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CHAPTERI
INCOMETAXES
1

A.INDIVIDUALINCOMETAX
1.Personssubjecttotheindividualincometax
Forincometaxpurposes,individualtaxpayersareclassifiedinto:
a.Citizen
(1)ResidentcitizenisacitizenofthePhilippineswhohasapermanent
homeorplaceofabodeinthePhilippinestowhichhe/sheintendstoreturn
wheneverhe/sheisabsentforbusinessorpleasure.
(2)NonresidentcitizenisacitizenofthePhilippineswhoestablishesthe
factofhis/herphysicalpresenceabroadwiththedefiniteintentionto
residethereinandshallincludeanyFilipinowholeavesthecountryas
immigrant(onewholeavesthePhilippinestoresideabroadasan
immigrantforwhichaforeignvisaassuchhasbeensecured),permanent
employee(onewholeavesthePhilippinestoresideabroadpermanently
forregularemployment),andcontractworker(onewholeavesthe
Philippinesonaccountofacontractofemploymentwhichisrenewed
fromtimetotimeduringthetaxableyearastorequirephysicalpresence
abroadforanaggregateperiodofonehundredeighty(180)daysormore
duringsuchtaxableyear).
2

b.Alien
(1)ResidentalienisanindividualwhoisnotacitizenofthePhilippinesbut
whoseresidenceiswithinthePhilippines.
3

(2)NonresidentalienisanindividualwhoisnotacitizenofthePhilippines
andwhoseresidenceisnotwithinthePhilippines.
4

TitleIIoftheNationalInternalRevenueCode(NIRC)of1997,asamended.
Sec.22(E),supra.
3Sec.22(F),supra.
4Sec.22(G),supra.
1
2

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Anonresidentalienisdeemedengagedintradeorbusinessinthe
Philippinesifhe/shehasstayedinthePhilippinesforanaggregateperiod
ofmorethan180daysduringanycalendaryear.
5

2.Incomesubjecttotax
Theincomesofindividualsaregroupedintodifferentcategories,towit:
a.Compensationincome,consistsofincomearisingfromemployeremployee
relationshipsuchassalaries,wages,emolumentsandhonoraria,
commissions,taxablebonusesandfringebenefits,taxableallowances(such
astransportation,representation,entertainment,andthelike)
6

,nonmonetary
compensation,directorsfeesandthelike,taxablepensionsandretirement
pay,amountsdrawnassalariesbypartnersofapartnershipandother
incomesofasimilarnatureunlessspecificallyexemptedbytheTaxCode.
[refertoitemA(4)onpage4]
b.Businessincomeandincomefromprofession,consistsofbusinessand/or
tradeincome,feesfromtheexerciseofprofession,gainsfromsaleor
exchangeofassets,commissions,rentalincome,andotherincomesnot
coveredbycompensationincome.
c.Passiveincomeandothersourcesofincome
7

,consistofinterestfromforeign
andPhilippinecurrencybankdeposits(includingyieldsandothermonetary
benefitsfromdepositsubstitutesandtrustfundandsimilararrangements),
royalties,prizesandotherwinnings,anddividends.Theothersourcesof
incomeincludecapitalgainsfromsalesofsharesofstock,salesofreal
property
8,informersrewards,etc.
Sec.25(A)(1),supra.
RepresentationandTransportationAllowances(RATA)grantedtogovernmentofficialsand
employeesundertheGeneralAppropriationsActaredeemedasreimbursementforexpensesincurredin
theperformanceofthedutiesoftherecipientgovernmentofficialsandemployeesandthusarenot
5
6

consideredasadditionalcompensationtaxableundertheregularindividualincometaxandsubjectto
withholdingtax.(BIRRulingNo.06291).
7Sec.24(B)(1)oftheNIRC.
8Sec.24(C)and(D),supra.

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3.DeterminationofTaxableIncome
a.Citizen
(1)Residentcitizenonincomesderivedfromsourceswithinandwithout
thePhilippines,asfollows:
(a)Oncompensationincomeonmodifiedgrossincomebasisi.e.,gross
compensationincomelessdeductionsand/orpersonalandadditional
exemptions;
9

(b)Onincomefromprofession,businessand/ortradeonnetincome
basisi.e.,grossincomefromprofession,businessand/ortradelessthe
itemizeddeductionsoroptionalstandarddeductionequivalentto40%
ofgrosssalesorgrossreceiptsandpersonalexemption,andif
applicable,additionalexemptionallowance/s;
(c)Onpassiveincomeonthegrossamountthereof.
(2)Nonresidentcitizentaxedsimilarlyasaresidentcitizenonincomes
fromsourceswithinthePhilippines.
b.Alien
(1)Residentalientaxedsimilarlyasaresidentcitizenonincomesreceived
fromsourceswithinthePhilippines.
(2)Nonresidentalien:
(a)engagedintradeorbusinessinthePhilippinestaxedsimilarlyasa
residentcitizenonincomesfromsourceswithinthePhilippines.
(b)notengagedintradeorbusinessinthePhilippinestaxedon
grossincomefromallsourceswithinthePhilippines.
(c)employedbyregionalorareaheadquartersandregionaloperating
headquartersofmultinationalcorporations,offshorebankingunits,or

ExceptFilipinosemployedandoccupyingthesamepositionlikethosealiensemployedby
regionalorareaheadquartersandregionaloperatingheadquartersofmultinationalcorporations,offshore
bankingunits,andpetroleumservicecontractorandsubcontractorwhoaretaxedat15%ontheirgross
9

incomereceivedtherefrom.Inthecasehowever,ofFilipinosemployedbyregionalorareaheadquarters
andregionalheadquartersofmultinationalcorporationsgovernedbyEO226asamendedbyRA8756,they
havetheoptiontobetaxedat15%ongrossorregulartaxrate.Incaseofthelatter,theyareallowedto
claimdeductionsand/orpersonaladditionalexemptionsinordertoarriveattheirtaxableincome.

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servicecontractorsorsubcontractorsengagedinpetroleum
operationsinthePhilippinestaxedongrossincomederivedfrom
suchemployment.
4.ExclusionsfromGrossIncome
Thefollowingarenotincludedinthecomputationofthegrossincomeof
taxpayers:
10

a.Proceedsoflifeinsurancepoliciesbutnottheinterestpaidtotheheirsor
beneficiaries;
b.Amountreceivedbytheinsuredasreturnofpremium;
c.Valueofpropertyacquiredbygratuitoustransferbutnottheincomefrom
suchproperty;
d.Compensationforinjuriesorsicknessincludingdamagesreceived;
e.Incomeexemptundertreaty;
f.Retirementbenefits,pensions,gratuities,etc.undercertainconditions;
g.Incomederivedbyforeigngovernments,financinginstitutionsowned,
controlledorenjoyingfinancingfromforeigngovernments,and
internationalorregionalfinancinginstitutionsestablishedbyforeign
governments,fromtheirinvestmentsinloans,stocks,bondsorotherdomestic
securitiesorfrominterestontheirdepositsinbanksinthePhilippines;
h.Incomederivedfromanypublicutilityorfromtheexerciseofanyessential
governmentfunctionaccruingtothePhilippinegovernmentortoanypolitical
subdivision;
i.Prizesandawardsmadeprimarilyinrecognitionofreligious,charitable,
scientific,educational,artistic,literary,orcivicachievementbutonlyifthe
recipientwasselectedwithoutanyactiononhisparttoenterthecontestor
proceeding,andisnotrequiredtorendersubstantialfutureservicesasa
conditiontoreceivingtheprizeoraward.
Sec.32(B)oftheNIRC.

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Table1.TAXTREATMENTOFINCOMESOURCESOFINDIVIDUALTAXPAYERS
SourcesofIncomeSubjectto
Tax
Citizen
Alien
Resident
Nonresident
Resident
Nonresident
Engagedin
business
Notengaged
WithinWithoutWithinWithoutWithinWithoutWithinWithoutWithinWithout
thePhilippines
thePhilippines
thePhilippines
thePhilippines
thePhilippines

1.Compensationincome
Y
Y
Y
N
Y
N
Y
N
Y
N
2.Business/Professional
Income
Y
Y
Y
N
Y
N
Y
N

3.PassiveIncome
a.Royalties
Y
Y
Y
N
Y
N
Y
N
Y
N
b.Prizesandothertaxable
winnings
Y
Y
Y
N
Y
N
Y
N
Y
N
c.Interestincomefrom
Philippinecurrencybank
depositsandyieldorany
othermonetarybenefit
fromdepositsubstitutes
andfromtrustfundsand
similararrangements
Y
Y
Y
N
Y
N
Y
N
Y
N
d.Interestincomefrom
longtermdeposit
instrumentspre
terminatedbeforethe
fifth(5th)year

Y
Y
Y
N
Y
N
Y
N
Y
N
e.Interestincomefrom
foreigncurrencybank
deposits
Y
Y
N
N
Y
N
N
N
N
N
f.Cashand/orproperty
dividends
Y
Y
Y
N
Y
N
Y
N
Y
N
4.OtherSourcesofIncome
Y
Y
Y
N
Y
N
Y
N
Y
N

Legend:Yyes/NNo

j.Prizesandawardsgrantedtoathletesinlocalandinternationalsports
competitionsandtournamentsheldinthePhilippinesorabroadandsanctioned
bytheirrespectivenationalsportsassociations.
k.13
th

monthpaymandatedbyRepublicActNo.6686andPresidentialDecree
No.851,asamendedandotherbenefitsnotcoveredbyPD851andbenefits
suchasproductivityincentivesandChristmasbonuswhichshouldnotexceed
P30,000.00.
l.GSIS,SSS,MedicareandPagIBIGcontributions,andunionduesof
individuals.
m.Gainsrealizedfromthesaleorexchangeorretirementofbonds,debenturesor
othercertificateofindebtedness,withamaturityofmorethanfive(5)years.
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n.Gainsrealizedbytheinvestoruponredemptionofthesharesofstocksina
mutualfundcompany.
5.DeductionsfromGrossIncome
a.Citizen
(1)ResidentCitizen
(a)CompensationIncome
Onlypremiumpaymentsonhealthand/orhospitalizationare
deductiblefromgrosscompensationincome.[refertoitemA
(5)(b)(13)onpage14]
(b)Businessand/orProfessionalIncome
Thefollowingpaymentsincurredinconnectionwiththe
taxpayersprofession,tradeorbusinessaredeductiblefromgross
income:
11

