Different

Taxpayers
and Income Tax
Treatments

Lyndon Cena
Sections 22 to 83 of the National and Internal Revenue Code
(NIRC) of 1997 provides the different kinds of taxpayers, the
sources of their income and the corresponding income tax
treatments.

S u b m i t t e d b y :
[ T y p e t h e c o m p a n y a d d r e s s ]
S u b m i t t e d t o :
A t t y . V i c e n t e V i l l a C a n o n e o
F i r s t S e m e s t e r - S . Y . 2 0 1 3 - 2 0 1 4

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TABLE OF CONTENTS
PAGE(S)
0 INDIVIDUAL

2- 9

0 RESIDENT CITIZEN..

0 Pure Compensation.

0 Engaged in Trade/Business

1.1.3 Compensation Income Earner and Engaged with

Trade/Business..

1.2 NON-RESIDENT CITIZEN..

1.3 RESIDENT ALIEN..

1.4 NON-RESIDENT ALIEN....

1.4.1 Engaged in Trade/Business...

1.4.2 Not Engaged in Trade/Business...

1.4.3 Employed by Multinational Corporations, Offshore Banking Units

and Petroleum Service Contractor/Subcontractor..

1.5 ESTATES AND TRUSTS..

10

2.0 CORPORATIONS. 11-16

0 Domestic Corporation

11

2.2 Special Corporation

12

2.3 Foreign Corporation ..

13

2.3.1 Resident Foreign Corporation .

14

2.3.2 Non- Resident Foreign Corporation

15

2.4 Partnership

16

2.4.1 Partnership In General

16

2.4.2 General Professional Partnership.

11

3.0 ANNEXES.

16-

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1.0. INDIVIDUAL
1.1 Resident Citizen1
Situs: Within and Outside the Philippines
1.1.1 Pure Compensation
Com pens ation Incom e (Including Fringe Benefits )

: Pers onal deduction

Les s

Prem ium Paym ents on Health Ins urance 3
Taxable Incom e
2

Les s : Additional Deduction 4

Net Taxable Income

Section 23(A) of NIRC

Section 35(A) of NIRC
3 Section 34(M) of NIRC
4 Section 35(B) of NIRC
5 Section 24(A) of NIRC

XXXXX
XXXXX

XXXXX

P (XXXXX)
P XXXXX
(XXXXX)
P XXXXX

Les s : Tax Due

Net Taxable Incom e
Multiply by: Tax Rate (Schedular Rate)
Net Income

P
P

XXXXX
5%- 32% P
P

XXXXX
XXXXX

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1.1.2 Engaged in Trade/Business

Sales/Revenues/Receipts/Fees
Less: Cost of Goods Sold/ Cost of Manufactured Goods/ Cost of Services 6
Gross Income
Add: Non-Operating & Other Income7
Total Gross Income
Less: Allowable Deductions 8/Optional Standard Deduction 9
a) Ordinary and Necessary Expenses in Trade/Busines/Profession
P
1 . Salaries and Allowance
2 . Transporatation & Travel Expenses
3 . Rental Expense
4 . Entertainment, amusement and recreation expenses subj to ceiling on RR 02-10 10
b) Interest
c) Taxes
d) Losses
e) Bad Debts
f) Depreciation 11
g) Depletion
h) Charitable and other contributions 12
i) Research and Development
j) Pension Trusts
Taxable Income13
P
Less: Personal Deduction14
Premium on Health Insurance
Additional Deduction16
Net Taxable Income
Less: Tax Due17
Multiply by: Tax Rate
NET INCOME

15

XXXX
(XXXX)
P XXXX
XXXX
P XXXX
XXXX

XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX

P (XXXX)
P XXXX

P (XXXX)
P XXXX
5-32%
P XXXX

see Annex A
Section 42 of NIRC; see Annex B
5 Section 34 of NIRC
9 Section 34(L) of NIRC
10 RR No. 02-10 (see Annex C) provides that ceiling for the said expense if 1% for Manufacturing Industries on Gross Income and 0.5%
for Service Industries on Net Sales
11 Section 34(F) of NIRC-provides for methods of depreciation as: Straight Line, Declining-balance, Sum-of-the-Years Digit & Any other
method; same section provides for applicable useful life
12 Section 34(H) of NIRC- provides for limitations for deductibility such as 5% limit of benefit to inure to stockholders of accredited
corporations/association, & 30% level of administration expense.
13Section 42(B) of NIRC
14 Section 35(A) of NIRC
15 Section 34(M) of NIRC
16 Section 35(B) of NIRC
17 Section 24(A) of NIRC

