Professional Documents
Culture Documents
the original investment or fund used in order to generate earnings which is called
"Capital is a wealth, while income is the service of wealth. The fact is that property
is a tree, income is the fruit; labor is a tree, income is the fruit."
h is called
at property
income
Eminent Domain
the power of the sovereign state to take private property for public purpose
founded upon the idea that the common necessities and interests of the community
transcend individual rights in property
The State may expropriate private property when it is necessary in the interest of nationa
welfare
The Constitution limits the exercise of the power by providing that "Private property may
not be taken for public use without just compensation." (Art. III, Sec. 9, 1987 Philippine
Constitution)
"Just compensation" means paying the owner the full monetary equivalent of the
property taken for public use
lic purpose
s of the community
Gross Income
1
2
3
4
5
Income Tax
Withholding
Tax
N
N
N
N
Gross Income
Fringe
Benefits
Tax
1
2
3
4
5
N
N
p.
q.
work employees
Taxi/transportation allowance of P100 per day
given to BPO Company servicing global
businesses 24 hours a day to employees who work
overtime beyond 10 P.M. or whose work shift
starts at 10 P.M. onwards
Vacation and Sick Leave
if paid or availed of as salary of an employee who is
on vacation or no sick leave not withstanding his
absence from work
monetized value of vacation and sick leave credits
of 10 days or less which were paid to private
employees during the year
monetized value of vacation and sick leave credits
paid to government officials and employees
ome
Taxable
Y
Y
Y
Y
Y
Y
Y
Y
N
N
Y
y
Y
N
N
Y - voluntarily availed
N - involuntary
Income
all earnings derived from service rendered (labor), from capital (business or investment), or
both including gain derived from sale or exchange of personal or real property classified as
either ordinary or capital asset
Situation
Increase in the Value of Property
Tax Treatment
Not Income
*An increase in the book value of real property and other fixed assets of a corporation as a
result of their re-appraisal is not income.
earnings from individual persons, partnership, corporation or estate and trust whether or
not subject to t See: Revenue
amount after excluding capital invested, cost of goods sold and other deductions allowed by
law
See: Receipts
Nontaxable Income
Taxable Income
synonymous to the term "net income"
ess or investment), or
property classified as
of a corporation as a
nd trust whether or
deductions allowed by
al or personal exemptions
to obtain the amount
Inherent Powers
naturally exist as essential force in order that a government can command, maintain peace
and order, and survive, irrespective of any Constitutional provision
3 inherent powers of the state
1) Police Power
2) Eminent Domain Power
3) Taxation Power
Where:
Police Power - the power to protect citizens and provide for safety and welfare for society
Eminent Domain Power - the power to take private property (with just compensation)
for public use
Taxation Power - the power to enforce contributions to support the government, and
other inherent powers of the State
d, maintain peace
ment, and
Police Power
inherent power of the sovereign state to legislate for the protection of health, welfare,
morals of the community
Exercised usually to guard against excesses or abuses of individual liberty
Restricted by the "due process clause" of the Constitution which provides that "No person
shall be deprived of life, liberty, or property without due process of law, nor shall any
person be dened the equal protection of the laws." (Art. III, Sec. 1, 1987 Philippine
Constitution)
may be exercised through taxation because taxes may be levied for the promotion of the
welfare of the public
Examples:
1) Preservation of natural resources
2) Segregation of lepers from the public
3) Imprisonment of convicted criminals
4) Regulation of various professionals
alth, welfare,
romotion of the
Receipts
cash collected over a business period and may include capital as well as its earnings
s its earnings
Revenue
all funds accruing to the treasury of the government derived from tax, donation, grants an
any other source
Taxation
a power by which an independent State, through its law-making body, raises and accumulates
revenue from its ihabitants to pay for the necessary expenses of the government
a process or act of imposing a charge by governmental authority on property, individuals or
transactions to raise money for public purposes
perty, individuals or
6%
20%
10%
1.
2.
3.
4.