(1)Ordinaryandnecessarytrade,businessorprofessionalexpenses
paidorincurredduringthetaxableyear(suchassalaries,wages,
grossedupmonetaryvalueoffringebenefitsgrantedto
employees,travel,rental,entertainment,amusementand

recreation).
(2)Interest
12

Interestpaidorincurredwithinthetaxableyearon
indebtednessinconnectionwiththetaxpayersprofession,trade
orbusinesswhichshallbereducedby33%ofthegrossedup
valueoftheinterestincomesubjectedtofinaltax.
(3)Taxes
Taxespaidorincurredwithinthetaxableyearin
connectionwiththetaxpayersprofession,tradeorbusiness,
Sec.34,supra.
Attheoptionofthetaxpayer,interestincurredtoacquirepropertyusedintradeorbusinessor
exerciseofaprofessionmaybeallowedasadeductionortreatedascapitalexpenditure[Sec.34(B)(3),
supra.]
11
12

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excepttheincometaximposedundertheCode,foreignincome
taxpaidbyataxpayerwhodidnotsignifyinhis/herreturn
his/herdesiretohaveanyrefundorcredit,estateanddonors
taxes,andtaxesassessedagainstlocalbenefitsofakindtending
toincreasethevalueofthepropertyassessed.
(4)Losses
Lossesactuallysustainedbythetaxpayerinconnectionwith
thetaxpayerstrade,profession,orbusinesswhichare
chargedoffwithinthetaxableyearandnotcompensatedfor
byinsuranceorotherformsofindemnity
Lossesfromsaleorexchangesofcapitalassetsaredeductible
onlytotheextentofthegainsfromsuchsalesorexchanges.

Lossesfromwashsalesofstockorsecuritiesareallowed
whentheclaimismadebyadealerinstockorsecurities,and
withrespecttoatransactionmadeintheordinarycourseof
businessofsuchdealerundercertainconditions.

Lossesfromwageringtransactionsaredeductibletothe
extentofthegainsfromsuchtransactions.
(5)NetOperatingLossCarryover
Theamountofnetoperatinglosssustainedbyanindividual
taxpayerengagedinbusinessorpracticeofprofessionwho
doesnotenjoyanincometaxexemptionundertheTaxCode
orspeciallawsatthetimesuchlosswasincurredisallowed
tobecarriedoverasadeductionfromgrossincomeforthree
(3)consecutivetaxableyearsimmediatelyfollowingthe
yearoftheloss.
Inthecaseofbusinessesorenterprisesengagedinmining
operationsotherthanoilandgaswellswhicharenot
enjoyingthebenefitofincentivesgrantedunderEONo.
226,asamended,thenetoperatinglossincurredinthefirst
ten(10)yearsoftheoperationoftheirbusinessmaybe
carriedoverasdeductionfromtaxableincomeforfive(5)
yearsimmediatelyfollowingtheyearoftheloss.
(6)BadDebts
Baddebtsactuallyascertainedtobeworthlessandcharged
offduringthetaxableyear.
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Baddebtsarisingfromlossonsecuritiesheldascapitalassets
whichareascertainedtobeworthlessandchargedoffwithin
thetaxableyearbyataxpayer,exceptdomesticbanksor
trustcompaniesthesubstantialpartofwhosebusinessisthe
receiptofdeposits.
(7)Depreciation
Areasonableallowancefortheexhaustion,wearandtear
(includingreasonableallowanceforobsolescence)of
propertyusedintradeorbusinesscomputedusingthe
straightlinemethod,decliningbalancemethodorsumof
theyearsdigitmethod.

 Anallowancefordepreciationofpropertiesdirectlyrelated
toproductionofpetroleuminitiallyplacedinserviceina
taxableyearusingthestraightlineordecliningbalance
methodofdepreciation,attheoptionofthetaxpayer.The
usefullifeofpropertiesusedinorrelatedtotheproduction
ofpetroleumshallbeten(10)yearsorsuchshorterlifeas
maybepermittedbytheCommissioner,andfive(5)years
forthosepropertiesnotuseddirectlyintheproductionof
petroleum.
Anallowancefordepreciationinrespectofallproperties
usedinminingoperationswhichshallbecomputedatthe
normalrateofdepreciationiftheexpectedlifeisten(10)
yearsorless,ordepreciatedoveranynumberofyears
betweenfive(5)yearsandtheexpectedlifeifthelatteris
morethanten(10)years,andthedepreciationthereon
allowedasdeductionfromtaxableincome.
(8)DepletionofOilandGasWellsandMines
Areasonableallowancefortheextractionofmineraldeposits
oftheoilandgaswellsorminescomputedusingthecost
depletionmethodwhich,however,shouldnotexceedthe
amountofcapitalinvestedtherein.
Aftercommencementofproductionincommercial
quantities,theamountofintangibleexplorationand
developmentdrillingcostsincurredbyataxpayerin
petroleumandminingoperationsfornonproducingwells
and/orminesshallbedeductibleinfullintheyearpaidor
incurred.Ontheotherhand,thesamecostsincurredfor
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producingwellsand/orminesinthesamecontractareaare
allowedtobedeductedinfullintheyearpaidorincurredor
capitalizedandamortized,attheoptionofthetaxpayer.
Attheoptionofthetaxpayer,theexplorationand

developmentexpendituresaccumulatedascostoradjusted
basisforcostdepletionasofthedateofprospecting,aswell
asexplorationanddevelopmentexpenditurespaidor
incurredduringthetaxableyearmaybedeductedinan
amountnottoexceedtwentyfivepercent(25%)ofthenet
incomefromminingoperationscomputedwithoutthe
benefitofanytaxincentivesunderexistinglaws.Theactual
explorationanddevelopmentexpendituresminustwenty
fivepercent(25%)ofthenetincomefromminingisallowed
tobecarriedforwardtothesucceedingyearsuntilfully
deducted.
(9)CharitableandOtherContributions
Charitablecontributionsactuallypaidormadewithinthe
taxableyeartoorfortheuseofthegovernmentofthe
Philippinesoranyofitsagenciesoranypoliticalsubdivision
thereofforexclusivepublicpurposes,ortoaccrediteddomestic
corporationsorassociationsorganizedandoperatedexclusively
forreligious,charitable,scientific,youthandsports
development,culturaloreducationalpurposesorforthe
rehabilitationofveteransortosocialwelfareinstitutions,orto
nongovernmentorganizations,nopartofthenetincomeof
whichinurestothebenefitofanyprivatestockholderor
individualinanamountnotinexcessoftenpercent(10%)of
thetaxpayerstaxableincomeascomputedwithoutthebenefit
ofsaiddeduction.
However,donationsmadetotheGovernmentofthe
Philippinesortoanyofitsagenciesorpoliticalsubdivisions,
includingfullyownedgovernmentcorporations,exclusivelyto
financepriorityactivitiesineducation,health,youthandsports
development,humansettlements,scienceandculture,andin
economicdevelopmentaccordingtoanationalpriorityplan
shallbedeductibleinfull.Alsodeductibleinfullaredonations
madetocertainprivateentitieswhichqualifyasdonee
institutionsasprovidedforundertheTaxCode.

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(10)ResearchandDevelopment
Amountofresearchanddevelopmentexpenditurespaid
orincurredduringthetaxableyearinconnectionwiththe
taxpayerstrade,businessorprofessionwhicharenot
chargeabletocapitalaccount.Attheoptionofthetaxpayer,the
sameexpendituresmaybetreatedasadeferredexpenseifthe
expenditureisnotordinaryandnecessarycurrentexpenseand
chargeabletocapitalaccountbutnotchargeabletopropertyofa
characterwhichissubjecttodepreciationordepletion.
(11)PensionTrusts
Amounttransferredorpaidbyanemployerestablishing
ormaintainingapensiontrust,butonlyifsuchamounthasnot
beenallowedasadeductionandisapportionedinequalparts
overaperiodoften(10)consecutiveyearsbeginningwiththe
yearinwhichthetransferorpaymentismade.
(12)Anoptionalstandarddeductionequalto40%ofthegross
salesorgrossreceiptsofresidentindividualtaxpayersengaged
inbusinessorpracticeofprofessioninlieuoftheforegoing
deductions.
(13)PremiumPaymentsonHealthand/orHospitalization
Insurance
TheamountofpremiumsnottoexceedP2,400orP200a
monthpaidduringthetaxableyearforhealthand/or
hospitalizationinsurancetakenbythetaxpayerfor
himself/herself,includinghis/herfamilyprovidedthatthe
taxpayeravailingofsaiddeductionhasafamilyincomeofnot
morethanP250,000forthetaxableyearandistheoneclaiming
theadditionalexemptionsfordependents.
(14)FreeLegalServices
13

Alawyerorprofessionalpartnershiprenderingactual
freelegalservices,asdefinedbytheSupremeCourt,shallbe
entitledtoanallowabledeductionfromthegrossincome,the

amountthatcouldhavebeencollectedfortheactualfreelegal
servicesrenderedoruptotenpercent(10%)ofthegrossincome
derivedfromtheactualperformanceofthelegalprofession,
whicheverislower:Provided,Thattheactualfreelegal

PerSection5ofRepublicActNo.9999,otherwiseknownastheFreeLegalAssistanceActof
2010,approvedonFebruary23,2010.
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serviceshereincontemplatedshallbeexclusiveoftheminimum
sixty(60)hourmandatorylegalaidservicesrenderedto
indigentlitigantsasrequiredundertheRuleonMandatory
LegalAidServicesforPracticingLawyers,underBARMatter
No.2012,issuedbytheSupremeCourt.
(15)PassiveIncome
Nodeductionsareallowed.
(2)NonresidentCitizen
Samedeductionsasallowedtoresidentcitizens.
b.Alien
(1)
Residentalien
Samedeductionsasallowedtoresidentcitizens.
(2)
NonresidentAlien
(a)
EngagedintradeorbusinessinthePhilippines
Nonresidentaliensengagedintradeorbusinessinthe
Philippinesareentitledtothesamedeductionsallowedtoresident
citizensandsubjecttothesameconditionsandlimitations,excepton
thefollowingitemsofdeductions:

Taxesthedeductionsfortaxesshallbeallowedonlyif
andtotheextentthattheyareconnectedwithincomefrom
sourceswithinthePhilippines.