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1.1.3 Compensation Income Earner and Engaged in Trade/Business

Compensation Income
Add: Income from Trade/Business
Sales/Revenues/Receipts/Fees
18
Less: Cost of Goods Sold/ Cost of Manufactured Goods/ Cost of Services
Gross Income
Add: Non-Operating & Other Income 19
Total Gross Income
Less: Allowable Deductions 20/Optional Standard Deduction21
a) Ordinary and Necessary Expenses in Trade/Busines/Profession
1 . Salaries and Allowance
2 . Transporatation & Travel Expenses
3 . Rental Expense
4 . Entertainment, amusement and recreation expenses subj to ceiling on RR 02-10 22
b) Interest
c) Taxes
d) Losses
e) Bad Debts
23
f) Depreciation
g) Depletion
24
h) Charitable and other contributions
i) Research and Development
j) Pension Trusts
25
Taxable Income from Trade/Business
26
Less: Personal Deduction
Premium on Health Insurance
Additional Deduction
Net Taxable Income
29
Less: Tax Due
Multiply by: Tax Rate
NET INCOME

28

27

XXXX
(XXXX)
P XXXX
XXXX
P XXXX
P

XXXX

XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
P

P (XXXX)
P XXXX

XXXX
XXXX
XXXX

P (XXXX)
P

XXXX

5-32%
P XXXX

see Annex A
Section 42 of NIRC; see Annex B
20 Section 34 of NIRC
21 Section 34(L) of NIRC
22 RR No. 02-10 provides that ceiling for the said expense if 1% for Manufacturing Industries on Gross Income and 0.5% for Service
Industries on Net Sales
23 Section 34(F) of NIRC-provides for methods of depreciation as: Straight Line, Declining-balance, Sum-of-the-Years Digit & Any other
method; same section provides for applicable useful life
24 Section 34(H) of NIRC- provides for limitations for deductibility such as 5% limit of benefit to inure to stockholders of accredited
corporations/association, & 30% level of administration expense.
25Section 42(B) of NIRC
26 Section 35(A) of NIRC
27Section 34(M) of NIRC
26 Section 35(B) of NIRC
29 Section 24(A) of NIRC

18

19

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1.2

NON- RESIDENT CITIZEN30

Situs: Within the Philippines31

Income from Within the Philippines

Other than those in Section 24(B), (C) and (D) of the NIRC
Less: Personal Deduction
Premium on Health Insurance
Additional Deduction
Net Taxable Income
Less: Tax Due
Net Taxable Income
Multiply by: Tax Rate
NET INCOME

Section 22(E) of NIRC in relation with Section 23(C) of NIRC

Section 23 (B) of NIRC

30

31

XXXX
XXXX
XXXX

XXXX
5% -32%

XXXX

P
P

(XXXX)
XXXX

P
P

(XXXX)
XXXX

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1.3

RESIDENT ALIEN32
Situs: Within the Philippines33

Income from Within the Philippines

Other than those in Section 24(B), (C) and (D) of the NIRC
Less: Personal Deduction
Premium on Health Insurance
Additional Deduction
Net Taxable Income
Less: Tax Due
Net Taxable Income
Multiply by: Tax Rate
NET INCOME

Section 22(F) of NIRC

Section 23 (D) of NIRC

32

33

XXXX
XXXX
XXXX

XXXX
5% -32%

XXXX

P
P

(XXXX)
XXXX

P
P

(XXXX)
XXXX

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1.4

NON-RESIDENT ALIEN34

1.4.1 Engaged in Trade/Business (ETB)

Situs: Within the Philippines35

Income from Within the Philippines

Other than those in Section 24(B), (C) and (D) of the NIRC
Less: Personal Deduction
Premium on Health Insurance
Additional Deduction
Net Taxable Income
Less: Tax Due
Net Taxable Income
Multiply by: Tax Rate
NET INCOME

Section 22(G) of NIRC in relation to Section 25(A)(1)

Section 23 (D) of NIRC

32

33

XXXX
XXXX
XXXX

XXXX
5% -32%

XXXX

P
P

(XXXX)
XXXX

P
P

(XXXX)
XXXX

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1.4.2 Not Engaged in Trade/Business (NETB)

