CHAPTER 1: Taxation

Reported by Group 1 & 2

General Principles of Taxation
Inherent Powers of the
Government/State
Power of Taxation
Power of Eminent Domain
Police Power
Limitations on the Power of Taxation
1. Constitutional Limitation
a) Due process of the law
b) Equal Protection of the Law
c) Non imprisonment for Non payment of Debt or a Poll Tax
d) Non impairment of the Provisions on Obligations of
Contracts
e) The Rule of Taxation shall be Uniform and Equitable
f) No Public Money or Property shall be Appropriated for a
Religious or Private Purpose
Limitations on the Power of Taxation
1. Constitutional Limitation
g) Exemption from Taxation of Educational, Religious and
Charitable Organizations
h) No Law Granting Any Tax Exemption shall be Passed Without the
Concurrence of a Majority of all the Members of Congress
i) Non impairment of the Jurisdiction of the Supreme Court on Tax
Cases
j) The Philippine President has the Power to Approved or Veto a
Tax Bill Approved and Passed by the Philippine Congress
Limitations on the Power of Taxation
Inherent Limitation
a) Taxes maybe levied only for public purpose;
b) Non-delegation of the power to tax except to local
government;
c) Exemptions from taxation of government entities;
d) Tax laws must be within the states territorial jurisdiction;
e) Tax laws must be the subject to international comity,
convention, or agreements;
f) Prohibition of double taxation.
Definition of Taxation
Itrefers to the inherent power of the state to
exact an enforced contribution upon persons,
properties or rights for the purpose of generating
revenues for the use of the government.
Nature of Taxation

Authority
Basis
Purpose of Taxation

Primary Purpose
to raise revenues for the use and support of the
government to enable it to carry out its appropriate
functions.
Secondary Purpose
to contend or promote the general welfare, social and
economic development of a country and its people.
Scope of Taxation

The coverage of the power of taxation is

Plenary or Unlimited
Comprehensive and Supreme
Restricted only by the constitutional and inherent
limitations
Nature of Tax Laws / Revenue Laws

Tax Laws or Internal Revenue Laws are not

political in nature.
They are deemed civil in nature and not penal in
nature although there are penalties provided for
their violations.
Basic Principles of Sound Tax System

Fiscal Adequacy
Equality or Theoretical Justice
Administrative Feasibility
Essential Characteristics of Tax

1. It is an enforced contribution.
2. It is legislative in nature.
3. It is imposed in accordance with/or based on law.
4. It is imposed for public purpose.
5. It is proportionate in character.
6. It is generally paid in money or cash.
7. It is paid at regular intervals.
8. It is imposed upon persons, properties, or rights.
9. It is imposed to raise government revenues.
Classification of Taxes

1. Classes of Taxes as to Subject Matter

a) Personal Tax or Capitation Tax or Poll Tax
b) Property Tax
c) Excise Tax or Privilege Tax

2. Classes of Taxes as to Scope or Authority

a) National Tax
b) Local Tax
Classification of Taxes

3. Classes of Taxes as to Purpose

a) General Tax
b) Special Tax

4. Classes of Taxes as to Liabilities

a) Direct Tax
b) Indirect Tax
Classification of Taxes

5. Classes of Taxes as to Determination of Amounts

a) Specific Tax
b) Ad-valorem Tax

6. Classes of Taxes as to Graduation or Rites

c) Progressive or Graduated Tax
d) Regressive Tax
e) Proportionate Tax
Tax Situs or Place of Taxation

The situs or place of taxation depends on the

following factors:
Domicile or Residence of the Person
Citizenship or Nationality of the Person
Location or Source the Income
Property or Right
Tax Situs or Place of Taxation

1. Persons
2. Real Property
3. Tangible Personal Property
4. Intangible Personal Property
5. Income
6. Business, Occupation, and Transaction
7. Gratuitous Transfer of Property
Phases or Aspects of Taxation

Levying or Imposition of Tax

Assessment and Collections of Tax

International Comity
refers to the fundamental rule of taxation that no law shall
be passed to impose taxation on the property owned by a
foreign government or sovereignty.
Categories of Double Taxation