Losseslossesdeductibleshallbethoseactuallysustained
duringtheyearincurredinbusiness,tradeorexerciseofa
professionconductedwithinthePhilippinesandnot
compensatedforbyinsuranceorotherformsofindemnity.

Depreciationareasonableallowanceforthedeterioration
ofpropertyarisingoutofitsuseoremploymentoritsnonuse
inthebusiness,tradeorprofessiononpropertieslocatedinthe
Philippines.
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Depletionofoilandgaswellsandminestheallowance
fordepletionofoilandgaswellsorminesisauthorizedonly
withrespecttooilandgaswellsormineslocatedwithinthe
Philippines.
(b)NotengagedintradeorbusinessinthePhilippinesnodeductions
areallowed.
(c)Employedbyregionalorareaheadquartersandregionaloperating
headquartersofmultinationalcorporations,offshorebankingunits,
orservicecontractorsorsubcontractorsengagedinpetroleum
operationsinthePhilippinesnodeductionsareallowed
6.ItemsnotDeductiblefromGrossIncome
14

Thefollowingitemsarenotallowedtobedeductedfromthegrossincomeof
taxpayers:
a.Personal,living,orfamilyexpenses;
b.Amountspaidoutfornewbuildingsorforpermanentimprovements,or
bettermentsmadewhichtendtoincreasethevalueofanypropertyorestate;
c.Amountsspentforrestoringpropertyorinmakinggoodtheexhaustion
thereofforwhichanallowanceisorhasbeenmade;
d.Premiumspaidonanylifeinsurancepolicycoveringthelifeofanyofficeror

employee,orofanypersonfinanciallyinterestedinanytradeorbusiness
carriedonbythetaxpayer,wherethetaxpayerisdirectlyorindirectlya
beneficiaryundersuchpolicy;and
e.Lossesfromsalesorexchangesofpropertyundercertainconditions.
7.PersonalExemptions
Personalandadditionalexemptionsareallowedtobedeductedfromgross
compensationincomeandnetincomearisingfrombusinessorprofessionofthe
taxpayer.Incaseofindividualswhoderivecompensationandotherincomes,the
amountofpersonalandadditionalexemptionsshallbedeductedfirstfromcompensation
income.Anyexcessthereofshallbedeductedfromotherincomes.
Sec.36,supra.

14

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a.
Citizen
(1)ResidentandNonresident
(a)
PersonalExemption
15

P50,000foreachindividualtaxpayer
(b)AdditionalExemptionforDependents
16

P25,000foreachlegitimate,illegitimateorlegallyadopted
childprovidedthatthenumberofdependentsforwhom
additionalexemptionmaybeclaimedshouldnot
exceedfour(4).
b.Alien
(1)Resident
Residentalienindividualsareentitledtothesamepersonaland
additionalexemptionsallowedtoresidentcitizensandsubjecttothe
sameconditionsandlimitations.
(2)Nonresident
(a)EngagedintradeorbusinessinthePhilippinesshallbeentitled

topersonalexemptioninanamountequaltotheexemptions
allowedbytheincometaxlawofthecountryofwhichhe/sheisa
subjectorcitizenbutnottoexceedtheamountfixedintheNIRC
asexemptionforcitizensorresidentsofthePhilippines.
(b)NotengagedintradeorbusinessinthePhilippinesnopersonal
andadditionalexemptionsallowed.
Sec.35(A),supra.PursuanttoSec.4ofRA9504(AnActAmendingSections22,24,34,35,
51,and79ofRepublicActNo.8424,asAmended,OtherwiseKnownastheNationalInternalRevenue
Codeof1997),individualtaxpayers,regardlessofstatusaregivenauniformamountofpersonalexemption
allowance.
16Sec.35(B)oftheNIRCprovidesthatincaseofmarriedindividuals,additionalexemptionfor
dependentsshallbeclaimedbyonlyoneofthespouses.Inthecaseoflegallyseparatedspouses,
additionalexemptionsshallbeclaimedonlybythespousewhohascustodyofthechildorchildren.
15

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8.TaxRates
a.Compensation/BusinessIncome
(1)Citizen
(a)Resident
17

ontaxablecompensationandbusinessincome(i.e.,
grosscompensationand/orbusinessincomelessdeductionsand
personalandadditionalexemptions)receivedfromallsources
withinandwithoutthePhilippines,thefollowingtaxschedule
18

shallapply:
Over
ButNotOver
TaxDue
P10,000
30,000
70,000
140,000
250,000
500,000

P10,000
30,000
70,000
140,000
250,000
500,000
5%
P500+10%ofthe
excessoverP10,000
2,250+15%ofthe
excessoverP30,000
8,500+20%ofthe
excessoverP70,000
22,500+25%ofthe
excessoverP140,000
50,000+30%ofthe
excessoverP250,000
125,000+32%ofthe
excessoverP500,000
Sec.24(A),supra.PursuanttoSec.2ofRA9504,minimumwageearnersareexemptfromthe
paymentofincometaxontheirtaxableincomeincludingtheirholidaypay,overtimepay,nightshift
differentialpayandhazardpay.MinimumwageearnersasdefinedunderSec.22(HH)oftheNIRCrefer
toworkersintheprivatesectorpaidthestatutoryminimumwage,ortoanemployeeinthepublicsector
withcompensationincomeofnotmorethanthestatutoryminimumwageinthenonagriculturalsector
wherehe/sheisassigned.
18Sec.24(A),supra.
17

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(b)Nonresident
19

Ontaxablecompensationandbusinessincomereceived
fromallsourceswithinthePhilippinessameratesasforresident
citizens.
(c)Filipinosemployedandoccupyingthesamepositionasthose
aliensemployedbyregionalorareaheadquartersandregional

operatingheadquarters
20

,offshorebankingunits,petroleum
servicecontractorsandsubcontractorssameastheratefor
residentcitizensor15%ofgrosscompensationincomereceived
therefrom.
21

(2)Alien
(a)Residentontaxablecompensationandbusinessincome
receivedfromallsourceswithinthePhilippines,sameratesasfor
residentcitizens.
(b)Nonresident
22

EngagedintradeorbusinessinthePhilippineson
taxablecompensationandbusinessincomereceivedfromall
sourceswithinthePhilippines,sameratesasforresident
citizens.
NotengagedintradeorbusinessinthePhilippines
23

25%
onthegrossamountofcompensations,remunerations,
salariesoremolumentsreceivedfromsourceswithinthe
Philippines
Sec.24(A)(1)(c),supra.
Filipinosemployedandoccupyingthesamepositionlikethosealiensemployedbyregionalor
areaheadquartersandregionaloperatingheadquartersofmultinationalcorporationsgovernedbyEO226as
amendedbyRA8756havetheoptiontobetaxedeitherat15%ongrossincomeor5%32%regulartax
rateonmodifiedgrossincome.ThisoptionwasgiventosaidtaxpayersbyvirtueofRA8756(November
23,1999)
21Sec.25(C),(D),(E),oftheNIRCandRRNo.122001.
22Sec.25(A),oftheNIRC.
23Sec.25(B),supra.
19
20

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(c)Alien
24

employedby

 Regionalorareaheadquartersandregionaloperating
headquartersofmultinationalcorporations15%ofgross
compensationreceivedtherefrom.
Offshorebankingunits15%ofgrosscompensationincome
receivedtherefrom.
Petroleumservicecontractorsandsubcontractors15%
finaltaxongrosscompensationincomereceivedtherefrom.
Anyincomeearnedfromothersourceswithinthe
Philippinesbythesealienemployeesshallbesubjecttothe
pertinentincometaximposedundertheTaxCode.
TABLE2.SUMMARYOFTAXBASEANDTAXRATESON
COMPENSATIONANDBUSINESSINCOMEOFINDIVIDUALTAXPAYERS
Taxpayers
TaxBase
TaxRates
A.Citizen
1.ResidentCitizen
ResidentCitizenEmployedBy:
a.RegionalorAreaHeadquarters
andRegionalOperating
HeadquartersofMultinational
Corp.
b.OffshoreBankingUnits
c.PetroleumServiceContractor
andSubcontractor
TaxableCompensation
Income(TCI)andorTaxable
BusinessIncome(TBI)
TaxableGrossCompensation
Income(TGCI)
TGCI
TGCI
5%32%
15%or

5%32%
15%
15%
Sec.25(C),(D),(E),supra.

24

Page 17
17

2.NonresidentCitizen
B.Alien
1.ResidentAlien
2.NonresidentAlien
a.EngagedinTradeorBusiness
inthePhilippines
b.NotengagedinTradeor
BusinessinthePhilippines
c.Alienemployedby:
(1)RegionalorArea
Headquartersand
RegionalOperating
Headquartersof
MultinationalCorp.
(2)OffshoreBankingUnits
(3)PetroleumService
Contractorand
Subcontractor
TCI/TBI
TCI/TBI
TCI/TBI
TaxableGrossIncome(TGI)
TGCI
TGCI
TGCI
5%32%
5%32%

5%32%
25%
15%
15%
15%
b.PassiveIncome
(1)Citizens
25

(a)Residentsonthefollowingitemsofincome:
Royalties(exceptroyaltiesonbooks,literaryworksand
musicalcompositionswhichshallbesubjectto10%final
tax)20%finalwithholdingtaxongrossamount.
Sec.24(B),supra.