Situs: Within the Philippines37

Income from Within the Philippines (Sec. 42(A))

Interests
Dividends
Domestic Intra-corporate dividends- exempt from Income Tax
Rents
Salaries, Wages, Compensation, Remuneration & Emoluments
Premiums & Annuities
Other fixed, determinable annual or periodic or casual gains, profits and income and capital gains
Gross Income
Less: Tax Due
Gross Income
P
Multiply: Tax Rate

NET INCOME

Section 22(G) of NIRC in relation to Section 25(B)

Section 23 (D) of NIRC

36

37

P XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
P XXXX
XXXX
25%

P XXXX
P XXXX

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1.4.3 Employed by Regional/Area Headquarters and Regional Operating Headquarters of

Multinational Corporations, Offshore Banking Units, or Service



Contractors/Subcontractors Engaged in Petroleum Operations in the Philippines38
Situs: Within the Philippines

Salaries
Wages
Annuities
Remuneration
Other Emoluments
Honoraria
Allowances
Gross Income
Less: Tax Due
Gross Income
Multiply: Tax Rate
NET INCOME

Section 25(B) to (E) of NIRC

Supra

38

39

P XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
P XXXX
P
39

XXXX
15%

P XXXX
P XXXX

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1.5

Estates and Trusts40

Situs: Within and Outside the Philippines

Income from:Property held in trust

Income accumulated for benefit of unborn/unascertained person of fof future distribution
Income distributed currently by fiduciary to beneficiaries
Income collected by guardian of an infant
Income received during administration/settlement
Income subject to discretion of fiduciary- weither be distributed/accumulated
Except:
Stock bonus or profit sharing plan
Pension,
Gross Income

Less: Allowable
deductions/Optional Standard Deduction
Distribution to Beneficiaries, heirs & legatees
P20,000.00 (Exemption)

Less: Tax
Due
Gross Income


Multiply: Tax Rate
NET INCOME

40

Section 60 66 of NIRC

P XXXX
XXXX
XXXX
XXXX
XXXX
XXXX

P XXXX
P

XXXX
XXXX
20,000.00 P
P
XXXX
5-32%
P
P

(XXXX)
XXXX
XXXX
XXXX

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2.0 CORPORATIONS

2.1 Domestic Corporations1

Situs: Within and Outside the Philippines2

Sales/Revenues/Receipts/Fees
Less: Cost of Goods Sold/ Cost of Manufactured Goods/ Cost of Services 3
Gross Income
Add: Non-Operating & Other Income 4
Total Gross Income
Less: Allowable Deductions 5/Optional Standard Deduction 6
a) Ordinary and Necessary Expenses in Trade/Busines/Profession
P
1 . Salaries and Allowance
2 . Transporatation & Travel Expenses
3 . Rental Expense
4 . Entertainment, amusement and recreation expenses subj to ceiling on RR 02-10 7
b) Interest
c) Taxes
d) Losses
e) Bad Debts
f) Depreciation 8
g) Depletion
h) Charitable and other contributions 9
i) Research and Development
j) Pension Trusts
Taxable Income10
Less: Tax Due
Multiply by: Tax Rate
1. Whichever would result to a higher tax due
a . Normal Corporate Income Tax11
b . Minimum Corporate Income Tax12
2. Optional Corporate Income Tax13
NET INCOME

P XXXX
(XXXX)
P XXXX
XXXX
P XXXX
XXXX

XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX

P (XXXX)
P XXXX

30%
2%
15%
P XXXX

Section 22(C) of NIRC - means those created/organized in the Philippines under its laws.
Section 23(E) of NIRC in relation with Section 42 of the same code.
3 see Annex A
4 Section 42 of NIRC; see Annex B
5 Section 34 of NIRC
6 Section 34(L) of NIRC
7 RR No. 02-10 provides that ceiling for the said expense if 1% for Manufacturing Industries on Gross Income and 0.5% for Service
Industries on Net Sales
8 Section 34(F) of NIRC-provides for methods of depreciation as: Straight Line, Declining-balance, Sum-of-the-Years Digit & Any other
method; same section provides for applicable useful life
9 Section 34(H) of NIRC- provides for limitations for deductibility such as 5% limit of benefit to inure to stockholders of accredited
corporations/association, & 30% level of administration expense.
10Section 42(B) of NIRC
11 Section 27(A) of NIRC
12 Section 27(E) of NIRC
13 Section 27(A) of NIRC