Double Taxation
the act of taxing the same taxpayer, person, property or
right, twice by the same kind and character of tax, by the
same taxing authority within the same jurisdiction or
taxing district, for the same purpose and during the same
taxable period.
1. Direct Double Taxation
2. Indirect Double Taxation
Classification of Tax Escapes

1. Tax Credit
2. Tax Exemption
a) Express or Affirmative Tax Exemption
b) By Omission or Implied Tax Exemption
3. Tax Evasion or Tax Dodging
4. Tax Avoidance
5. Tax Shifting
Sources of National Tax Laws

1. National Internal Revenue Code of the Philippines

2. BIR Revenue Rulings and Regulations
3. Philippine Special Laws or Statutes
4. Decisions of the Philippine Courts: higher courts or lower courts
5. Opinions / Rulings of Secretary of Justice
6. Philippine Constitution
7. Presidential Decrees
8. International Treaty, Comity, Convention
Chapter 2:

BIR Organizations, Powers, & Functions

Bureau of Internal Revenue (BIR)

The Bureau of Internal Revenue is the government agency

that is authorized and tasked to administer and execute
internal revenue laws and regulations.
Primary Officials of the BIR

1. Chief Commissioner
2. Four Deputy Commissioners
3. Revenue Regional Directors
4. Assistant Revenue Regional Directors
5. Revenue District Officers
6. Department Heads of the Assessment, Collection, Legal,
Administrative Groups; and
7. Other BIR Officials of various Operational / Functional Support
Officers
Primary Officials of the BIR

The Bureau of Internal Revenue is divided into

two working groups:
1. Assessment and Collection Group
2. Legal and Administrative Group
BIR Commissioners Duties Functions

Ensure the provision, distribution of BIR forms, receipts, certificates and

appliances and the acknowledgement of payment of taxes.
Divide the country to such required number of revenue districts;
Make arrests and seizures for violation of the penal laws in the tax code.
Make assignments of Internal Revenue officers involved in excise tax
functions to establishments where articles subject to excise taxes are
produced or kept;
Make assignment of Internal Revenue officers and other employees to
other duties;
Submission of the Commissioners Annual Report and other pertinent
information.
BIR Jurisdiction, Authority on National Taxes

1. Individual Income Tax

2. Corporate Income Tax
3. Estate Tax
4. Donors Tax
5. Percentage Tax
6. Value Added Tax
7. Excise Tax
8. Documentary Stamp Tax
 Tax Remedies
I. Remedies of Government, In General
Section 203. Period of Limitations Upon Assessment and Collection of Taxes
(1) internal revenue taxes shall be assessed within three (3) years after the
last day prescribed by law.
(2) In the case where a tax return is filed beyond the period prescribed by
law, the three (3) years period shall be counted from the day the tax return was
filed.
Section 222. Exceptions as to Period of Limitations of Assessment and Collection of Taxes
(1) In the case of a fraudulent tax return with intent to evade tax or failure to file, the tax
may be assessed at any time within ten (10) years.
(2) If before the expiration of the time for the assessment of the tax both the BIR
Commissioner and the taxpayer have agreed in writing, the tax may be assessed
within the period agreed upon.
 (3) Any internal revenue tax which has been assessed within the
period of limitation may be collected by distraint or levy or by a
proceeding in court within five (5) years.

Section 223. Suspension or Non-Suspension of Running of the Statute of Limitations