25

Page 18
18

Prizes(exceedingP10,000)
26

andothertaxablewinnings
(exceptPCSOandLottoWinnings)20%final
withholdingtaxonthegrossamount.
InterestincomefromPhilippinecurrencybankdepositsand
yieldoranyothermonetarybenefitfromdepositsubstitutes
andfromtrustfundsandsimilararrangements(except
interestincomefromlongtermdepositsorinvestments
evidencedbycertificatesprescribedbytheBSP)20%final
incometaxonthegrossamount.
Interestincomefromlongtermdepositsorinvestmentsinthe
formofsavings,commonorindividualtrustfunds,deposit
substitutes,investmentmanagementaccountsandother
investmentsevidencedbycertificatesinsuchforms
prescribedbytheBSPwhicharepreterminatedbytheholder
beforethefifth(5th)yearbasedontheholdingperiodatthe
followingrates:
Four(4)yearstolessthanfive(5)years

5%
Three(3)yearstolessthanfour(4)years
12%
Lessthanthree(3)years
20%
Interestincomefromforeigncurrencybankdeposits71/2%
finaltaxonthegrossamount.
Cashand/orpropertydividendsactuallyorconstructively
receivedandshareofanindividualpartnerinthenetprofits
ofataxablepartnership10%.
(b)Nonresidentssametreatmentaswithresidentcitizensexcepton
interestincomefromforeigncurrencybankdepositswhichis
exemptfromtax.
(2)Aliens
(a)Residentsonpassiveincomesreceivedfromsourceswithinthe
Philippines,sametreatmentaswithresidentcitizens.
(b)Nonresidents
PrizesamountingtoP10,000orlessarelumpedwithotherbusinessincome(ifthereisany)
subjecttotheregularindividualincometax.
26

Page 19
19

EngagedintradeorbusinessinthePhilippinessame
treatmentaswithresidentcitizensexceptoninterestincome
fromforeigncurrencybankdepositsandlongtermdeposits
andinvestmentsevidencedbycertificatesprescribedbythe
BSPwhichisexemptfromtax,andcashand/orproperty
dividendswhicharesubjectto20%finaltax.
27

NotengagedintradeorbusinessinthePhilippinesamounts
receivedasinterests,cashand/orpropertydividends,rents,
salaries,wages,premiums,annuitiescompensation,
remuneration,emoluments,andotherfixedordeterminable
annualorperiodicorcasualgains,profitsandincome,and
capitalgains(exceptcapitalgainsfromsaleofsharesofstock

inanydomesticcorporationandrealpropertywhicharetaxed
insimilarmannerlikeresidentcitizens)aresubjecttoataxof
25%ofsuchamounts.
28

c.CapitalGains
29

Thesearegainsarisingfromthesaleorexchangeofcapitalassets.TheNIRC
definescapitalassets30
aspropertyheldbythetaxpayer(whetherornotconnected
withhistradeorbusiness)butnotincludingthefollowing:
(1)stockintradeofthetaxpayer;or
(2)propertyofakindwhichwouldproperlybeincludedintheinventoryof
thetaxpayerifonhandatthecloseofthetaxableyear;or
(3)propertyheldbythetaxpayerprimarilyforsaletocustomersinthe
ordinarycourseofhistradeorbusiness;or
(4)propertyusedintradeorbusinessofacharacterwhichissubjecttothe
allowancefordepreciation;
(5)realpropertyusedintradeorbusinessofthetaxpayer.
Sec.25(A)(2),oftheNIRC.
Sec.25(B),supra.
29Sec.24(C),supra.
30Sec.39(A)(1),supra.
27
28

Page 20
20

Asageneralrule,capitalgainsaresubjecttothesamerateschedule
imposedoncompensationandbusinessincome,exceptthosearisingfromthe
following:
(1)saleordispositionofrealpropertybycitizensofthePhilippinesor
residentalienindividuals(exceptthoseinvolvingthesaleordisposition
oftheirprincipalresidencewhichisexemptfromcapitalgainstaxunder
certainconditions)6%finaltaxongrosssellingpriceorfairmarket
valuewhicheverishigher.
31

(2)saleorexchangeofsharesofstocknotlistedortradedinanylocalstock
exchangewhichshallbetaxedonthenetcapitalgains,asfollows:

32

NotoverP100,000
5%
OnanyamountinexcessofP100,00010%
d.InformersReward33
Afinaltaxoftenpercent(10%)isimposedonthecashrewardreceivedby
personsinstrumentalinthediscoveryofviolationsoftheNIRCandinthediscovery
andseizureofsmuggledgoods.Theamountofrewardisequivalentto10%ofthe
revenues,surchargesorfeesrecoveredand/orfineorpenaltyimposedandcollected
orP1,000,000percasewhicheverislower
34

.
e.WithholdingofTaxatSource
Thewithholdingtaxisamechanismdesignedtofacilitatethecollectionof
taxesfromtaxpayers.Thewithholdingtaxmaybecreditableorfinal.Ifcreditable,
theamountoftaxwithheldisallowedtobecreditedagainstthetaxpayersfinaltax
liabilityandadjustedaccordingly.Iffinal,nosuchtaxcreditandadjustmentsareto
bemadebythetaxpayers.
Subjecttowithholdingtaxarethefollowingindividualincomesatthe
followingrates:
Sec.24(D)(1),supra.Inthecase,however,ofsaleordispositionofrealpropertybyacitizenor
residentalientothegovernmentoranyofitspoliticalsubdivisionsoragenciesortoGOCCs,thetaxpayer
hastheoptiontobetaxedundertheregularindividualincometaxor6%finaltax.
32Sec.24(C),supra.
33Sec.282,supra.
34Sec.282,supra.
31

Page 21
21

Table3.SUMMARYOFWITHHOLDINGTAXRATESFOR
INDIVIDUALS
35

TypeofIncome
Resident
CitizenorAlien
Individuals

Nonresident
AliensEngaged
inTradeor
Business
Nonresident
AliensNot
Engagedin
Tradeor
Business
Dividendsfromadomestic
corporation
10%final
20%final
25%final
Royalties(Ingeneral)
20%final
20%final
25%final
Royaltiesonbooks,other
literaryworksandmusical
compositions
10%final
10%final
25%final
Shareinthedistributablenet
incomeaftertaxofa
partnership

20%final
25%final
InterestonPhilippine
currencybankdepositsand
depositsubstitutes
20%final

20%final
25%final
Interestincomeonlongterm
depositspreterminated
beforethefifthyear
Holdingperiod
4yearstolessthan5years
5%final
5%final

3yearstolessthan4years
12%final
12%final

lessthan3years
20%final
20%final

Interestonforeigncurrency
bankdeposits
7.5%final
Exempt
Exempt
PrizesexceedingP10,000&
winnings(except
SweepstakesandLotto
Winnings)
20%final
20%final
25%final
ThewithholdingtaxratesarethoseprovidedunderRRNo.298,asamended.

35

Page 22
22

Gainsfromsaleofsharesof
stock
5%10%final
5%10%final
25%final
Gainsfromsaleofreal
propertyclassifiedascapital
asset
6%final
6%final
6%final
Informersreward
10%final

Otherfixedordeterminable
gains,profitandincome

25%final
Incomederivedfrom
contractsfromService
Contractorsengagedin
petroleumoperations
8%final
8%final

Dispositionofrealproperty
classifiedascapitalassetto
thegovernmentoranyofits
politicalsubdivisions
6%finalor5%
32%
6%final

6%final
Grossincomebynonresident
cinematographicfilm
owners,lessorsor
distributors

25%final

Professionalfees,talentfees
ofthefollowingindividuals:
a.lawyers;certified
publicaccountants;
doctorsofmedicine;
architects;civil,electrical,
chemical,mechanical,
structural,industrial,
mining,sanitary,
metallurgicalandgeodetic
engineers;marine
surveyors;doctorsof
veterinaryscience;
15%creditable
ifthegross
incomeforthe
currentyear
exceeds
P720,000;and
10%if
otherwise

Page 23
23

dentist;professional
appraisers;connoisseurs
oftobacco;actuaries;and
interiordecorators,
designersandallother
professionrequiring
governmentlicensure
examinationsand/or
regulatedbythe
ProfessionalRegulations
Commission,Supreme
Court
b.actorsandactresses;
singers;lyricists;
composers;emcees;
professionalathletes;
directorsandproducers,
andotherrecipientsof
talentfees
20%creditable
ifthegross
incomeforthe
currentyear
exceeds
P720,000;and
10%if
otherwise

Rentalsofrealorpersonal
propertiesusedinbusiness,
poles,satellitesand
transmissionfacilities,and
billboards

5%creditable

Incomepaymentsmadeto
residentindividualsand
corporatecinematographic
filmowners,lessorsor
distributors
5%creditable

Incomepaymentsmadeto
generalengineering,
building,andspecialtyand
othercontractors
2%creditable

Commissionspaidtocertain
brokersandagents
10%creditable

Commissionsofindependent
andexclusivedistributors,
medical/technicalandsales
representatives,and
marketingagentsofmulti
levelmarketingcompanies
10%creditable

Page 24

24

Incomedistributedtothe
beneficiariesofestatesand
trust(exceptsuchincome
subjecttoFWTandtax
exemptincome)
15%creditable

Incomepaymentstopartners
ofGeneralProfessional
Partnerships
15%creditable
ifthegross
incomeforthe
currentyear
exceeds
P720,000;and
10%if
otherwise

AdditionalIncomeof
GovernmentPersonnelfrom
importers,shippingand
airlinecompanies,ortheir
agents
15%creditable

Paymentsmadebythe
governmenttoits
local/residentsupplierof
goodsandlocal/resident
supplierofservicesother

thanthosecoveredbyother
ratesofwithholdingtax
(exceptanysinglepurchase
ofP10,000andbelow)
1%creditableto
supplierof
goods;2%
creditableto
supplierof
services

Paymentsmadeto
embalmersforservices
renderedtofuneral
companies
1%creditable

Paymentsmadebypreneed
companiestofuneralparlors
1%creditable

Page 25
25

Paymentsmadetosuppliers
ofagriculturalproducts
1%creditable

Onehalf(1/2)ofthegross
amountpaidbycreditcard

companiestoanybusiness
entityrepresentingthesales
ofgoods/servicesto
cardholders
1%creditable

Paymentsonpurchasesof
minerals,mineralproducts
andquarryresources
10%creditable
MERALCOPaymentson:
a.MERALCORefund
arisingfromSupremeCourt
CaseGRNo.14814
b.Interestincomeonthe
refundofmeterdeposit
25%for
customerswith
activecontract;
32%for
customerswith
terminated
contract
10%creditable;
and20%ifnon
residential
customerswith
monthly
electricity
consumptionof
morethan
200kwh
Amountpaidtothe

seller/ownerforthesale,
exchangeortransferofreal
propertyclassifiedas
ordinaryasset:
a.Wherethe
seller/transferorisexempt
fromcreditablewithholding
tax
Exempt
Page 26
26

b.Wherethe
seller/transferoris
habituallyengagedinthe
realestatebusinessandthe
sellingpriceofrealproperty
is:
P500,000orless
1.5%creditable

morethanP500,000but
lessthanP2,000,000
3%creditable

morethanP2,000,000
5%creditable

c.Wherethe
seller/transferorisnot
habituallyengagedinthe

realestatebusiness
6%creditable

9.FilingofReturns
a.Thefollowingpersonsarerequiredtofileincometaxreturns:
36

(1)EveryFilipinocitizenresidinginthePhilippines(exceptpersonsnot
requiredtofileincometaxreturnsandthosewhoaresubjectto
substitutedfilingofincometaxreturn[refertoitemsA(9)(c)and
(d)onpage35];
(2)EveryFilipinocitizenresidingoutsidethePhilippines,onincome
fromsourceswithinthePhilippines;
(3)EveryalienresidinginthePhilippines,onincomederivedfrom
sourceswithinthePhilippines;
(4)Everynonresidentalienengagedintradeorbusiness,orinthe
exerciseofprofessioninthePhilippines;and
(5)Everyexecutororadministratorofanestate,ifthegrossvalueofthe
estateisP200,000ormore,orregardlessofthevalueoftheestateif
estateconsistsofregisteredorregistrableproperty.
37

Sec.51(A)(1),supra.
Sec.90(A),supra.

