INCOME TAXATION OF INDIVIDUALS: CITIZENS

CITIZENS RESIDENT Definition NON-RESIDENTS Sec 22 (E) 1. A citizen of the Philippines who establishes to the satisfaction of the Commissioner that fact of his physical presences abroad with definite intention to reside therein. 2. A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either as an immigrant or for employment of 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 non-resident citizen who arrives in the Philippines at any time during the taxable year to reside permanently in the Philippines shall likewise be treated as non-resident 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. Sec 24 (income w/in the Philippines) Sec 23 (income outside Philippines) Taxable income from all sources within the Philippines 5% - 34% in 1998 (for income w/in the Phils) 5% - 33% in 1999 (for income w/in the Phils) 5% - 32% in 2000 (for income w/in the Phils) 5% - 32% thereafter (for income w/in the Phils) EXEMPT (for income w/out the Phils) 20% FT

Tax Code Reference Tax Base

Sec 24 Taxable income earned from all sources within and without the Philippines 5% - 34% in 1998 5% - 33% in 1999 5% - 32% in 2000 5% - 32% thereafter

Tax Rates In general

Tax Rates On Passive Incomes (subject to Final Taxes[FT]) Interest on any currency bank deposit and yield or 20% FT any other monetary benefit from deposit substitutes [Sec 22(Y)] and from trust fund and similar arrangements Interest from a depository bank under the 7.5% FT expanded foreign currency deposit system [RR 10-98] Interest on long term deposit or investment [Sec EXEMPT 22 (FF)] 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 BSP Pre-terminated long term investment (should 4 years to < 5 years 5% actually based on expired term) FT 3 years to < 4 years 12% FT Less than 3 years 20% FT Other interest income derived within the 5% - 34%, 33%, 32% Philippines Other interest income derived outside the 5% - 34%, 33%, 32%

EXEMPT [Sec 2.24 RR 10-98] EXEMPT

4 years to < 5 years 5% FT 3 years to < 4 years 12% FT Less than 3 years 20% FT

5% - 34%, 33%, 32% EXEMPT

Philippines Royalties in general Royalties on books, other literary works and musical compositions Prizes - more than P10,000 Prizes P10,000 or less Prizes PCSO & Lotto winnings Other prizes or winnings within the Philippines Other prizes or winnings outside the Philippines Cash and/or Property Dividends from a domestic corp or share in distributable net income after tax of a partnership (except general professional partnership), association, joint account, or joint venture or consortium taxable as corporation Other Cash and/or Property Dividends (e.g. from a foreign corp) On domestic shares of stock not traded through local stock exchange (based on net capital gains) On shares of stock traded through local stock exchange (based on gross selling price) [Sec 127(A) & (D)] On real property (based on gross selling price or FMV whichever is higher) in general On real property sold to the government subj to option On real property sold to acquire or construct new principal residence

20% FT 10% FT 20% FT 5% - 34%, 33%, 32% EXEMPT 20% FT 5% - 34%, 33%, 32% 6% FT beginning Jan 1, 1998 8% FT beginning Jan 1, 1999 10% FT beginning Jan 1, 2000 5% - 34%, 33%, 32% 5% / 10% FT 1/2% of 1% FT (Percentage Tax) 6% FT 6% FT or 5% - 34%, 33%, 32% EXEMPT subj to certain conditions

20% FT 10% FT 20% FT 5% - 34%, 33%, 32% EXEMPT 20% FT EXEMPT 6% FT beginning Jan 1, 1998 8% FT beginning Jan 1, 1999 10% FT beginning Jan 1, 2000

5% - 34%, 33%, 32% 5% / 10% FT % of 1% FT (Percentage Tax) 6% FT 6% FT or 5% - 34%, 33%, 32% EXEMPT subj to certain conditions

INCOME TAXATION OF INDIVIDUALS: ALIENS

ALIEN NON-RESIDENT ALIEN RESIDENT ALIEN Definition Sec 22 (F) An individual whose residence is within the Philippines and who is not a citizen thereof ENGAGED IN BUSINESS Sec 22 (G) / Sec 25 (A) (1) An individual whose residence is not within the Philippines and who is not a citizen thereof but stays in the Philippines for an aggregate period of more than 180 days during any calendar year Sec 25 (A) Taxable income earned from all sources within the Philippines 5% - 34% in 1998 5% - 33% in 1999 5% - 32% in 2000 5% - 32% thereafter 20% FT NOT ENGAGED IN BUSINESS Sec 22 (G) An individual whose residence is not within the Philippines and who is not a citizen thereof but stays in the Philippines for an aggregate period of more than 180 days during any calendar year Sec 25 (B) gross income from all sources within the Philippines 25% FT