(1) Suspension of the running of the statute of limitation in section 203 and
222 shall be suspended;
a.) For the period during which the BIR Commissioner is prohibited from
making the assessment and for sixty (60) days thereafter;
b.) When the taxpayer request for a reinvestigation which is granted by
the BIR Commissioner;
c.) When the taxpayer cannot be located in the address given by him in
the tax return field without subsequently giving a change of address.
(2) Non-suspension of the running of the statute of limitation in sections
203 and 222 shall not be suspended when;
a.) The warrant of distraint and levy is duly served upon the taxpayer,
his authorized representative or a member of his household with
sufficient discretion, and no property can be located; or
b.) The taxpayer is out of the Philippines; or
c.) The taxpayer cannot be located in the address given by him in the
tax return but has informed the BIR of a change of address.
II. Civil Remedies of Government for Collection of Taxes
Section 205/207. Governments Remedies for the Collection of Taxes
(1) Summary Remedies by the Government
a.) Section 207. By Distraint of Personal Property.
Constructive Distraint To safeguard the interest of the
Government, the BIR Commissioner may place under constructive
distraint the personal property of a delinquent taxpayer or any
taxpayer who in his opinion.
a. is retiring from any business subject to tax, or
b. is intending to leave the Philippines, or
c. is intending to remove his property there from, or
d. is intending to hide or conceal his property, or
e. is intending to perform any act of tending to obstruct the proceedings for
the collection of the tax or which maybe due from him.
b.) Section 207. By Levy Upon Real Property
1.) After the expiration of the time required to pay the delinquent tax or
delinquent tax or delinquent revenue, before or after the distraint of
personal property belonging to the delinquent taxpayer.
2.) Levy shall be effected by writing upon and said certificate a
description of the property upon which levy is made.

Section 217. Further Distraint or Levy

The remedy by distraint of personal property and levy on real property
may be repeated if necessary until the full amount of tax due is
collected.
(2) Judicial Remedies by the Government
a. By Civil Action
The government files a case for collection of taxes before the courts
requiring the taxpayer to pay his taxes due.
b. By Criminal Action
The government files a case for collection of taxes and imposing
penalty (fines and imprisonment) against the taxpayer.
III. Taxpayer's Remedies of Protesting an Assessment, Asking for Tax Refunds
Section 228. Protesting of Assessment of Taxes
(1) When the BM Commissioner or his duly authorized representative
finds that proper taxes should be assessed, he shall first notify the
taxpayer of his tax audit findings; Provided, however, that a
pre-assessment notice (notice of informal conference) shall not be
required in the following cases:
(2) When the findings for any deficiency tax is the result of a mathematical
error in the computation of the tax as appearing on the face of the tax
return;
(3) When a discrepancy has been determined between the tax withheld and
the amount actually remitted by the withholding agent;
(4) When a taxpayer who opted to claim a refund of tax credit of excess
creditable withholding tax was determined to have carried over and
automatically applied the same amount claimed against the estimated
tax liabilities for the taxable quarter or quarters of the succeeding taxable
year;
(5) When the excise tax due on excisable articles has not been paid;
(6) When an article locally purchased or imported by an exempt person has
been sold, traded or transferred to non - exempt persons.
Section 229. Recovery of Tax Erroneously or Illegally Collected
(1) No suit or proceeding shall be maintained in any court for the recovery of
any national internal revenue tax hereafter alleged to have been
erroneously or illegally assessed or collected, until a claim for refund or
credit had been duly field with the BIR Commissioner.
(2) In any case, no such suit or proceeding shall proceeding shall be filed
after the expiration of two (2) years from the date of payment of tax or
penalty.
Section 230. Forfeiture of Cash Refund and of Tax Credit
(1) A refund check or warrant issued in accordance with the pertinent
provisions of the Tax Code which shall remain unclaimed or un-cashed
within five (5) years from the date the said warranty check was mailed.

(2) A tax credit certificate issued in accordance with the pertinent

provisions of the Tax Code, which shall remain unutilized after five (5)
years from the date of issue, shall unless revalidated.
Administrative Provisions
 The topic deals with certain requirements, guidelines, in matters and
manners/ procedures for filling the individual income tax returns and the
payment of the income taxes due under the provisions of the National
Internal Revenue Code of the Philippines.
Compliance Requirements