36
37

Page 27
27

b.Personsrequiredtofileinformationonreturns
38

(forincomenot
subjecttowithholding):
Everypersonwhomadepaymenttoanotherpersononanyofthefixedor
determinablegains,profitsandincomefortheprecedingcalendaryearas
in:
(1)interests;
(2)rents;

(3)salariesandwages;
(4)premiums;
(5)annuities;
(6)compensations;
(7)remunerations;
(8)emoluments;
c.Personsnotrequiredtofileincometaxreturns:
39

(1)Individualswhosegrossincomedoesnotexceedtheirtotalpersonal
andadditionalexemptions;
(2)Individualswhosepurecompensationincomederivedfromsources
withinthePhilippines,theincometaxonwhichhasbeencorrectly
withheldundertheprovisionsoftheNIRC;
(3)Individualswhoseincomeconsistssolelyofinterest,prizes,winnings,
royalties,dividends,shareinapartnershiptaxableasacorporation
whichhasbeensubjectedtofinalwithholdingtax;
(4)Minimumwageearnersoranindividualwhoisexemptfromincome
taxpursuanttotheprovisionsoftheNIRCandotherlaws,generalor
special.
Sec.68,supra.
Sec.51(A)(2),supra.

38
39

Page 28
28

d.SubstitutedFilingofIncomeTaxReturns
Anindividualtaxpayerreceivingpurelycompensationincomefromonlyone
employerisnolongerrequiredtofiletheAnnualIncomeTaxReturn(FormNo.
1700)iftheincometaxhasbeencorrectlywithheldbytheemployer.TheAnnual
InformationReturnofIncomeTaxesWithheldonCompensationandFinal
WithholdingTaxes(BIRFormNo.1604CF)filedbyemployersshallbeequivalent
tothesubstitutedfilingofincometaxreturnsbysaidemployees.The
following
taxpayers,however,arenotqualifiedtoavailofthesubstitutedfiling
40

(1)Individualsderivingcompensationfromtwoormoreemployers
concurrentlyorsuccessivelyatanytimeduringthetaxableyear.
(2)Iftheincometaxoftheemployeehasnotbeenwithheldcorrectlyresulting
tocollectibleorrefundablereturn.
(3)Individualsderivingothernonbusiness,nonprofessionrelatedincomein
additiontocompensationnototherwisesubjecttoafinaltax.
(3)Individualsreceivingpurelycompensationincomefromasingle
employer,althoughtheincometaxofwhichhasbeencorrectlywithheld,
butwhosespousefallsunderSection2.83.4(A),(B),(C)and(D)ofRR
No.298,asamended.
(5)NonresidentaliensengagedinbusinessinthePhilippinesderivingpurely
compensationincome,orcompensationincomeandothernonbusiness,
nonprofessionrelatedincome.
e.EfilingandPaymentSystem
41

BothlargeandnonlargeindividualtaxpayersfilingBIRform1700whoare
requiredtofileanincometaxreturnhavetheoptiontoavailoftheEFPSinfiling
theirannualincometaxreturnsandpayingthetaxesduethereon.Alltaxpayerswho
intendtoefiletheirincometaxreturnandpayelectronicallytheirincometaxliability
mustregisterwiththeBIRIntegratedTaxSystem(ITS)andmusthaveanemail
Incaseofmarriedindividualswhoarestillrequiredtofilereturnsunderexistingprovisionsof
thelaw,i.e.,inthoseinstancesnotcoveredbythesubstitutedfilingofreturns,onlyonereturnforthe
taxableyearshallbefiledbyeitherspousetocovertheincomeofthespouses,whichreturnshallbesigned
bythehusbandandwifeunlessitisphysicallyimpossibletodoso,inwhichcasesignatureofoneofthe
spouseswouldsuffice.
41IncompliancewithSection34ofR.A.8792,otherwiseknownastheElectronicCommerceAct,
theBureauisexpandingitsservicesforapaperlessfilingofreturnsandpaymentoftaxesthrueFPS.
40

Page 29
29

accountandInternetaccess.Taxpayerswhoefiletheirreturnsmaypaytheirtax
liabilitieseitherelectronically(epay)ormanually.
Largetaxpayerswhoopttoepaytheirtaxduemustdosothroughany
AuthorizedAgentBank(AAB)accreditedbytheBIRwhichisepaymentcapable.
Ontheotherhand,nonlargetaxpayerscanpaythroughtheinternetbankingfacilities
ofanyAAB,regardlessofwhethersuchAABiswithintheterritorialjurisdictionor

notoftheRDOwherethetaxpayerisregistered.
f.Basicformsusedinfilinganincometaxreturn:
(1)TaxpayerswhoarewithinthejurisdictionofRevenueDistrictOffices
(RDOs)arerequiredtousethefollowingredesigned/newBIRforms:
Forindividualsearningpurecompensationincome
1700
ForSelfEmployed,Professionals,Estates,andTrusts
1701
Forrealpropertytransactions(individualcapitalgainstax)1706
AccountInformationForm
1701AIF
10.PlaceofFiling
42

a.ThereturnshallbefiledwithanAuthorizedAgentBank,RevenueDistrict
Officer,CollectionAgent,ordulyauthorizedTreasurerofthecityor
municipalityinwhichsuchpersonhasalegalresidenceorprincipalplace
ofbusinessinthePhilippines,orifthereisnolegalresidenceorplaceof
businessinthePhilippines,withtheOfficeoftheCommissioner.
Informationreturns(BIRForm1701AIF)shallbefiledwiththe
RevenueRegionalDirector,RevenueDistrictOfficer,orCollectionAgent
wheretheprincipalofficeofthetaxpayerislocated.
11.TimeofFiling
43

a.ResidentsofthePhilippines,whethercitizensoralienswhoseincomehad
beenderivedsolelyfromsalaries,wages,interest,dividends,allowances,
commissions,fees,pensions,oranycombinationthereof
44

onorbefore
April15.
45

Sec.51(B),supra.Theprevailingmodesofpaymentare:(a)BankDebitSystem;(b)Overthe
CounterCashTransactions;(c)CreditFacility;and(d)TaxDebitMemo.Taxpayerswholiveina
municipalitywherethereisnoAABmaypaytheirtaxesincashtotheBIRCollectionAgentassignedto
saidmunicipality.
43Sec.51(C),supra.
44Withrespect,however,totaxpayers,whetherlargeornonlarge,whoavailedoftheelectronic
filingandpaymentsystem(EFPS),thedeadlineforelectronicallyfilingtheapplicablewithholdingtax
42

Page 30
30

b.Individualssubjecttothefinalschedulartaxonnetcapitalgainsfromthe
saleorexchangeofsharesofstocknottradedthrualocalstockexchange
within30daysaftereachtransactionandafinalconsolidatedreturnonor
beforeApril15.
c.Individualssubjecttothecapitalgainstaxonthesaleordispositionofreal
propertywithin30daysfollowingeachsaleorotherdispositionof
capitalassets.
d.AccountInformationForm(BIRForm1701AIF)onorbeforeApril15
ofeachyearcoveringincomefortheprecedingtaxableyear.
12.PaymentofTax
46

Theincometaxispayableatthetimethereturnisfiled.Whentheincometax
dueexceedsP2,000,itmaybepaidintwoequalinstallments:thefirst,atthetimethe
returnisfiled;andsecond,onorbeforethe15
th

dayofJulyfollowingthecloseofthe
calendaryear.
13.Penalties
47

Ingeneral,thenonfilingofincometaxreturnsand/ornonpaymentofincome
taxshallresultinthefollowing:
a.impositionoffineand/orimprisonment;
b.impositionofsurchargeof
(1)50%ofthetaxordeficiencytax,incaseofwillfulneglecttofilethe
returnwithintheperiodprescribedbytheCode,orincaseoffalseor

returnsandpayingthetaxesduethereonviatheEFPSshallbefive(5)dayslaterthanthedeadlines,unless
theEFPSregulationsprovidefordifferentdeadlinedatesandexceptforthefinalcapitalgainstaxonthe
sale,barterorexchangeofrealpropertywherethelawfixesadefinitedeadlineforthepaymentthereof.
45GovernmentofficialsandemployeesareenjoinedtofiletheirincometaxonorbeforeMarch15
byvirtueofMemorandumCircularNo.94issuedbyPresidentCorazonC.AquinoonFebruary13,1989.
46Sec.56(A)(1)and(2)oftheNIRC.Ontheotherhand,RepublicActNo.9505,otherwise
knownasthePERAActof2008providesthatanindividualmakingcontributionstoaPersonalEquityand
RetirementAccount(PERA)maybeentitledtoanonrefundabletaxcreditequivalenttofivepercent(5%)
ofthemaximumallowablePERAcontribution.ThemaximumallowablecontributionisP100,000.00orP
200,000.00ifthecontributorisanoverseasFilipino
47Sec.247248and253,supra.