Tax Code Reference Tax Base

Sec 24 Taxable income earned from all sources within the Philippines Tax Rates In general 5% - 34% in 1998 5% - 33% in 1999 5% - 32% in 2000 5% - 32% thereafter Tax Rates On Passive Incomes (subject to Final Taxes[FT]) Interest on any currency bank deposit 20% FT and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements Interest from a depository bank under the 7.5% FT expanded foreign currency deposit system Interest on long term deposit or EXEMPT investment [Sec 22 (FF)] in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments evidenced by certificates in

25% FT

EXEMPT Sec 27 (D)(3) Sec 2.27 (c) RR 10-98 EXEMPT

EXEMPT Sec 27 (D)(3) RR 10-98 25% FT

such form prescribed by the BSP Pre-terminated long term investment (should actually based on expired term)

Other interest income derived within the Philippines Other interest income derived outside the Philippines Royalties in general Royalties on books, other literary works and musical compositions Royalties on cinematographic films and similar works [Sec 28 (B)(2)] Prizes - more than P10,000 Prizes P10,000 or less Prizes PCSO & Lotto winnings Other prizes or winnings within the Philippines Other prizes or winnings outside the Philippines Cash and/or Property Dividends from a domestic corp or share in distributable net income after tax of a partnership (except general professional partnership), association, joint account, or joint venture or consortium taxable as corporation Other Cash and/or Property Dividends (e.g. from a foreign corp in the Philippines) Other Cash and/or Property Dividends (e.g. from a foreign corp NOT in the Philippines) On domestic shares of stock not traded through local stock exchange (based on net capital gains) On shares of stock traded through local stock exchange (based on gross selling price) [Sec 127(A) & (D)] On real property (based on gross selling price or FMV whichever is higher) in general On real property sold to the government subj to option On real property sold to acquire or construct new principal residence

4 years to < 5 years 5% 3 years to < 4 years 12% Less than 3 years 20% 5% - 34%, 33%, 32% EXEMPT 20% FT 10% FT 20% FT 20% FT 5% - 34%, 33%, 32% EXEMPT 20% FT EXEMPT 6% FT beginning Jan 1, 1998 8% FT beginning Jan 1, 1999 10% FT beginning Jan 1, 2000 5% - 34%, 33%, 32% EXEMPT 5% / 10% FT 1/2% of 1% FT (Percentage Tax) 6% FT 6% FT or 5% - 34%, 33%, 32% EXEMPT subj to certain conditions

5 years to < 5 years 5% 3 years to < 4 years 12% Less than 3 years 20% 20% FT EXEMPT 20% FT 10% FT 25% FT 20% FT 5% - 34%, 33%, 32% EXEMPT 20% FT EXEMPT 20% FT

25% FT

25% FT EXEMPT 25% FT 25% FT 25% FT 25% FT 25% FT EXEMPT Sec 27 (D)(3) RR 10-98 25% FT EXEMPT 25% FT

5% - 34%, 33%, 32% EXEMPT 5% / 10% FT 1/2% of 1% FT (Percentage Tax) 6% FT 6% FT or 5% - 34%, 33%, 32% N/A RR 13-99

25% FT EXEMPT 5% / 10% FT 1/2% of 1% FT (Percentage Tax) 6% FT 6% FT or 5% - 34%, 33%, 32% N/A RR 13-99

INCOME TAXATION: SPECIAL RULES

SPECIAL RATES FOR CERTAIN ALIEN INDIVIDUALS Alien Employed by Regional or Area 15% on gross income, on 5% - 43%, 33%, 32% Headquarters and Regional Operating salaries, wages, annuities, [regular tax rate] or FT Headquarters of Multinational Companies compensation, remuneration rate for any other [Sec 25 (C)] and other emoluments such income earned from all as honoraria and allowances other sources within the Alien Individual Employed by Offshore Philippines Banking Units [Sec (D)] Alien Individual Employed by Petroleum Service Contractor and Subcontractor [Sec 25 (E)]