1. Registration with the BIR

2. Keeping of accounting books/records
3. Issuance of sales invoices and official receipt
4. Filling of tax returns and payments of related tax
5. Withholding of taxes of specified/certain payments to
suppliers-sellers
Persons Required to File Income Tax
Returns
1. Every Filipino citizen residing in the Philippines, on his income
from sources within and without the Philippines.
2. Every Filipino citizen residing outside the Philippines, on his
income from sources in the Philippines.
3. Every alien residing in the Philippines, on his income derived from
sources within the Philippines.
4. Every non-resident alien engaged in trade, business or in the
exercise of profession in the Philippines on his income derived from
sources within the Philippines.
Persons Not Required to File Income Tax Returns

1. An individual whose gross income does not exceed his total

basic and additional personal exemption for dependents.
2. An individual with respect to pure compensation income,
derived from sources within the Philippines., the income
tax on which has been correctly withheld.
3. An individual whose sole income has been subjected to
final withholding income tax.
4. An individual who is exempt from income taxation pursuant
to the tax code and other laws.
Time to File Income Tax returns
A. Regular Filling of Individual Income
Tax Returns
1. Annual Estimated Income Tax Return for Self-
Employment Individuals
2. Quarterly Income Tax Returns for Self-employed
Individuals
3. For Employees Deriving Purely Compensation Income
4. Final Income Tax Return on Sale of Capital Asset
B. Substituted Filling of Income Tax
Returns
Persons Qualified for Substituted Filling of Income Tax Returns
Persons Not Qualified for Substituted Filling of Income Tax Returns
Place and Time for Payment of Income Tax
Amended Income Tax Returns
Persons Under Disability
 Signature Presumed Correct
Self- assessment System
BIR Assessment, Imposition, Collections of Deficiency Tax
Accounting or Taxable Year of Individuals
1. Fiscal Year
2. Calendar Year
Methods of Accounting Allowed
Fundamental Concepts

Under Republic Act. No 8424 otherwise as the Tax Reform Act of

1997, effective January 1, 1998 and thereafter, amendments were
made abolishing the Schedular Income Taxation under the
simplified Net Income Taxation Scheme (SNITS). Since then, the
government imposes the Unified Income Taxation under the
Globalized Income Scheme (GITS)
 Globalized Income Taxation - Refers to a taxation scheme/system
wherein the taxable net income derived from whatever sources
whether from employment, business, trade or profession is
computed under one formula subject to the graduated tax rates of
5% to 32%.
Schedular Income Taxation Refers to a system/scheme of income
taxation wherein income are classified into different categories.
Income Tax Refers to the tax imposed by the government on the
taxable income, whether earned by taxable persons.
Income Refers to the profit, gain, fruit, wealth or fortune
Capital Represents a fund or a tree that generates the income.
Taxable Income These are gains, profit or income items which
are subject to income either gross amount(final income tax) or at
net amount (basic income tax)
Requisites of Taxable Income

1. There must be a gain or profit

2. The gain or profit must be realized or received actually
or constructively
3. The gain or profit must not be excluded/exempted by
law from income taxation
Constructive Receipts of Income
To constitute the constructive receipt of income, the income must be
credited to the account of the payer, or set aside for him, or which may
be drawn by him at any given time, or a complete control of disposal of
such income is already placed in his hands, such as the following:
1. Share of a member/partner in the net income of a partnership
although not yet distributed.
2. Interest income already credited to the account of a bank depositor.
3. Dividends declared and due on the shareholdings of the
investors/owners although not distributed
4. Rental payments which was judicially deposited in a bank
5. Matured interest coupons on certificate of bonds
 Gross Income Taxation System A taxation system where the income
earned/received at gross
Gross Income means the total amount of income earned or received
without yet considering any deduction/exemptions yet
Net Income Taxation System A taxation system where the income
earned/received at net amount
Net Loss Means the excess of the amount of the allowed deduction
exemptions over the amount of the gross income.
Passive Income means, gains or income items obtained from
activities in which the taxpayer does not participate on a regular and
continuing basis.
 Active Income means gains or income earned by the taxpayer from
activities in which he materially participated in producing said
income.
Minimum Wage Earner Refers to a worker in the private sector paid
the statutory minimum wage
Classification of Taxes as to Taxability