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2.2 SPECIAL CORPORATIONS14


Situs: Within and Outside the Philippines15

Revenues/Receipts/Fees
Less: Cost of Services16
Gross Income17

P XXXX
(XXXX)
P XXXX

Add: Gross Income from unrelated activity18

Less: Allowable Deductions 19/Optional Standard Deduction 20
a) Ordinary and Necessary Expenses in Trade/Busines/Profession
1 . Salaries and Allowance
2 . Transporatation & Travel Expenses
3 . Rental Expense

P XXXX

4 . Entertainment, amusement and recreation expenses subj to ceiling on RR 02-10 21

b) Interest
c) Taxes
d) Losses
e) Bad Debts
f) Depreciation 22
g) Depletion
h) Charitable and other contributions 23
i) Research and Development
j) Pension Trusts

Taxable Income
Less: Tax Due

24

Multiply by: Tax Rate25

NET INCOME

XXXX

XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX

P (XXXX)
P XXXX
30%
P XXXX

Section 27(B) of NIRC

Section 23(E) of NIRC in relation with Section 42 of the same code.
16 see Annex A
17 Section 27(E)(4) of NIRC which Gross Income from related activity
18 Section 27(B) of NIRC- Gross Income from unrelated activities exceeds 50% of the Gross Income in Section 27(A) of NIRC shall apply,
as if Domestic Corporation
19 Section 34 of NIRC
20 Section 34(L) of NIRC
21 RR No. 02-10 provides that ceiling for the said expense if 1% for Manufacturing Industries on Gross Income and 0.5% for Service
Industries on Net Sales
22 Section 34(F) of NIRC-provides for methods of depreciation as: Straight Line, Declining-balance, Sum-of-the-Years Digit & Any other
method; same section provides for applicable useful life
23 Section 34(H) of NIRC- provides for limitations for deductibility such as 5% limit of benefit to inure to stockholders of accredited
corporations/association, & 30% level of administration expense.
24Section 42(B) of NIRC
25 Section 27(A) of NIRC
14

15

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2.3. FOREIGN CORPORATION

2.3.1 Resident Foreign Corporation- In Gerneral26


Situs: Within the Philippines27

Sales/Revenues/Receipts/Fees
28
Less: Cost of Goods Sold/ Cost of Manufactured Goods/ Cost of Services

XXXX
(XXXX)
P XXXX
XXXX
P XXXX

29

Gross Income
Add: Non-Operating & Other Income 30
Total Gross Income
Less: Allowable Deductions 31/Optional Standard Deduction 32
a) Ordinary and Necessary Expenses in Trade/Busines/Profession
1 . Salaries and Allowance
2 . Transporatation & Travel Expenses
3 . Rental Expense
33
4 . Entertainment, amusement and recreation expenses subj to ceiling on RR 02-10
b) Interest
c) Taxes
d) Losses
e) Bad Debts
34
f) Depreciation
g) Depletion
35
h) Charitable and other contributions
i) Research and Development
j) Pension Trusts
36
Taxable Income
Less: Tax Due
Multiply by: Tax Rate
1. Whichever is higher
37
1 . Normal Corporate Income Tax
38
2 . Minimum Corporate Income Tax
39
2. Optional Corporate Income Tax
NET INCOME

XXXX

XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX

P (XXXX)
P XXXX

30%
2%
15%
XXXX

Section 28(A)(1) of in relation to Section 22(H) NIRC, in contrast with Corporations with different tax rate as regards Section
28(A)(3), (4) and (6) of the same Code.
27 Section 23(F) of NIRC
28 Section 42 of the NRC
29 see Annex A
30 Section 42 of NIRC; see Annex B
31 Section 34 of NIRC
32 Section 34(L) of NIRC
33 RR No. 02-10 provides that ceiling for the said expense if 1% for Manufacturing Industries on Gross Income and 0.5% for Service
Industries on Net Sales
34 Section 34(F) of NIRC-provides for methods of depreciation as: Straight Line, Declining-balance, Sum-of-the-Years Digit & Any other
method; same section provides for applicable useful life
35 Section 34(H) of NIRC- provides for limitations for deductibility such as 5% limit of benefit to inure to stockholders of accredited
corporations/association, & 30% level of administration expense.
36Section 42(B) of NIRC
37 Section 27(A) of NIRC with different tax rate as regards Section 28(A)(3), (4) and (6) of the same Code as cited in Note 26.
38 Section 27(E) of NIRC
39 Section 27(A) of NIRC