Category of Income
Compensation, Business/Profession
Prizes of P10,000 or less
Cinematographic Film & the like
Interest, Royalty, Winnings/Prizes
Nonresident
NRAEBT
Citizen
All
Within
sources
Philippines
Based on Taxable Income
Within
Philippines
NRANEBT
Within
Philippines
Within
Philippines
GIW 25%
GIW 25%
GIW 20% FWT
GIW 10% FWT
EXEMPT
In case of pre-termination, remaining maturity of:
4 years to less than 5 years
- 5%
3 years to less than 4 years
- 12%
less than 3 years
- 20%
GROSS INCOME
WITHIN
(GIW) 25%
Net capital gains within: 5% (Not over P100,000); 10% (in excess of P100,000
Personal Exemptions
Personal exemptions include both:
1. Basic personal exemptions
2. Additional personal exemptions
Taxpayers entitled to personal exemptions:
1. Resident citizens
2. Non-resident citizens
3. Resident aliens
4. Non-resident aliens engaged in trade or business (NRA-ETB) if there is reciprocity clause
5. Estates and trust
Taxpayers not entitled to personal exemptions:
1. Non-resident aliens
a. not engaged in trade or business in the Philippines (NRA-NETB)
b. engaged in trade or business in the Philippines but not enjoying reciprocity clause
2. Corporations
3. Partnerships.
procity clause
city clause
"An income tax is hereby imposed: (A) On the taxable income defined in Section 31 of this Code, other tha
subject to tax under Subsections (B) tax on certain passive income, (C) tax on capital gains from sale of s
stock not traded in the stock exchange, and (D) tax on capital gains from sale of real property, derived for
taxable year from all sources within and without the Philippines on every individual citizen of the Philippin
residing therein."
Non-resident citizens
"On the taxable income defined in Section 31 of this Code, other than income subject to tax under Subsec
(C ) and (D) of this Section, derived for each taxable year from all sources within the Philippines by an ind
citizen of the Philippines who is residing outside of the Philippines including overseas contract workers ref
Subsection (C) of Section 23 thereof."
Classification of non-resident citizens:
a. OCW or OFW
b. Seafarers or seamen
A seaman who is a citizen of the Philippines and who receives compensation for services rendered a
member of the complement of a vessel engaged exclusively in international trade shall be treated as a
contract worker (OCW).
Tax treatment of the income of non-resident citizens:
An OCW or OFW's income arising out of his overseas employment is exempt from income tax
Taxable only on income derived from sources within the Philippines examples:
- earnings from business activities within the Philippines
- earnings from properties within the Philippines
27
COMPLETE: SEE PRINITED "Final Tax Rates on Certain Passive Income from Philip
Sources"
28
The only deductions allowed from gross compensation income allowed to RC, NRC
a. Basic personal and additional exemptions
b. Premium payments on health and/or hospitalization insurance
- the amount of premiums should not exceed P2,400 per family or P200 a m
Philippines
- for health and/or hospitalization insurance taken by the taxpayer himself,
a) such familu has a gross income of not more than P250,000 for a tax
on 31 of this Code, other than income
b) in the case of married taxpayers, only the spouse claiming the addi
capital gains from sale of shares of
be entitled to this exemptions
of real property, derived for each
dual citizen of the Philippines
Basic wage - considered the gross income of an individual from which the person
health and hospital insurance are deducted to arrive at the income
1) Non-resident alien individual not engaged in trade or business within the Philip
tion for services rendered aboard as a
compensation income - subject to a final tax of 25% on such income
l trade shall be treated as an overseas2) Alien individuals or Filipinos employed and occupying the same position as alie