1. Non-taxable Income or Income Exempt from Income Tax

2. Taxable Income or Income Subject to Income Tax
Classifications of Income as to Source,
Line of Activity
1. Compensation Income from Employment
2. Income from Business, Trade or Profession
3. Other Income
Classifications of Expenses as to
Deductibility
1. Non-Deductible Business Expenses
2. Deductible Business Expenses
Sources of Income and Expenses

1. Single
2. Head of the family
3. Married
Classifications of Individual Taxpayers

1. Special Individual Taxpayers

a. Special Aliens or Filipino Employee(SAFE)
b. Non-resident Alien not Engaged in Business in the Philippine
c. Minimum Wage Earner
2. Ordinary Individual Taxpayers
a. Resident Citizen
b. Resident Alien
c. Non-resident citizen
d. Non-resident Alien Engaged in business in the Philippines
Persons Considered Citizens of the
Philippines
1. Natural Born citizens of the Philippines
2. Naturalized citizens of the Philippines
3. Citizen of the Philippines at the time of adoption of the Philippine
Constitution
4. Persons who elected Philippine citizenship
Persons Considered Non-resident
Citizens
1. Who establishes to the satisfaction of the BIR commissioner
2. Who leaves the Philippines during the taxable year
3. Who works and derived income from abroad
4. Who has been previously considered as non-resident citizen
1. Immigrant is an individual who leaves the Philippines to reside
abroad as an immigrant for which a foreign visa as such has been
secured.
2. Permanent Employee to reside the abroad for employment on a
more or less permanent basis
3. Overseas Contract Worker Is an individual who leaves the
Philippines on account of a contract of employment which is
renewed from time to time.
Chapter 3:

Fundamental Concepts of
Individual Income Taxation
 Employee
An individual who is a fixed earner deriving income out of an employer-employee
relationship.

Self-employed/Entrepreneur
An individual who is engaged in business, trade or practice of proprietorship.

Self-employment Income
Consists of earnings derived by an individual from practice of profession or conduct
of trade or business carried on by him as a sole proprietor or by a partnership by
which he is a member.

Professional
An individual who derives his income from the practice of his profession.
e.g: Lawyers, CPA and other persons who are registered with the Professional
Regulation Commission
Forms of Business
Organizations
Sole Proprietorship a form of business organization whose ownership rest entirely upon
one person.
Partnership a form of business organization whose ownership rest entirely on two or
more individuals who agree to contribute money, property or industry to a common fund
with the intention of dividing/sharing in the profit or loss of such business.
Corporation a form of business organization incorporated under the corporation law and
whose capitalization is divided into/evidenced by shares of stocks.

Other business organization:

Multi-national Company a foreign firm or entity engaged in international trade with
affiliates or subsidiaries or branch offices in Asia Pacific Region and other foreign markets.

Regional Area Headquarter a branch established in the Philippines by a multi-national

company and which headquarter does not earn/derive income from the Philippines and which
merely acts as supervisory, communications and coordinating center for its affiliates,
subsidiaries, or branches in APR and other foreign markets.
Regional Operating Headquarter a branch established in the Philippines by
a multi-national company which is engaged in any of the following services:
General administration and planning
Business planning and coordination
Sourcing and procurement of raw materials and components
Corporate finance advisory services
Marketing control and sales promotion
Training and personnel management
Logistic services
Research and development services and product development
Technical support and maintenance
Data processing and communication
Business development

Offshore Banking Unit a foreign banking corporation which is

authorized to engaged in foreign currency transactions and other
related banking transactions in the Philippines.
General Principles of Income
Taxation for Individuals
A resident citizen of the Philippines is taxable on all income derived from sources
within and without the Philippines

A non-resident citizen is taxable only on income derived from sources within the
Philippines.

An individual citizen of the Philippines who is working and deriving income from
abroad as an overseas contract worker is taxable only on income from sources
within the Philippines.

An alien individual, whether a resident or not of the Philippines, is taxable only on

income derived from sources within the Philippines.
ALLOWANCE AND EXEMPTION
Rules on Allowed Personal
Exemption
Allowed Personal Exemption (APE) an arbitrary amount granted by law to individual taxpayers
general, representing their personal, family and living expenses or minimum subsistence for
themselves and their dependents.