Page 31
31

fraudulentreturnwillfullymade,tobeaddedtothetaxordeficiency
48

tax;and
(2)25%oftheamountdue,tobeimposedinanyofthefollowingcases:
(a)failuretofiletheincometaxreturnandpaythetaxduethereonon
thedateprescribedbylaw;or
(b)filingareturnwithaninternalrevenueofficerotherthanthose
withwhomthereturnisrequiredtobefiled;or
(c)failuretopaythedeficiencytaxwithinthetimeprescribedforits
payment;or
(d)failuretopayfullorpartoftheamountoftaxshowninthereturn
requiredtobefiled,orfullamountoftaxdueforwhichnoreturn
isrequiredtobefiled,onorbeforethedateprescribedforits
payment.
c.Impositionofinterestonanyunpaidamountoftaxat20%annuallyor
suchhigherrateofinterestasmayberequired.
49

(1)Incaseofataxshowninthereturnasduebutunpaid,theinterest
shallbe20%ayearfromduedateuntilpaid.
(2)Iftheperiodforfilingreturnisextended,thereisalsoa20%ayear
interesttobepaidfromduedateuptothedateofpayment.
d.Deportationofthetaxpayer,ifanalien.
50

B.CORPORATEINCOMETAX
1.Corporationssubjecttotax
Thecorporateincometaxisimposedon:

Thetermdeficiencymeans:(1)theamountbywhichthetaximposedbylawexceedsthe
amountshownasthetaxofthetaxpayeruponhisreturn;or(2)ifnoamountisshownasthetaxbythe
taxpayeruponhisreturnorifnoreturnismadebythetaxpayer,thentheamountbywhichthetaxexceeds
theamountpreviouslyassessed(orcollectedwithoutassessment)asadeficiency.(Sec.56(B)(1)and(2),
supra.)
49Sec.249oftheNIRC.
50Sec.253(c),supra.
48

Page 32

32

a.DomesticCorporationisacorporationcreatedororganizedinthe
Philippinesorunderitslawswhichshallincludepartnerships,nomatter
howcreatedororganized,jointstockcompanies,jointaccounts,
associations,orinsurancecompanies,butdoesnotincludegeneral
professionalpartnershipsandajointventureorconsortiumformedforthe
purposeofundertakingconstructionprojectsorengaginginpetroleum,
coal,geothermalandotherenergyoperationspursuanttoanoperatingor
consortiumagreementunderaservicecontractwiththeGovernment.
51

b.ForeignCorporation
(1)ResidentForeignCorporationisonewhichisorganizedorexistent
underthelawsofanyforeigncountrybutisengagedintradeor
businessinthePhilippines.
(2)NonresidentForeignCorporationisonewhichisorganizedunder
thelawsofanyforeigncountryandnotengagedintradeorbusinessin
thePhilippinesbutisderivingincomefromsourceswithinthe
Philippines.
2.DeterminationofTaxableIncome
a.DomesticCorporationtaxableontheentirenetincomereceivedfrom
sourceswithinandoutsidethePhilippines.Nettaxableincomeistheamount
equaltogrossincomelessallowabledeductions.
52

b.ForeignCorporation
(1)ResidentForeignCorporationtaxedsimilarlyasadomesticcorporation
onincomesderivedfromsourceswithinthePhilippines.
53

(2)NonresidentForeignCorporationtaxableupontheentiregrossincome
receivedfromallsourceswithinthePhilippines.
54

Sec.22(BandC),supra.
Sec.27(A),supra.PursuanttoRA9856(AnActProvidingtheLegalFrameworkforReal
EstateInvestmentTrust[REIT]andforOtherPurposes),REITwillbesubjecttotheincometaxonthe
taxablenetincomeasdefinedinChapterVoftheNIRCinsteadofitstaxablenetincomeasstatedinthis
Act,upontheoccurrenceofthefollowing:(i)failuretomaintainitsstatusasapubliccompany;(ii)failure
tomaintainthelistedstatusoftheinvestorsecuritiesontheregisteredentityandtheregistrationofthe
investorsecuritiesbytheSecuritiesandExchangeCommission;and/or(iii)failuretodistributeatleast
90%ofitsdistributableincomerequiredunderSection7ofRA9856.
51
52

Sec.28(A),supra.
Sec.28(B),supra.

53
54

Page 33
33

c.ExclusionsrefertoitemA(4)onpage4
d.DeductionsfromGrossIncome
55

(1)DomesticCorporation
Samedeductionsallowedindividualtaxpayersexceptpremiumpayments
onhealthand/orhospitalizationinsuranceoroptionalstandarddeduction
equivalentto40%ofitsgrossincome.Withrespecttocharitableandother
contributionssubjecttolimitation,thesameshouldnotexceed5%ofthe
taxableincomewithoutthebenefitofsaiddeduction.
(2)ForeignCorporation
(a)ResidentForeignCorporation
Samedeductionsalloweddomesticcorporationsandconditionsand
limitationsexceptonthefollowingitemsofdeductions:
Taxesthedeductionsfortaxesshallbeallowedonlyifandtothe
extentthattheyareconnectedwithincomefromsourceswithinthe
Philippines.
Losseslossesdeductibleshallbethoseactuallysustainedduringthe
yearincurredinbusiness,tradeorexerciseofaprofessionconducted
withinthePhilippinesandnotcompensatedforbyinsuranceorother
formsofindemnity.
Baddebtsthedeductionsforbaddebtsshallbeallowedonlyifthey
ariseinthecourseofbusinessortradeconductedwithinthePhilippines.
Depreciationareasonableallowanceforthedeteriorationofproperty
arisingoutofitsuseoremploymentoritsnonuseinthebusiness,tradeor
professiononpropertieslocatedinthePhilippines.
Depletionofoilandgaswellsandminestheallowancefordepletion
ofoilandgaswellsorminesisauthorizedonlywithrespecttooilandgas
wellsormineslocatedwithinthePhilippines.
(b)NonresidentForeignCorporation
Nodeductionsareallowed.

Sec.34,supra.

55

Page 34
34

e.NondeductibleitemsSameastheitemsnotdeductiblefromgrossincome
undertheIndividualIncomeTax.[refertoitemA(6)onpage16]
f.Exemptions
56

Thefollowingareexemptfromthepaymentofcorporateincometax,subjectto
certainconditions:
(1)Labor,agricultural,orhorticulturalorganizationsnotorganizedprincipally
forprofit;
(2)Mutualsavingsbanknothavingacapitalstockrepresentedbyshares,and
cooperativebankwithoutcapitalstockorganizedandoperatedformutual
purposesandwithoutprofit;
(3)Abeneficiarysociety,order,orassociation,suchasfraternalorganization,or
amutualaidassociationoranonstockcorporation,organizedandoperated
exclusivelyforthebenefitofitsmembers;
(4)Cemeterycompanyownedandoperatedexclusivelyforthebenefitofits
members;
(5)Religious,charitable,scientific,athletic,andculturalorganizationsorthose
organizedfortherehabilitationofveterans,undercertainconditions;
(6)Businessleague,chamberofcommerce,orboardoftrade,notorganizedfor
profitandnopartofthenetincomeofwhichinurestothebenefitofany
privateindividual;
(7)Civicleagueororganizationorganizedforprofitbutoperatedexclusivelyfor
thepromotionofsocialwelfare;
(8)Nonstockandnonprofiteducationalinstitutions;
(9)Governmenteducationalinstitutions;
(10)Farmersorothermutualtyphoonorfireinsurancecompanyorlike
organizationofpurelylocalcharacter;and
(11)Farmers,fruitgrowers,orlikeassociationsorganizedandoperatedassales
agent,undercertainconditions.
Sec.30,supra.

56

Page 35
35

Table4.SUMMARYOFTAXSOURCEOFCORPORATETAXPAYERS
3.TaxBaseandTaxRates
a.CorporateIncome
(1)DomesticCorporations
57

(a)Ingeneral30%uponthetaxableincomederivedduringeachtaxable
yearfromallsourceswithinandoutsidethePhilippinesbyevery
corporation,organizedin,orexistingunderthelawsofthePhilippines.
Sec.27,supra.PursuanttoRA9337(ExpandedVATLaw),thecorporateincometaxis
decreasedfrom35%to30%effectiveJanuary1,2009.
57

SourcesofIncomeSubjectto
Tax
Domestic
Corporation
ForeignCorporation
Resident
Nonresident
WithinWithoutWithinWithoutWithinWithout
thePhilippines
thePhilippines
thePhilippines
a.BusinessIncome
Y
Y
Y
N
Y
N
b.PassiveIncome
1.Royalties
Y
N
Y

N
Y
N
2.Interestincomefrom
Philippinecurrencybank
depositsandyieldorany
othermonetarybenefit
fromdepositsubstitutes
andfromtrustfundsand
similararrangements
Y
N
Y
N
Y
N
3.Interestincomefromlong
termdepositinstruments
preterminatedbeforethe
fifth(5
th

)year
Y
N
Y
N
Y
N
4.Interestincomefrom
foreigncurrencybank
deposits
Y
N
Y
N

N
N
5.Cashand/orproperty
dividends
N
N
N
N
Y
N
c.OtherSourcesofIncome
Y
Y
Y
N
Y
N
Page 36
36

(b)ProprietaryEducationalInstitutionsandHospitalswhicharenonprofit
10%ontheirtaxableincomefromtheoperationoftheeducational
institutionandhospitalbutiftheirgrossincomefromunrelatedtrade,
businessorotheractivityexceeds50%ofthetotalgrossincomethen
theregularcorporateincometaxshallapply.
(c)Governmentownedorcontrolledcorporations
58

,agenciesor
instrumentalities,exceptGovernmentServiceInsuranceSystem
(GSIS),SocialSecuritySystem(SSS),PhilippineHealthInsurance
Corporation(PHIC),LocalWaterDistricts(LWD),andPhilippine
CharitySweepstakesOffice(PCSO)30%upontheirtaxableincome
derivedduringeachtaxableyear.
(d)TaxonincomederivedundertheExpandedForeignCurrencyDeposit