compensation, remuneration and other emoluments such as honoraria and all
a. Regional or area headquarters and regional operating headquarters estab
multinational companies
b. Offshore banking units
om income tax
c. Foreign service subcontractor engaged in petroleum operations in the Ph
- subject to final tax equal to fifteen percent (15%)
The deductions allowed from gross compensation income and other similar incom
a. Basic personal and additional exemptions
b. Premium payments on health and/or hospitalization insurance
rrency bank deposit and yield or any
- the amount of premiums should not exceed P2,400 per family or P200 a m
es and from trust funds and similar
- for health and/or hospitalization insurance taken by the taxpayer himself,
a) such family has a gross income of not more than P250,000 for a tax
b) in the case of married taxpayers, only the spouse claiming the addi
, as well as literary works and
be entitled to this exemptions
c. Optional standard deduction or the itemized deductions
ting to P10,000 or less which shall be
29
30
FORMU
RESIDENT CITIZEN (Purely compensation income)
ensation income:
nsation income
31
nsation income
32
e not necessary for the taxpayer to earn the pure compensation income which arose
oyee relationship
FORMULAS
urely compensation income)
OR
xxx
(xxx)
(xxx)
xxx
x%
xxx
(xxx)
(xxx)
xxx
ixed income)
rom both compensation and from exercise of profession or from engaging in trade or
xxx
(xxx)
(xxx)
xxx
xxx
xxx
x%
xxx
(xxx)
(xxx)
(xxx)
xxx
33
34
omputation of net income derived from exercise of a profession or engaging in trade or business
Total receipts from all sources from within and without
the Philippines
Less: Exclusions from GI (Income subject to final taxes)
Gross income derived from all sources from wihin and
without the Philippines
Less: Excess personal and additional exemptions
Insurance premium for health and hospitalization
Optional standard deduction
Net income derived from exercise of a profession or engaging
in trade or business
Total receipts from all sources from within and without
the Philippines
Less: Exclusions from GI (Income subject to final taxes)
Gross income derived from all sources from wihin and
without the Philippines
Less: Personal and additional exemptions
Itemized deductions includng the premiums for
hospitalization and health insurance
Net income derived from exercise of a profession or engaging
xxx
(xxx)
xxx
(xxx)
(xxx)
(xxx)
xxx
xxx
(xxx)
xxx
(xxx)
(xxx)
xxx
in trade or business
ormula 2 Computation of income tax payable on mixed compensation income and business/professional income,
where the compensation income is subject to final tax
is a case where the compensation income is derived from employment in a regional or area headquarters and
gional operating headquarters of multinational companies, or from an offshore banking unit, or a petroleum
rvice contractor and subcontractor, the basic formula is:
COMPENSATION INCOME
Gross compensation income
Multiplied by
Income tax due
Less: Withheld taxes on the compensation
Tax credits
Net income tax payable on compensation income
BUSINESS, TRADE OR PROFESSIONAL INCOME
Gross income derived from all sources from within
and without the Philippines
Less: Personal and additional exemptions
Premiums for health and hospitalization
Optional standard deduction
Itemized deductions inclusing the premiums for
hospitalization and health insurance
Taxable income
Multipied by the schedular rate
Income tax due
Less: Quarterly income tax payments
Withheld taxes on the income
Tax credits
Net income tax payable on the income derived from the
xxx
x 15%
xxx
(xxx)
(xxx)
xxx
xxx
(xxx)
(xxx)
(xxx)
OR
35
(xxx)
xxx
x%
xxx
(xxx)
(xxx)
(xxx)
xxx
36
The personal and additional exemptions, and premiums for health and hospitalization insurance
previously deducted from the compensation income that was subject to final tax of 15% on its
rightfully deducted from the business, trade or professional income.