26

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2.3.2 NON-RESIDENT FOREIGN CORPORATION- In Gerneral40


Situs: Within the Philippines41

Interests
Dividends
Rents
Royalties
Salaries
Premiums (except reinsurance premiums)
Annuities
Emoluments
Capital Gains (except those subject to capital gains tax)
Others

P XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX

Gross Taxable Income42

Less: Tax Due
Multiply by: Tax Rate
1 . Normal Corporate Income Tax43
NET INCOME

P XXXX

Section 28(B)(1) in relation to Section 22(I) of NIRC.

Section 23(F) of NIRC
42 Section 28(B)(1)) of NIRC
43 Section 27(A) of NIRC

40

41

30%
P XXXX

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2.4 PARTNERSHIP

2.4.1 Partnership in General44

Situs: Within and Outside the Philippines

Sales/Revenues/Receipts/Fees
Less: Cost of Goods Sold/ Cost of Manufactured Goods/ Cost of Services
Gross Income
Add: Non-Operating & Other Income
Total Gross Income
Less: Allowable Deductions /Optional Standard Deduction
a) Ordinary and Necessary Expenses in Trade/Busines/Profession
1 . Salaries and Allowance
2 . Transporatation & Travel Expenses
3 . Rental Expense
4 . Entertainment, amusement and recreation expenses subj to ceiling on RR 02-10
b) Interest
c) Taxes
d) Losses
e) Bad Debts
f) Depreciation
g) Depletion
h) Charitable and other contributions
i) Research and Development
j) Pension Trusts
Taxable Income
Less: Tax Due
Multiply by: Tax Rate
1. Whichever would result to a higher tax due
a . Normal Corporate Income Tax
b . Minimum Corporate Income Tax
2. Optional Corporate Income Tax
NET INCOME

44

same treatment with Domestic Corporation

P XXXX
(XXXX)
P XXXX
XXXX
P XXXX
P

XXXX

XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX

P (XXXX)
P XXXX

30%
2%
15%
P XXXX

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2.3 PARTNERSHIP

2.3.1 General Professional Partnership 45


Situs: Within and Outside the Philippines

Sales/Revenues/Receipts/Fees
Less: Cost of Goods Sold/ Cost of Manufactured Goods/ Cost of Services
Gross Income
Add: Non-Operating & Other Income
Total Gross Income
Less: Allowable Deductions /Optional Standard Deduction
a) Ordinary and Necessary Expenses in Trade/Busines/Profession
1 . Salaries and Allowance
2 . Transporatation & Travel Expenses
3 . Rental Expense
4 . Entertainment, amusement and recreation expenses subj to ceiling on RR 02-10
b) Interest
c) Taxes
d) Losses
e) Bad Debts
f) Depreciation
g) Depletion
h) Charitable and other contributions
i) Research and Development
j) Pension Trusts
NET INCOME

XXXX
(XXXX)
P XXXX
XXXX
P XXXX
P

XXXX

XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX

P (XXXX)
P XXXX

same treatment with Domestic Corporation with the exception that Income Tax is not imposable as provided in Section 26 of the
Tax Code

45

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ANNEXES

ANNEX A- Cost of Goods Sold/Manufactured & Sold/Cost of Sales/Services

Section 27(A) of NIRC
Inventory- beginning
Add: Purchases
Raw Materials Available for Sale
Less: Inventory-ending
Cost of Goods Sold

XXXXX
XXXXX
P XXXXX
(XXXXX)
P XXXXX

Inventory- beginning
Add: Purchases-beginning
Raw Materials Available for Use
Less: Purchases-ending
Raw Materials Used
Add: Direct Labor
Manufacturing Over-head
Cost of Goods Manufactured
Less: Inventory-ending
Cost of Goods Manufactured & Sold

XXXXX
XXXXX
P XXXXX
(XXXXX)
P XXXXX
P

XXXXX
XXXXX

P
P

XXXXX
XXXXX
(XXXXX)
P XXXXX

Salaries & Wages

Add: Other Direct Cost*
Cost of Sales/Services

P
P

* Other cost necessary for the sale of service

ANNEX B- Section 42 of NIRC

Non-operating Income & Other Income within Phils.