System.
59

Incomederivedbyadepositorybankundertheexpandedforeign
currencydepositsystemfromforeigncurrencytransactionswith
nonresidents,offshorebankingunitsinthePhilippines,local
commercialbanksincludingbranchesofforeignbanksthatmaybe
authorizedbytheBangkoSentralngPilipinas(BSP)totransact
businesswithforeigncurrencydepositsystemunitsunderthe
EFCDS,exceptnetincomefromsuchtransactionsasmaybe
specifiedbytheSecretaryofFinanceexempt.
Interestincomefromforeigncurrencyloansgrantedbysuch
depositorybanksundersaidexpandedsystemtoresidentsother
thanoffshorebankingunitsinthePhilippinesorotherdepository
banksundertheexpandedsystem10%finaltax.
Incomeofnonresidents,whetherindividualsorcorporations,from
transactionswithdepositorybanksundertheexpandedsystem
exempt.
PursuanttoRA9593[TourismActof2009(May12,2009)andRA10026(March11,2010)],
thefollowingareexemptedfrompaymentofcorporateincometax:TourismPromotionsBoard,Tourism
InfrastructureandEnterpriseZoneAuthority,DutyFreePhilippinesCorporationandLocalWater
Districts.
59Sec.27(D),28(A)(4),(A)(7)(b),supra.,asamendedbyRANo.9294.
58

Page 37
37

(2)ForeignCorporations
60

(a)Residentforeigncorporations
61

InGeneral30%ontaxableincomederivedduringthetaxableyear
fromallsourceswithinthePhilippinesbyacorporationorganized,
authorized,orexistingunderthelawsofanyforeigncountry,engaged
intradeorbusinesswithinthePhilippines.
Internationalcarrier2.5%ontheirGrossPhilippineBillings.62
Offshorebankingunits63

Incomederivedfromforeigncurrencytransactionswithlocal
commercialbanksandbranchesofforeignbanksauthorizedbythe
BSPtotransactwithOBUsexempt.

Interestincomederivedfromforeigncurrencyloansgrantedto
residentsotherthanoffshorebankingunitsorlocalcommercial
banks,includinglocalbranchesofforeignbanksthatmaybe
authorizedbytheBSPtotransactbusinesswithoffshorebanking
units10%finaltax.

Incomeofnonresidents,whetherindividualsorcorporations,from
transactionswithsaidoffshorebankingunitsexempt.
Branchprofitsremittances15%onanyprofitremittedbyabranchto
itsheadofficeabroad,exceptprofitremittedbyenterpriseswhichare
registeredwiththePhilippineEconomicZoneAuthority(PEZA).
RegionalorAreaHeadquartersandRegionalOperatingHeadquarters
ofMultinationalCorporations.
64

Sec.28,supra.
Sec.28(A)(1),supra.
62GrossPhilippineBillingsreferstotheamountofgrossrevenuederivedfromcarriageof
persons,excessbaggage,cargoandmailoriginatingfromthePhilippinesinacontinuousand
uninterruptedflight,irrespectiveoftheplaceofsaleorissueandtheplaceofpaymentoftheticketor
passagedocument.ThetermGrossPhilippinebillingsshallincludethealiquotportionofthecostofthe
ticketcorrespondingtothelegflownfromthePhilippinestothepointoftransshipmentandtickets,
revalidated,exchangedand/orindorsedtoanotherinternationalairlineofpassengerswhoboardsaplanein
aportorpointinthePhilippines.
63Sec.27(D),28(A)(4),supra.,asamendedbyRANo.9294(April28,2004)
64Sec.28(A)(6),supra.
60
61

Page 38
38

RegionalorAreaHeadquartersofMultinationalCorporations.
exempt.
RegionalOperatingHeadquarters10%finaltaxontheirtaxable
income.
DepositorybanksundertheExpandedForeignCurrencyDeposit

System(EFCDS)
Incomederivedbyadepositorybankundertheexpandedforeign
currencydepositsystemfromforeigncurrencytransactionswith
nonresidents,offshorebankingunitsinthePhilippines,local
commercialbanksincludingbranchesofforeignbanksthatmaybe
authorizedbytheBangkoSentralngPilipinas(BSP)totransact
businesswithforeigncurrencydeposit,exceptnetincomefrom
suchtransactionsasmaybespecifiedbytheSecretaryofFinance
exempt.
Interestincomefromforeigncurrencyloansgrantedbysuch
depositorybanksundersaidexpandedsystemtoresidentsother
thanoffshorebankingunitsinthePhilippinesorotherdepository
banksundertheexpandedsystem10%finaltax.
Incomeofnonresidents,whetherindividualsorcorporations,from
transactionswithdepositorybanksundertheexpandedsystem
exempt.
(b)NonresidentForeignCorporations
65

Ingeneral30%onthegrossincomereceivedduringthetaxable
yearfromallsourceswithinthePhilippines,suchasinterests,
dividends,rents,royalties,salaries,premiums(exceptreinsurance
premiums),annuities,emolumentsorotherfixedordeterminable
annual,periodic,orcasualgains,profitsandincome,andcapitalgains,
exceptgainsrealizedfromsale,exchangeordispositionofsharesof
stockinanydomesticcorporation.
NonresidentCinematographicfilmowners,lessorsordistributors
25%oftheirgrossincomefromallsourceswithinthePhilippines.
NonresidentOwnersorlessorsofvesselscharteredbyPhilippine
nationals4.5%ongrossrentals,leaseorcharterfees.
Sec.28(B),supra.

65

Page 39
39

NonresidentOwnersorlessorsofaircrafts,machineriesandother
equipment7.5%ongrossrentals,leaseandotherfees.

Table5.SUMMARYOFTAXBASEANDTAXRATES
OFCORPORATETAXPAYERS
Taxpayers
TaxBase
TaxRates
1.DomesticCorporations(InGeneral)
TaxableNetIncome
(TNI)
30%
a.ProprietaryEducational
InstitutionsandHospitals
TNI
10%or30%
b.GOCCs,Agenciesor
Instrumentalities(except
GSIS,SSS,PHIC,PCSOand
thoseunderRANo.9593)
TNI
30%
c.DepositoryBanksunder
theEFCDS
TaxableGrossIncome
(TGI)
10%/exempt
2.ForeignCorporations(InGeneral)
TNI
30%
a.InternationalCarriers
GrossPhilippine
Billings
2.5%
b.OffshoreBankingUnits
TGI
10%/exempt

c.RegionalorAreaHeadquarters
ofMultinationalCorporations

Exempt
d.RegionalOperatingHeadquarters
ofMultinationalCorporations
TNI
10%
e.DepositoryBanksunderthe
EFCDS
TGI
10%/exempt
3.NonresidentForeignCorporations(In
General)
TGI
30%
a.NonresidentCinematographic
FilmOwners,Lessorsor
Distributors
TGI
25%
b.NonresidentOwnerorLessorof
VesselsCharteredbyPhilippines
Nationals
TGI
4.5%
c.NonresidentOwnerorLessorof
Aircrafts,Machineriesandother
Equipment
TGI
7.5%
Page 40
40

b.PassiveandOtherSourcesofIncome
(1)DomesticCorporationsonthefollowingitemsofincome:
(a)InterestfromPhilippinecurrencybankdepositsandyieldoranyother
monetarybenefitfromdepositsubstitutesandfromtrustfundsand
similararrangements,androyalties20%finalwithholdingtaxonthe
grossamount.
66

(b)Interestincomefromforeigncurrencybankdeposits71/2%final
withholdingtaxonthegrossamount.
67

(c)Netcapitalgainsderivedfromthesaleofsharesofstocknottradedin
thestockexchange:
68

NotoverP100,000
5%
AmountinexcessofP100,00010%
(d)Intercorporatedividends.
69

Exempt.
(e)Capitalgainsderivedfromthesale,exchangeordispositionoflands
and/orbuildingstreatedascapitalassetsandnotusedinthebusiness
ofacorporation6%ofthegrosssellingpriceorfairmarketvalue
whicheverishigher.
70

(2)ForeignCorporations
(a)Residentforeigncorporations
71

onpassiveincomesreceivedfrom
sourceswithinthePhilippines,sametreatmentaswithdomestic
corporations.
(b)Nonresidentforeigncorporations
72

oninterest,rents,royalties,
capitalgains,dividends,etc.whichshallformpartofthetaxable
Sec.27(D)(1),supra.
Sec.27(D)(1),supra.
68Sec.27(D)(2),supra.
69Sec.27(D)(4),supra.
66
67

Sec.27(D)(5),supra.Gainsderivedfromthesaleordispositionoflandsand/orbuildings
whichareusedinthebusinessandtreatedascapitalassetsarerequiredtobereportedaspartofthegross
incomeofthecorporationsubjecttotheregularcorporateincometax.
71Sec.28(A)(7),supra.
72Sec.28(B),supra.
70

Page 41
41

incomeofanonresidentforeigncorporationsubjecttotheregular
corporateincometaxongrossamountthereof,exceptthefollowing:
Incomefromforeigncurrencytransactionswithdepositorybanks
undertheexpandedforeigncurrencydepositsystemandOffshore
BankingUnitsexempt.
InterestonforeignloanscontractedonorafterAugust1,1986
20%finalwithholdingtaxongrossamount.
Intercorporatedividends15%ontheamountofcashand/or
propertydividends.
Capitalgainsfromsaleofsharesofstocknottradedinthestock
exchangesametreatmentaswithDomesticCorporation.
73

c.MinimumCorporateIncomeTax(MCIT)
74

AMinimumCorporateIncomeTax(MCIT)attwopercent(2%)ofthegross
incomeofdomesticandresidentforeigncorporationsisimposedbeginningonthefourth
taxableyearimmediatelyfollowingtheyearinwhichsaidcorporationscommencedtheir
businessoperations.TheMCITispayableonlywhentheminimumincometaxexceeds
theregularcorporateincometax.
AnyexcessoftheMCITovertheregularcorporateincometaxisallowedtobe
carriedforwardandcreditedagainsttheregularincometaxpayablebysubject
corporationsforthree(3)immediatelysucceedingtaxableyears.
d.ImproperlyAccumulatedEarningsTax
75

(1)InadditiontotheothertaxesimposedbytheNIRC,animproperly
accumulatedearningstaxequaltotenpercent(10%)isimposedonthe
improperlyaccumulatedtaxableincomeofeverycorporation(except
publiclyheldcorporations,banksandothernonbankfinancial

intermediaries,andinsurancecompanies)formedoravailedforthe
purposeofavoidingtheincometaxwithrespecttoitsshareholdersorthe
shareholdersofanyothercorporation,bypermittingitsearningsand
profitstoaccumulateinsteadofbeingdividedordistributed.