MIXED INCOME
Net income tax payable on compensation income
Net income tax payable on business, trade or professional income
Total income tax payable on the mixed income derived from
compensation and exercise of a prifession, trade or business
NONRESIDENT CITIZEN (Purely compensation income)
Gross compensation income derived from all sources
from within the Philippines
Less: Personal and additional exemptions
Insurance premium for health and hospitalization
Taxable income
Multiplied by the schedular rate
Income tax due
Less: Taxes withheld on the compensation income
Tax credits
Net income tax payable
NONRESIDENT CITIZEN (Mixed income)
ss/professional income,
ea headquarters and
nit, or a petroleum
Formula 1 Computation of income tax payable in mixed compensation income and business/p
income
Gross compensation income derived from all sources from
within the Philippines
Less: Personal and additional exemptions
Insurance premium from health and hospitalization
Taxable Compensation Income
Plus: Net income derived from the exercise of a profession
or engaging in trade or business (computation*)
Total mixed taxable income
Multiplied by schedular tax rate
Income tax due
Less: Taxes withheld on the compensation income
Quarterly income taxes paid
Tax credits
Net income tax payable on mixed income
*Computation of net income derived from exercise of a profession or engaging in trade or busin
Total receipts from all sources from within the Philippines
Less: Exclusions from GI (Income subject to final taxes)
Gross income derived from all sources from wihin the Philippines
Less: Excess personal and additional exemptions
Insurance premium from health and hospitalization
Optional standard deduction
Net income derived from exercise of a profession or engaging
in trade or business
37
38
ional income
OR
xxx
xxx
xxx
xxx
(xxx)
(xxx)
xxx
x%
xxx
(xxx)
(xxx)
xxx
xxx
(xxx)
(xxx)
xxx
xxx
xxx
x%
xxx
(xxx)
(xxx)
(xxx)
xxx
MIXED INCOME
Net income tax payable on compensation income
Net income tax payable on business, trade or professiona
Philippines
xxx
(xxx)
xxx
(xxx)
(xxx)
(xxx)
xxx
39
40
xxx
(xxx)
xxx
(xxx)
(xxx)
xxx
compensation
compensation income
ESSIONAL INCOME
es from within the Philippines
income (incomes subject to final tax)
all sources from within the Philippines
al exemptions
and hospitalization
including the premiums for
health insurance
compensation income
business, trade or professional income
xxx
x 15%
xxx
(xxx)
(xxx)
xxx
xxx
(xxx)
xxx
(xxx)
(xxx)
(xxx)
(xxx)
xxx
x%
xxx
(xxx)
(xxx)
(xxx)
xxx
xxx
xxx
xxx
41
42
xxx
(xxx)
(xxx)
xxx
x%
xxx
(xxx)
(xxx)
xxx
income is derived from employment in a regional or area headquarters and regional operating
f multinational companies, or from an offshore banking unit, or a petroleum service contractor
ctor, the basic formula is:
xxx
15%
xxx
(xxx)
(xxx)
xxx
43
44
Individual Taxpayers
Resident Citizens
- citizens of the Philippines who stay in the Philippines without the intention of transferring their physical
presence abroad whethere to stay permanently or temporarily as an overseas contract worker
Non-resident citizens
(1) A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his
presence abroad with a definite intention to reside therein.
(2) A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either as
immigrant or for employment on a permanent basis.
(3) A citizen of the Philippines who works and derives income from abroad and whose employment thereat
requires him to be physically present abroad most of the time during the taxable year.
(4) A citizen who has been previously considered as nonresident citizen and who arrives in the Philippines at
any time during the taxable year to reside permanently in the Philippines shall likewise be treated as a
nonresident citizen for the taxable year in which he arrives in the Philippines with respect to his income
derived from sources abroad until the date of his arrival in the Philippines.
Jan. 1 to date of arrival
Non-resident citizen
(5) The taxpayer shall submit proof to the Commissioner to show his intention of leaving the Philippines to
reside permanently abroad or to return to and reside in the Philippines as the case may be for purpose of
this Section.
Alien individuals and Filipinos employed by Regional or Area Headquarters and Regional Operati
quarters of Multinational Companies
"There shall be levied, collected and paid for each taxable year upon the gross income received by every alie
individual employed by regional or area headquarters and regional operating headquarters established in the
Philippines by multinational companies as salaries, wages, annuities, compensation, remuneration and other
emoluments such as honoraria and allowances, from such regional or area headquarters and regional
operating headquarters, a tax equal to fifteen percent (15%) of such gross income. Provided that the same ta
treatment shall apply to Filipinos employed and occupying the same position as those of aliens employed by
these multinational companies.
