations
guaranteeing the title to any real estate, or guaranteeing any mercantile credits, which
may be made or renewed by any such person, company or corporation, there shall be
collected a documentary stamp tax of Fifty centavos (P0.50) on each Four pesos
(P4.00), or fractional part thereof, of the premium charged.
Taxability of the Other Financial Services/Products Sold by the Life Insurance
Company in addition to the Life Insurance Policy Solicited. - In pursuing its main
activity of proposing to undertake for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent event through
the issuance of insurance policies upon payment by the
insurer of the premium, it, at
the same time, offers to its policyholder other financial
services/products, which upon
acceptance by the policyholder,

are made as a rider, clause, warranty

attached to and formed part of

the insurance policy contract issued.

or endorsement

Examples of such financial products are the Variable Unit Link (VUL) and the Premium
Deposit Fund (PDF).
Variable Unit Link (VUL). - Among the salient features of this financial
service/product are, as follows:

In addition to the life insurance policy contracted, policyholders are

made to contribute to a fund set up by the life insurance company;

Page 6 of 11


Of the total amount given by the policyholder for the life insurance
policy and the contribution to be made to such fund, only 2% to 5% represents
the premium payment for the life insurance policy, while 95% to 98% of the
rest of the amount paid pertains to the amount contributed to the fund;
The contribution to the fund is represented by units of shares;

A fixed amount is set for each unit of share, thus, the percentage of
contribution of the policyholder to the fund corresponds to the number of unit
of shares he owns therein;

debt

The amount pooled to the fund is then invested in stocks, securities,

instruments, and other similar

which are those that are either

passive

investments,

exempt from tax or

income
derived
from
subject to
final tax

The life insurance company merely

acts as fund manager.
fund is not commingled with the owned funds of the said
company;
The life insurance company does not share in the
the fund
charging

from the investment activities but rather

a certain fixed
management fees based on
rate; and

income
derived
by
derives
income
by

The income earned by the fund together with the contributions made
are
then distributed to the policyholders upon surrender/redemption of units of
shares.
The tax consequences insofar as this above financial product/service is concerned are,
as follows:

The premiums received on account of the life insurance solicited from

the policyholder, being the main business activity of the life insurance
company is, in addition to the income tax imposed under Title II of the Tax
Code, as amended, subject to the abovementioned business tax/premium tax
and DST;

For the management fees earned by the life insurance company in

managing
the investment portfolio of
the
VUL
fund, such
management fees , in addition to the income
tax imposed under Title II
of the Tax Code, as amended, is subject to
108 of the Tax Code, as amended, or to the

VAT pursuant to Section

percentage tax imposed

under Section 116 of the same Code, as the case may be;
The

certificates

to the VUL fund

issued to the policyholder evidencing

which partake the nature of

Page 7 of 11

his contribution

deeds of trust shall be

subject to the imposition of DST prescribed by Section 195 of the Tax Code, as
amended; and
For the gain
realized by the policyholder from the redemption of his
units of shares in the VUL
fund, the same must be declared and
reported by the said policyholder for income tax purposes.
Premium Deposit Fund (PDF) Another example of a financial product/service
offered by the life insurance company that is made a rider to the life insurance policy contract
issued to the policyholder is the premium deposit fund. Among the salient features of the
product/service are as follows:
In addition to the life insurance policy contracted, policyholders are made to
make deposits for the future premium payment;

Deposits of at least Php500 each may be made to this fund for

payment of future premium on the policy;

The fund

Interest shall be credited to the fund annually on each policy anniversary

at such rates as the life insurance
company may declare each

will be used in investment activities;

never less than the lowest interest

rate prevailing on savings

in banks;

That the balance of the deposit inclusive of the interest earned, maybe
withdrawn anytime at the option of the policyholder; and
And that the insurance company treats such deposits in its books of accounts as
liabilities to the policyholders.
The tax consequences insofar as this above financial product/service is concerned are,
as follows:

The premiums received on account of the life insurance solicited from

the policyholder, being the main business activity of the life insurance
company is, in addition to the income tax imposed by the Title II of the Tax
Code, as amended, subject to the abovementioned business tax/premium tax
and DST;

The investment income earned by the insurance company from the

investment activities using the fund, in addition to the income tax
imposed by Title
II of the Tax Code, as amended,
is
subject to
gross
receipts tax imposed under Section
121 of the Tax Code,
amended;
evidencing deposits made
to
in the books
the premium deposit fund which is treated
as
liability of
accounts of the life
insurance companies, is considered as Certificate of
by
Indebtedness subject
to the imposition of DST prescribed
Section

The

instrument

issued to the policyholder

Page 8 of 11

179 of the Tax Code, as amended, at the rate of One peso (P1.00) on each Two
hundred pesos (P200), or fractional part thereof, of the issue price of any such
debt instruments; and
The interest earned by the

policyholder from the premium

deposit

is subject to 20%
final withholding tax imposed by Sections 24(B)(1);
25(A)(2);
27((D)(1)
and Section
28 (A)(7) of the Tax Code,
amended, which provides that
a final tax at the rate of twenty percent
(20%) is imposed upon the amount of interest from any currency bank
deposit and yield or any other monetary benefit from deposit substitutes
and from trust funds and similar arrangements.
aforementioned features
of the of
insurance company
said fund shows
that with the manner the
operates
this
fund, the same
can be
likened to
the mode by which banks
This

is so

because a close perusal

accepts deposits

from the

public

apparently booked as liabilities and

payments

whereby deposits

for such liabilities received,

based on the agreed interest rate

the depositors which

interest and

received

deposit

int
ere
st

be
paid
are committed to to
be withdrawn by
can said

depositors anytime.
Inasmuch
business

as insurance companies
of the
banks
insofar

concerned,

interest paid

to their

as
transact in the same
manner the
as the premium deposit
fund

of
what
premium deposit
fund very well falls within the
purview of may
Tax
be considered as similar
arrangements prescribed for by
Code,
as
amended.
Thus, such interest payments are subject to the final
withholding tax at the rate of

twenty

policyholders

earned out

percent (20%).