Income from Within the Philippines (Sec. 42(A))
Interests
Dividends
Domestic Intra-corporate dividends- exempt from Income T ax
Foreign corporation- 50% Rule
Services
Rentals & Royalties
Sale of Property

Income from Outside the Philippines (Sec. 42(C))

Interests (Other than those derived in Sec. 42(A))
Dividends (Other than those derived in Sec. 42(A))
Services from outside the Philippines
Rentals & Royalties from outside the Philippines

XXXXX
XXXXX
XXXXX

P a g e | 18

ANNEX C-Other Provisions of NIRC

Annex C-1 Income Tax Treatment to Passive Incomes of Individuals

FINAL TAX RATES ON PASSIVE INCOMES

Citizen
Resident

Alien
Non-resident

Resident

Non-resident

1 . Royalties
Royalties on books, literary works and musical compositions

20%
10%

10%
10%

10%
Exempt

20%
10%

NETB5
25%
25%

2 . Prizes and Other Taxable Winnings1

3 . Interest Income from Philippine Currency Bank Deposits, xxx

20%

10%

10%

20%

25%

20%

20%

20%

20%

25%

4 . Interst Income from Long-term Deposit Instruments

5 . Interst Income from Foreign Currency Bank Deposits
6 . Cash and/or Property Dividends

5%- 20%

20%

Exempt

Exempt

25%

7.50%
10%

7.50%
10%

7.50%
10%

10%

25%

7 . Capital Gains from Sale of Shares of Stock Not Traded in Stock Exchange 3

5% / 10%

5% / 10%

5% / 10%

5% / 10%

5% / 10%

6%

6%

6%

6%

6%

Passive Incomes

8 . Capital Gains from Sale of Real Property

1

On Citizen- Except Prizes amounting to P10,000.00 or less which are subject to Section 24(A)
and PCSO and Lotto Winnings

On Alien- Provided that before 5 yrs holder thereof pre-terminates such, final tax shall be imposed
on the total amount subject to Section 25 (A)(2) of NIRC

On Citizen- Section 24 (C) of NIRC

On Citizen- Section 24 (D) of NIRC

Moreover,(a) if is sold to the government/any political subdivisions/GOCC's, 6% final tax is at the option of taxpayers.
(b) If proceeds is from disposition of prinsipal residence and is fully utilized in acquiring new prinsipal residence
within 18 months from date of disposition. The capital gains is exempt from tax subject to conditions setforth in
Section 24(D).

Subject to 25% Tax Rate on Gross Income pursuant to Section 25(B) of NIRC except Capital Gains as provided in number 7 & 8

ETB

P a g e | 19

Annex C-2 Income Tax Treatment to Passive Incomes of Corporations

FINAL TAX RATES ON PASSIVE INCOMES

Passive Incomes
1 . Royalties
2 . Interest Income from Philippine Currency Bank Deposits, xxx
2 . Interst Income from Expanded Foreign Currency Bank Deposits
Interest Income from Foreign Loans
4 . Cash and/or Property Dividends
Intra-corporate dividends from domestic corporation 1
5 . Capital Gains from Sale of Shares of Stock Not Traded in Stock Exchange
6 . Capital Gains from Sale of Real Property
1

Foreign Corporation

Domestic
Corporations

Resident

ETB

NETB

Non-resident

20%
20%
7.50%
10%

20%
20%
7.50%
10%

10%
20%
7.50%
10%

25%
25%
7.50%
10%

Exempt
20%

Exempt

Exempt

Exempt

Exempt

15%

5% / 10%

5% / 10%

5% / 10%

5% / 10%

5% / 10%

6%

6%

6%

6%

On Non-resident Foreign Corporation-Pursuant to Section 28 (B) of NIRC

Annex C-3 Exclusions from Gross Income (Section 32(B) of NIRC)

1
2
3
4
5
6
7

.
.
.
.
.
.
.