Multinational company - foreign firm or entity engaged in international trade with affiliates or subsidiaries
branch offices in the Asia-Pacific Region and other foreign markets
NRC
20%
20%
20%
20%
RA
20%
20%
20%
20%
20%
20%
10%
Exempt
20%
20%
10%
7.5%
Exempt
Exempt
5%
12%
20%
5%
12%
20%
RC
10%
NRC
10%
RA
10%
10%
10%
10%
10%
10%
10%
NRA-ETB NRA-NETB
20%
25%
20%
25%
20%
25%
20%
25%
20%
20%
10%
Exempt
25%
25%
25%
Exempt
Exempt
25%
5%
12%
20%
25%
25%
25%
NRA-ETB NRA-NETB
20%
25%
20%
25%
20%
25%
Compensation income - all remuneration for services performed by an employee for his employer under an
employer-employee relationship unless exempted under the provisions of the NIR
2 types of compensation income
1. Basic compensation income - which is first subject to allowable deductions and is then subjected to the
schedular rate
Allowable deductions include:
a. Basic personal exemptions
b. Additional personal exemptions
c. Premium payments for health and/or hospitalization insurance
2. Certain fringe benefits - subject to a fringe withholding tax
Fringe benefits exempted from the payment of fringe benefits tax still form part of the
employee's basic compensation income
The NIRC of 1997 provides for a uniform tax rate imposed on individuals irrespective of whether the income i
derived from compensation or from business, trade or exercise of a profession. The difference is that certain
deductions are not allowed for compensation income.
Gross Income
Gross income, for tax purposes, means all income derived from whatever source*, including (but
not limited to) the following items:
a. Compensation for services in whatever form paid, including, but not limited to fees, salaries,
wages, commissions, and similar items;
b. Gross income derived from the conduct of trade or business or the exercise of a profession;
c. Gains derived from dealings in property;
d. Interests;
e. Rents;
f. Royalties;
g. Dividends;
h. Annuities;
i. Prizes and winnings;
j. Pensions; and
k. Partner's distributive share from the net income of the general professional partnership
*Gross income (from whatever source) would include the ff.:
a. Income from illegal business and criminal activities - subject to tax
b. Income from forgiveness of indebtedness in certain instances
c. Under the so-called "tax benefit" rule where there is recovery of written-off debts, or refund of
tax payments
xxx
(xxx)
xxx
(xxx)
xxx
year preceeding the declaration of such dividends or for such part of such
period as the corporation has been in existence was derived from sources
ercise of a profession;
ional partnership
an the statutory
ductivity Board, as
stice (BLES) of the
ons, honoraria,
00.00, taxable
y, overtime pay,
an MWE"
d the statutory
mission (NWPC) -
5%
10%
5% and 10%
PARTIAL UTILIZATION
"If there is partial utilization of the proceeds of sale or disposition, the portion of the gain presumed to have
been realized from sale or disposition shall be subject to capital gains tax. For this purpose, the gross selli
price or fair market value at the time of sale, whichever is higher, shall be multiplied by a fraction which t
unutilized amout bears to the gross selling price in order to determine the taxable portion and the tax
prescribed under paragraph (1) of this Subsection shall be imposed thereon."
Taxable portion = Unutilized Selling Price x Higher of SP or FMV (time of sale)
Gross Selling Price
Capital gains tax computation:
NRA-NETB
5% and 10%
NRA-NETB
6%
utilization)
xxx
xxx
xxx
n of Real Property
Inventory or not
Capital Asset
EXEMPT
1. With a selling price of P500,000
or less
2. With a selling price of more than
P500,000 but not more than
P2,000,000
3. With a selling price of more than
P2,000,000
1.5%
3%
5%
Tax on Corporations
Corporation - for income tax purposes, shall include partnership, no matter how created or organized , joint s
companies, joint accounts (cuentas en participacion), associations, or insurance companies
- also includes mutual fund companies, regional operating headquarters or Multinational cor
joint accounts
General professional partnership - a partnership formed by persons for the sole purpose of exercising their
common profession, no part of the income of which is derived from eng
in any trade or business
truction projects
other energy operatings pursuant
government