Taxability of the Non-Life Insurance Company for Business Tax

Documentary Stamp Tax. (a) Business Tax. Pursuant to Section 108 of the Tax Code,

as amended,

gross receipts of non- life insurance companies (except their

crop insurances)
subject to the imposition of VAT which
includes the total premiums collected whether
such premiums are paid in money, notes, credits or any substitute for money.
underwrit
accident insurance contract
ten
gross
by the non- life
insurance companies are likewise
included in the ir
receipts
issued by
subject to VAT since the
same is treated as
casualty insurance when
the
Premiums

non- life insurance

received

from a health and

company.

The following non- life insurance companies are subject to VAT on gross premium

received beginning January 1, 1996:

a.

Marine, fire and casualty insurance companies;

Page 9 of 11

b.
c.
d.
e.
f.

Surety, fidelity, indemnity and bonding companies;

Mutual benefit associations;
Government-owned or controlled corporations engaged in the business of nonlife insurance;
Non-stock, non-profit organizations and cooperatives engaged in the business
of non-life insurance; and
All other persons, whether individual, trust/estate, partnership, association,
joint venture, or corporation engaging in the non-life insurance business, such
as but not limited to resident foreign persons rendering non-life insurance
services in the Philippines in the course of its trade or business.

"Gross Receipts" does not include the following:

:
i.
ii.
iii.
iv.
v.

Premiums refunded within six (6) months after payment on account of

rejection of risk or returned for other reason to the person insured (return
premiums);
Premiums on reinsurance of a company that has already paid the tax;
Premiums on account of any reinsurance, if the risk insured against covers
property located outside of the Philippines;
Documentary stamp and local taxes passed on by the insurance company to
the insured; and
VAT passed on to the insured.

(b) Documentary Stamp Tax. - With respect to insurance policies other than health
and accident insurance policies issued by the non- life insurance company, the same are
subject to documentary stamp taxes pursuant to Section 184 of the Tax Code, as amended, as
quoted hereunder, regardless of the fact that policies may have become ineffective due to
non-payment of the corresponding premiums:
"SEC. 184. Stamp Tax on Policies of Insurance Upon Property. On all
policies of insurance or other instruments by whatever name the same may be called,
by which insurance shall be made or renewed upon property of any description,
including rents or profits, against peril by sea or on inland waters, or by fire or
lightning, there shall be collected a documentary stamp tax of Fifty centavos (P0.50)
on each Four pesos (P4.00), or fractional part thereof, of the amount of premium
charged: Provided , however, That no documentary stamp tax shall be collected on
reinsurance contracts or on any instrument by which cession or acceptance of
insurance risks under any reinsurance agreement is effected or recorded.

With regard to
insurance company, the
provision prescribed by

health and accident insurance policies issued by the non-life basis

for the payment of documentary stamp tax shall be the Section 185
of the same Tax Code, as amended, viz:

SEC. 185. Stamp Tax on Fidelity Bonds and Other Insurance Policies. On all
policies of insurance or bonds or obligations of the nature of indemnity for loss, damage or
liability made or renewed by any person, association, company or corporation transacting the
business of accident, fidelity, employer's liability, plate, glass, steam boiler, burglar, elevator,
automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire
insurance), and all bonds, undertakings, or recognizances, conditioned for the performance of
the duties of

Page 10 of 11

any office or position, for the doing or not doing of anything therein specified, and on all obligations
guaranteeing the validity or legality of any bond or other obligations issued by any province, city,
municipality, or other public body or organization, and on all obligations guaranteeing the title to any
real estate, or guaranteeing any mercantile credits, which may be made or renewed by any such
person, company or corporation, there shall be collected a documentary stamp tax of Fifty centavos
(P0.50) on each Four pesos (P4.00), or fractional part thereof, of the premium charged.
For certificates issued, documentary stamp tax is imposed as follows:
SEC. 188. Stamp Tax on Certificates. On each certificate of damage or otherwise, and
on every other certificate or document issued by any customs officer, marine surveyor, or other
person acting as such, and on each certificate issued by a notary public, and on each certificate of
any description required by law or by rules or regulations of a public office, or which is issued for the
purpose of giving information, or establishing proof of a fact, and not otherwise specified herein,
there shall be collected a documentary stamp tax of Fifteen pesos (P15.00).
Likewise, Certificate of
insurances shall be subject to

Cover (COC) issued

the documentary stamp

pertinent to motor
tax imposed under

vehicle
Section

188 above.

All revenue rulings and issuances inconsistent herewith are hereby revoked, amended, or modified
accordingly.
All internal revenue officers are hereby enjoined to give this Circular as wide a publicity as possible.

(Original Signed)
LILIAN B. HEFTI
Commissioner of Internal Revenue

cc:
Secretary of Financea
Philippine Insurers and Reinsurers Association (PIRA)
Philippine Life Insurance Association, Inc. (PLIA)

Page 11 of 11