Proceeds from Life Insurance

Return of Premiums
Gifts, Bequests and Devices
Compensation of Injuries/Sickness
Income exempt under Treaty
Retirement Benefits, Pensions, Gratuitites, etc.
(a) Retirement Benefits
(b) Any amount received by an official/ employee/by his heirs from employer as consequence of separation xxx
(c) Social security benefits- SSS benefits, and GSIS benefits
(d) Benefits received under States Veterans Administration
8 . Miscellaneous Items
(a) Income Derived by Foreign Government
(b) Income Derived by the Gov't/Political Subdivisions
(c) Prizes and awards from recognition of religious, charitable, scientific, educational, xxx
(d) Prizes and awards in Sports Competition sanctioned by national sports associations
(e ) 13th Month Pay and Other Benefits subject to P30,000.00 ceiling
(f) GSIS, SSS, Medicare and Other contributions
(g) Gains from Sale of Bonds, Debentures or Other Certificates of Indebtedness with maturity of more than 5 years
(h) Gains from Redemption of Shares in Mutual Fund

P a g e | 20

Annex C-4 Taxability of Other Resident Foreign Corporations (Section 28(A) of NIRC)
With Income T ax Rate other than 30%
International air carriers
International shipping companies
Offshore Banking Units
Branches of Head Office
Regional/Area Headqurters of Multinational Companies
Regional Operating Headqurters of Multinational Companies

Tax Rate
2.50%
2.50%
10%
15%
Exempt
10%

Annex C-5 Taxability of Non-Resident Foreign Corporations in Particular (Section 28(B) of NIRC)
With Income T ax Rate other than 30%
Cinematographic film owners, lessors/ distributors
Owners/lessors of Vessels chartered by Philippine Nationals
Owners/lessors ot Aircraft, machineries and other equiptments

Tax Rate
25.00%
4.50%
7.50%

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Annex C-6 Income tax Exempt Corporations (Section 30 of NIRC)

1 . Labor, agricultural or horticultural organization not organized principally for profit;

2 . Mutual savings bank not having a capital stock represented by shares, and cooperative bank without capital stock organized and operated
for mutual purposes and without profit;
3 . A beneficiary society, order or association, operating fort he exclusive benefit of the members such as a fraternal organization operating
under the lodge system, or mutual aid association or a nonstock corporation organized by employees providing for the payment of life,
sickness, accident, or other benefits exclusively to the members of such society, order, or association, or nonstock corporation or their dependents;
4 . Cemetery company owned and operated exclusively for the benefit of its members;
5 . Nonstock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes,
or for the rehabilitation of veterans, no part of its net income or asset shall belong to or inures to the benefit of any member, organizer, officer
or any specific person in relation to RMC 76-2003
6 . Business league chamber of commerce, or board of trade, not organized for profit and no part of the net income of which inures to the benefit
of any private stock-holder, or individual;
7 . Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare;
8 . A nonstock and nonprofit educational institution in relation to RMC 76-2003
9 . Government educational institution;
10 . Farmers' or other mutual typhoon or fire insurance company, mutual ditch or irrigation company, mutual or cooperative telephone company,
or like organization of a purely local character, the income of which consists solely of assessments, dues, and fees collected from members
for the sole purpose of meeting its expenses; and
11 . Farmers', fruit growers', or like association organized and operated as a sales agent for the purpose of marketing the products of its members
and turning back to them the proceeds of sales, less the necessary selling expenses on the basis of the quantity of produce finished by them;

Annex C-7 Fringe Benefit (Section 33 of NIRC)

Any good, service or other benefit furnished or granted in cash or in kind by an employer to an individual employee (except rank and file
employees as defined herein) 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.

Computation:
FBT

T otal Monetary Value

Gross Factor x FBT Rate

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Fringe Benefits Not Taxable. - The following fringe benefits are not taxable under this Section:
1. Fringe benefits which are authorized and exempted from tax under special laws;
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 employees, whether granted under a collective bargaining agreement or not; and
4. De minimis benefits as defined in the rules and regulations to be promulgated by the Secretary of Finance, upon
recommendation of the Commissioner.

Annex C-8 Computation of Interest (Section 34(B) of NIRC)

(1) In General
Allowable Interest
Interest Expense
Less:
Interest Income
Mutiply by: Tax Rate
Allowable Interest

XXXX

XXXXX
33% P
P

XXXX
XXXX

(2) Exceptions - No deduction shall be allowed in respect of interest under the succeeding subparagraphs:
(a) If within the taxable year an individual taxpayer reporting income on the cash basis incurs an indebtedness
on which an interest is paid in advance through discount or otherwise: Provided, That such interest
shall be allowed a a deduction in the year the indebtedness is paid: Provided, further, That if the indebtedness
is payable in periodic amortizations, the amount of interest which corresponds to the amount of the principal
amortized or paid during the year shall be allowed as deduction in such taxable year;
(b)If both the taxpayer and the person to whom the payment has been made or is to be made are persons specified under Section 36 (B); or
(c)If the indebtedness is incurred to finance petroleum exploration.