Rule I. Basic Allowed Personal Exemption (BAPE)

In general, each individual taxpayer shall be permitted to claim the basic allowed personal
exemption amounting to 50,000, regardless of his/her civil/exemption status, whether single,
head of family, married, married legally separated or married not legally separated, whether a
resident citizen, resident alien, non-resident citizen or non resident alien engaged in business in
Philippines.

Rule II. Additional Allowed Personal Exemption (AAPE)

In general, each individual taxpayer shall be permitted to the additional allowed personal
exemption amounting to 25,000, for each qualified dependent child, but not to exceed four (4)
children, whether such taxpayer is a, head of family, married, married legally, separated or
married not legally separated whether a resident citizen, resident alien, non-resident citizen, or
non-resident alien engaged in business in the Philippines
Qualified Dependent Child shall mean a legitimate child, recognized natural child,
illegitimate child or legally adopted child chiefly dependent upon and living with the
taxpayer, if such dependent is not more than twenty one (21) years of age, unmarried and
not gainfully employed or if such child dependent, regardless of age, is incapable of self-
support because of mental or physical defect.

In case of a married couple both earning income, each shall claim a basic
allowed person exemption of 50,000. The additional allowed personal
exemption for their dependent children shall be claimed by the husband but
such right can be waived in favor of the wife.

In case of a married couple who are still living together (neither divorced nor
legally separated), if a dependent child (step-child) is qualified to one of the
spouses, then such dependent step-child is presumed to be qualified also to
the other spouse.
In case of legally separated spouses, the additional allowed personal
exemption maybe claimed only by the spouse who has custody of the
child/children.
 Cases when AAPE and HHIP should be Waived to Wife
1. The husband has no earnings/income that are subject to the basic income
tax during the year
2. The husband earns income much lesser than his wifes income
3. The husband is a non-resident citizen earning income only from sources
without the Philippines

Changes of Status in the Year, Favorable to Taxpayer

1. If the taxpayer marries or should have additional dependent child/children
during the taxable year, such taxpayer may claim it full the corresponding
basic and additional allowed personal exemptions as the case may be for
such year.
2. If the taxpayer dies during the taxable year, such taxpayer in his last income
return of the year or death, may still be claim the same allowed personal
exemptions for himself and his dependent/s as if he/she is still alive at the
close of such year.
3. If the spouse or any of the qualified children dependents dies or if any of such
dependents marries, becomes 21 years old or becomes gainfully employed during
the taxable year, the taxpayer may still claim the same APE as if the spouse or any
of the children dependents is still alive, or such dependent child is still unmarried,
or still not over 21 years old, or still not gainfully employed at the close of such
year.

Change of Status in the Year Unfavorable to Taxpayer

1. When a qualified dependent ceased living with the taxpayer in a taxable year,
such dependent already becomes disqualified in such taxable year and
thereafter.
2. When a qualified dependent ceased being dependent upon the taxpayer for
chief support in a taxable year, such dependent becomes already disqualified
in such taxable year and thereafter.
3. When a married taxpayer becomes a legally separated person or legally
divorced in a taxable year, his civil status shall be received back to as a single
person or a head of a family, as the case maybe, immediately in such taxable
year and thereafter.
 Head of Family unmarried or legally separated man or woman with one or
both parents or with one or more senior citizens, brother and/or sisters, or
with one or more legitimate, recognized natural, legally adopted or
illegitimate children, living with an dependent upon him/her for chief
support, where such brothers, sisters or children are not more than twenty
one (21) years of age, unmarried, not gainfully employed or where such
children, brothers or sisters are incapable of self-support because of mental
or physical defects.
Chief Support more than 50% of the basic financial or economic needs of a
dependent order to live a normal, appreciable life style is provided for by the
taxpayer.
Qualified Dependent Child a legitimate child, recognized natural child,
illegitimate or legally adopted child, chiefly dependent upon and living with
the taxpayer, if such child dependent, regardless of age, is incapable of self-
support because of mental or physical defect.
Legitimate Child a child who was born within wedlock of parents.
Legally Adopted Child a child adopted by parents under a judicial decree or
a legal adoption paper.
 Natural Child
Refersto a child born outside wedlock of parents who, at the time of the
child, were not disqualified by any impediment to marry each other.
Considered as qualified independent
Recognized by the mother or the father jointly or severally