SPECIAL RATES FOR CORPORATIONS DOMESTIC CORPORATION Proprietary Educational Institutions and Hospitals 10% 35% On taxable income On entire taxable income, if total gross income from unrelated trade, business, or activity exceed 50% of total income Same tax rate upon their taxable income in a similar business, industry or activity On interest income from foreign currency transactions including interest income from foreign loans On Gross Philippine Billings On Gross Philippine Billings Any interest income derived from foreign currency loans granted to residents other than offshore banking units or local commercial banks, including local branches of foreign banks that may be authorized by the BSP to transact business with offshore banking units Income derived by offshore banking units authorized by the Bangko Sentral ng Pilipinas (BSP), from foreign currency transactions with nonresidents, other offshore banking units, local commercial banks, including branches of foreign banks that may be authorized by the Bangko Sentral ng PIlipinas (BSP) to transact business with offshore banking units On taxable income On Gross Income On Gross Rentals On Gross Rentals

GOCC, Agencies and Instrumentalities GSIS / SSS / PHIC / PCSO Depository Banks

32% EXEMPT 10%

RESIDENT FOREIGN CORPORATION International Air Carriers International Shipping Offshore Banking Units

2 1/2% 2 1/2% 10%

EXEMPT

Regional or Area Headquarters Regional Operating Headquarters NON RESIDENT FOREIGN CORPORATION Cinematographic Film Owner, Lessor or Distributor Owner or Lessor of Vessel Charted by Philippine Nationals Owner or Lessor of Aircraft, Machineries and Other Equipment

EXEMPT 10% 25% 4.5% 7.5%

INCOME TAXATION OF CORPORATIONS

CORPORATIONS DOMESTIC Definition Sec 22 (B) & (C) Applies to corporation created or organized in the Philippines or under its laws Sec 27 Taxable income from all sources within and without the Philippines 34% in 1998 33% in 1999 32% in 2000-2005 35% in 2006-2008 30% in 2009 & thereafter RESIDENT FOREIGNERS Sec 22 (H) Applies to foreign corporation engaged in trade or business within the Philippines Sec 28 (A) Taxable income from all sources within the Philippines 34% in 1998 33% in 1999 32% in 2000-2005 35% in 2006-2008 30% in 2009 & thereafter 20% FT NON-RESIDENT FOREIGNERS Sec 22 (I) Applies to a foreign corporation not engaged in trade or business within the Philippines Sec 28 (B) gross income from all sources within the Philippines 34% in 1998 33% in 1999 32% in 2000-2005 35% in 2006-2008 30% in 2009 & thereafter 34% in 1998 33% in 1999 32% in 2000-2005 35% in 2006-2008 30% in 2009 & thereafter EXEMPT 20% FT N/A

Tax Code Reference Tax Base Tax Rates in general

Tax Rates on Passive Income (Subject to Final Tax[FT]) Interest on any currency bank deposit 20% FT and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements Interest on foreign currency deposit system Interest Income on Foreign Loans contracted on or after August 1, 1986 Interest Income received by a FCDU Income derived by a depository bank under the expanded foreign currency deposit system from foreign currency transactions with nonresidents, offshore banking units in the Philippines, 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 Interest income from foreign currency loans granted by such depository banks under said expanded system to residents other than offshore banking units in the Philippines or other depository banks under the expanded system Interest Income received by an OBU Income derived by a depository bank under the expanded foreign currency deposit system from foreign currency transactions with nonresidents, offshore banking units in the Philippines, 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 Interest income from foreign currency loans granted to residents other 7.5% FT N/A EXEMPT [RA No. 9294]

7.5% FT N/A EXEMPT [RA No. 9294]

10% FT

10% FT

N/A

N/A

EXEMPT [RA No. 9294]

N/A

N/A

10% FT

N/A

than offshore banking units or local commercial banks, including local branches of foreign banks that may be authorized by BSP to transact with offshore banking units Royalties

20% FT

20% FT

Dividends Tax Rates on capital gains On shares of stock not traded (based on net capital gains) On Land or Buildings (classified as capital assets)

EXEMPT 5% / 10% FT 6% FT based on gross selling price or FMV whichever is higher 2% N/A 10%

EXEMPT 5% / 10% FT 34% in 1998 33% in 1999 32% in 2000-2005 35% in 2006-2008 30% in 2009 & thereafter 2% 15% 10%

34% in 1998 33% in 1999 32% in 2000-2005 35% in 2006-2008 30% in 2009 & thereafter 15% FT (conditional) 5% / 10% FT 34% in 1998 33% in 1999 32% in 2000-2005 35% in 2006-2008 30% in 2009 & thereafter N/A N/A N/A

Tax Rate Minimum Corporate Income Tax (MCIT) Tax Rate Branch Profit Remittance Tax (BPRT) Tax Rate Improperly Accumulated Earnings Tax (Sec 29)