Annex C-9 Additional Requirements for Deductibility of Certain Payments (Section 34(K) of NIRC)
In relation to RR No. 12-2013 dated July 12, 2013
Pursuant to Section34 (K) of NIRC providing for additional requirements for deductibility of certain income
payments whereby deductions shall only be allowed when it is shown the tax required to be deducted and withheld
therefrom has been paid to the Bureau of Internal Revenue in accordance with this Section 58 and 81 of this Code, in
view of the authority granted to the CIR to promulgate rules and regulations (Section 244 of NIRC), Section 2.58.5 of
RR No. 02-98 is hereby amended as follows:
Section 2.58.5- Requirement for Deductibility - Any income payment which is otherwise deductible under
the Code shall be allowed as a deduction from the payor's gross income only if it is shown that the income tax required
to be withheld has been paid to the Bureau in accordance with Secs. 57 and 58 of the Code.
No deduction will also be allowed notwithstanding payments of withholding tax at the time of audit
investigation or reinvestigation/reconsideration in case no withholding of tax was made in accordance with
Sections 57 and 58 of the Code,

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Annex C-10 Items which are not deductible (Section 36 of NIRC)

(A) General Rule. - In computing net income, no deduction shall in any case be allowed in respect to (1) Personal, living or family expenses;
(2) Any amount paid out for new buildings or for permanent improvements, or betterments made to increase the value of any
property or estate;
This Subsection shall not apply to intangible drilling and development costs incurred in petroleum operations which are deductible
under Subsection (G) (1) of Section 34 of this Code.
(3) Any amount expended in restoring property or in making good the exhaustion thereof for which an allowance is or has been
made; or
(4) Premiums paid on any life insurance policy covering the life of any officer or employee, or of any person financially interested
in any trade or business carried on by the taxpayer, individual or corporate, when the taxpayer is directly or indirectly a beneficiary
under such policy.
(B) Losses from Sales or Exchanges of Property. - In computing net income, no deductions shall in any case be allowed in
respect of losses from sales or exchanges of property directly or indirectly (1) Between members of a family. For purposes of this paragraph, the family of an individual shall include only his brothers and
sisters (whether by the whole or half-blood), spouse, ancestors, and lineal descendants; or
(2) Except in the case of distributions in liquidation, between an individual and corporation more than fifty percent (50%) in
value of the outstanding stock of which is owned, directly or indirectly, by or for such individual; or
(3) Except in the case of distributions in liquidation, between two corporations more than fifty percent (50%) in value of
the outstanding stock of which is owned, directly or indirectly, by or for the same individual if either one of such corporations,
with respect to the taxable year of the corporation preceding the date of the sale of exchange was under the law applicable to
such taxable year, a personal holding company or a foreign personal holding company;
(4) Between the grantor and a fiduciary of any trust; or
(5) Between the fiduciary of and the fiduciary of a trust and the fiduciary of another trust if the same person is a grantor with
respect to each trust; or
(6) Between a fiduciary of a trust and beneficiary of such trust.

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Annex C-11 Revenue Memorandum Circular (RMC) 31-2013 dated April 12, 2013

Guidelines on the Taxation of Compensation of Philippine and Alien Individuals Employed by
Foreign Governments/Embassies/Diplomatic Missions and International Organizations Situated in
the Philippines

International comity has provided Governments/Embassies/Diplomatic Missions and
International Organizations Situated in the Philippines acting as employers enjoy the immunity
from collecting taxes on salaries and emoluments of their employees, whether they are
foreigners or Philippine nationals.


In relation, Section 2.78.1(B)(5) of RR No. 02-98 providing for the exemption from
withholding tax on compensation on compensation for services by a citizen or resident of the
Philippines for a foreign government or an international organization, the said provision on
exemption on withholding does not equate to the exemption from paying income tax itself
pursuant to Section 23 Subsections (A) and (D) of the Tax Code. International Agreements which
grant withholding tax immunity to foreign governments/embassies/diplomatic missions and
international organizations must expressly and unequivocally provide for exemptions from
payment of income taxes on specified employees of the said institutions. Those not covered shall
be subject to the general rule on taxability of Philippine nationals and alien individuals.