Illegitimate Child
Child
born outside of wedlock of parents who conception of the child were
disqualified by any impediment to marry each other

Senior Citizen
Refersto any resident of the Philippines only who is at least 60 years old
including those who have retired from both government offices and private
government.
Hasan income of not more than 60,000 Pesos per annum subject to review
by NEDA
Qualifications of Dependent Children
All the following requirements for dependent children must
concur/be met in order for the taxpayer to claim.
Child is unmarried;
Child is not gainfully employed;
Child is living with the taxpayer;
Child is dependent upon the taxpayer for chief support;
Child is not more than 21 years of age;
Child is inapplicable of self-support due to mental or physical
defects if its over 21 years old
Child may be a legitimate, recognized natural, legally adopted
children or illegitimate
Rule no. III No Permitted Allowed Personal Exemption
for:
Non-resident alien/expatriate in the Philippines
(NRANEBP)
A non-resident alien/expatriate is one who is not a citizen and
resident of the Philippines but deriving income as employee in the
Philippines. He is classified either as a non-resident alien:
Not engaged in trade or business, or,
Engaged in trade or business
UnderSection 25(A)(1) of the Philippines Tax Code, a non-resident
alien who stayed an aggregate period of more than 180 days during
any calendar year shall be deemed a non-resident alien doing business
in the Philippines. InBIR Ruling No. 056-05, the BIR ruled that any
calendar year covers all the months in the calendar year covered by
the period of assignment of the expatriate in the Philippines.
Non-resident alien/expatriate in the Philippines
(cont.)

A non-resident expatriate in the Philippines not engaged in trade or

business in the Philippines is subject to 25% withholding tax on gross
compensation. On the other hand, as non-resident expatriate engaged
in trade or business in the Philippines is taxed at 5-32% of
compensation income after deductions for personal exemptions
(P50,000.00 basic personal exemptions, and P25,000 additional
personal exemptions for every qualified dependent child up to four or
up to P100,000)
Rule no. III No Permitted Allowed Personal Exemption
for:

Special Alien/Filipino Employee (SAFE)

Not permitted to claim business expense, allowed
personal exemption and health hospitalization premium
- Because their income earned from the Philippines are
subject to the final income tax rates of 15% and 25%
respectively hence, they are no longer required to file their
income tax returns.
Rules on Health hospitalization Insurance Premium (HHIP)

Aware of the importance of medical care and the necessary expenses to be

incurred in case of sickness, the taxpayer ordinarily secures medical and
hospitalization insurance contracts. Insurance premiums are being made
during the taxable year.
1. Exemption for HHIP can be claimed by: Employee, Self-employed, or
mixed earner. Whether a resident citizen, non-resident citizen or alien
engaged in business in the Philippines.
2. Exemption for HHIP cannot be claimed by: as non-resident aliens not
engaged in business in the Philippines as well as special alien/Filipino.
3. The taxpayer allowed to claim as exemption for health hospitalization
insurance premium subject as to the following conditions and limitations.
a. Said family has a gross income of not more than P250,000 for the
taxable year
b. There must be an actual health hospitalization premium payment
during the month /year.
c. It can be claimed between the actual HHIP payment or the limit
HHIP amount prescribed by the law which not shall exceed P2400
per year or P200 month.
d. In case of married couple, only spouse claiming the additional
allowed personal exemption for their children dependents shall be
entitled to such exemptions
e. If married couple has no dependent children, then the husband
shall claim the HHIP exemption, but such right may also waived in
favor of his wife.
f. The HHIP exemption if any is added to the allowed personal
exemption to determine the total amount of Allowance and
exemption