Providedthatthecountryinwhichthenonresidentforeigncorporationisdomiciledshallallow
ataxcreditagainstthetaxduefromthenonresidentforeigncorporationtaxesdeemedtohavebeenpaidin
thePhilippinesequivalentto17%.
74Sec.27(E)andSec.28(A)(2),supra.
75Sec.29,supra.
73

Page 42
42

(2)Thetermimproperlyaccumulatedtaxableincomemeansthetaxable
incomeadjustedbyincomeexemptfromtax,incomeexcludedfromgross
income,incomesubjecttofinaltax,andtheamountofnetoperatingloss
carryoverdeductedandreducedbythesumofdividendsactuallyor
constructivelypaidandincometaxpaidforthetaxableyear.
e.WithholdingTaxatSource
Subjecttoawithholdingtaxsystemarethefollowingcorporateincomesatthe
indicatedrates:
Table6.SUMMARYOFWITHHOLDINGTAXRATES
76

TypeofIncome
Domestic
Corporation
Resident
Foreign
Corporation
Nonresident
Foreign
Corporation
77

Dividendsfromadomestic
corporation

30%final,but
15%creditable
underatax
sparingprovision
Royalties
20%final
20%final
30%final
InterestonPhilippinecurrency
bankdepositsanddeposit
substitutes
20%final
20%final
30%final
Interestfromadepositorybank
undertheExpandedForeign
CurrencyDepositSystem
7.5%final
7.5%final

Gainsfromsaleofsharesofstock
5%10%
final
5%10%
final
5%10%
final
Gainsfromsaleoflandsand/or
buildings
6%final

Otherfixedordeterminablegains,
profitandincome

30%final
ThewithholdingtaxratesarethoseprovidedunderRRNo.298,asamended.
30%beginningJanuary1,2009,pursuanttoRA9337.

76
77

Page 43
43

Grossincomefromcontractsby
subcontractorsfromservice
contractorsengagedin
petroleumoperations
8%
8%

Professionalfees,talentfees,etc.,
forservicesoftaxablejuridical
persons
15%creditable
ifthegross
incomeforthe
currentyear
exceeds
P720,000;and
10%if
otherwise
15%creditable
ifthegross
incomeforthe
currentyear
exceeds
P720,000;and
10%if
otherwise

Grossrentalsfortheuseofreal
propertyusedinbusiness,poles,
satellitesandtransmission
facilities,andspacesusedin
postingadvertisementsinthe
formofbillboards
5%creditable5%creditable

Grossrentalsinexcessof
P10,000fortheuseofpersonal

propertyusedinbusiness78
5%creditable5%creditable
Grosspaymentstocorporate
cinematographicfilmowners,
lessorsordistributors
5%creditable5%creditable

Incomepaymentsmadetogeneral
engineering,building,and
specialtycontractors(when
taxableasacorporation)
2%creditable2%creditable

Onehalf(1/2)ofthegross
amountpaidbycreditcard
companiestoanybusinessentity
representingthesalesof
goods/servicestocardholders
1%creditable1%creditable

Paymentsmadebythe
governmenttoitslocal/resident
supplierofgoodsand
local/residentsupplierofservices
otherthanthosecoveredbyother
1%creditable
tosupplierof
goods;
2%creditableto
supplierof
1%creditable
tosupplierof
goods;
2%creditableto
supplierof

TheP10,000.00thresholdshallnotapplywhentheaccumulatedgrossrentalpaidbythelessee
tothesamelessorexceedsorisreasonablyexpectedtoexceedP10,000.00withintheyear.Inwhichcase,
thelesseeshallwithholdthefivepercent(5%)withholdingtaxontheentireamount.
78

Page 44
44

ratesofwithholdingtax(except
anysinglepurchaseofP10,000
andbelow)
services
services
Incomepaymentsmadebytop
twentythousandcorporations
andgovernmenttolocal
suppliersofgoodsandservices
(exceptsinglepurchaseof
P10,000orlessbygovernment)
1%creditable
tosupplierof
goods;
2%creditableto
supplierof
services
1%creditable
tosupplierof
goods;
2%creditableto
supplierof
services

Commissionsofindependentand
exclusivedistributors
10%creditable10%creditable

Tollingfeespaidtorefineries
5%creditable5%creditable

Paymentsmadetoembalmersfor
servicesrenderedtofuneral
companies
1%creditable
1%creditable

Paymentsmadebypreneed
companytofuneralparlors
1%creditable
1%creditable

Paymentsmadetosuppliersof
agriculturalproducts
1%creditable
1%creditable

Incomepaymentsonpurchasesof
minerals,mineralproducts,and
quarryresources
10%creditable10%creditable

MERALCOPaymentson:
a.MERALCORefundarising
fromSupremeCourtCase
GRNo.14814
b.Interestincomeonthe
refundofmeterdeposits
25%
creditablefor
customers
withactive
contract;32%
forcustomers
with
terminated
contract
10%
creditable;and
20%ifnon
residential
customers
withmonthly
electricity

25%
creditablefor
customers
withactive
contract;32%
forcustomers
with
terminated
contract
10%
creditable;
and20%if
non
residential
customers
withmonthly
Page 45
45

consumption
ofmorethan
200kwh
electricity
consumption
ofmorethan
200kwh
4.FilingofReturnsandPaymentofTax
a.Corporationsrequiredtofilereturns
Everycorporation,whetherdomesticorforeign,exceptnonresidentforeign
corporationsnotengagedintradeorbusinessinthePhilippines,isrequiredtofile
corporatereturns.Thereturnsshallbefiledbythepresident,vicepresidentorother
principalofficer,andshallbesworntobysuchofficerandbythetreasurerorassistant
treasurer.
79

b.Forms
AnnualIncomeTaxReturnforCorporationsandpartnerships1702
QuarterlyIncomeTaxReturnforCorporationsandPartnerships1702Q
ImproperlyAccumulatedEarningsTaxReturn
1704
AccountInformationForm
1702AIF
c.PlaceofFiling
80

CorporatereturnsshallbefiledwiththeCommissionerofInternalRevenue,
AAB,RevenueDistrictOfficer,CollectionAgentordulyauthorizedTreasurerofthecity
ormunicipalityinwhichtheprincipalofficeofthecorporationislocatedorwhereits
booksofaccountsandotherdatafromwhichthereturnispreparedarekept.
d.TimeofFiling
81

Corporationsareallowedtofilereturnseitheronacalendaryearbasisorfiscal
yearbasis,andarerequiredtofilereturnsforeachquarterofthetaxableyearona
cumulativebasis,asfollows:
(1)Forthefirst,second,andthirdquarterswithinsixtydaysfromthecloseof
thequarter;and
Sec.52,supra.
Sec.77(A),supra.
81Sec.75,supra.
79
80

Page 46
46

(2)Forthelastquarteronorbeforethe15thdayofApriloronorbeforethe
15thdayofthe4thmonthfollowingthecloseofthetaxableyear.
e.PaymentofTax
Sameasthemannerofpaymentofindividualincometax.
f.EfilingandPaymentSystem
Corporations,bothlargeandnonlarge,havetheoptiontoavailoftheEFPSin
filingtheirannualincometaxreturnsandpayingthetaxesduethereon.Corporations
whichintendtoefiletheirincometaxreturnandpayelectronicallytheirincometax
liabilitymustregisterwiththeIntegratedTaxSystem(ITS)andmusthaveanemail
accountandInternetaccess.Corporationswhichefiletheirreturnsmaypaytheirtax

liabilitieseitherelectronically(epay)ormanually.
Largecorporationswhichopttoepaytheirduemustdosothroughany
AuthorizedAgentBank(AAB)accreditedbytheBIRwhichareepaymentcapable.On
theotherhand,nonlargecorporationscanpaythroughtheinternetbankingfacilitiesof
anyAAB,regardlessofwhethersuchAABiswithintheterritorialjurisdictionornotof
theRDOwherethecorporationisregistered.
g.Penalties
SamepenaltiesunderIndividualIncomeTax.Inaddition,theCorporationshall
payafineofnotlessthanP50,000butnotmorethanP100,000.
82

C.TREATMENTOFFRINGEBENEFITS
83

1.
Afinaltaxofthirtytwopercent(32%)isimposedonthegrossedup
monetaryvalueoffringebenefitsfurnishedorgrantedtotheemployee(except
rankandfileemployees)bytheemployer,whetheranindividualoracorporation
(unlessthefringebenefitisrequiredbythenatureof,ornecessarytothetrade,
businessorprofessionoftheemployer,orwhenthefringebenefitisforthe
convenienceoradvantageoftheemployer).
Sec.256,supra.
Sec.33,supra.Thetaxonfringebenefitispayablebytheemployerandshallbesubjectto
finalwithholdingtax.
82
83

Page 47
47

AsimplementedbyRevenueRegulation398,asamended,fringebenefits
grantedtoindividualtaxpayerswhoareenjoyingpreferentialtaxtreatmentare
alsosubjecttotheFBTatthefollowingrates:(1)nonresidentalienindividuals
notengagedintradeorbusinessinthePhilippines25%;(2)aliensemployedby
regionalorareaheadquartersorbyregionaloperatingheadquartersofa
multinationalcompany,offshorebankingunits,foreignservicecontractororsub
contractor15%;(3)fringebenefitsgrantedtoemployeesinspecialeconomic
zones32%,25%or15%,asthecasemaybe.
84

2.Fringebenefitisanygood,serviceorotherbenefitfurnishedorgrantedincashor
inkindbyanemployer,whetheranindividualoracorporation,toanindividual

employee(exceptrankandfileemployees)suchas,butnotlimitedto,the
following:
a.housing;
b.expenseaccount;
c.vehicleofanykind;
d.householdpersonnel,suchasmaids,driversandothers;
e.interestonloansatlessthanmarketratetotheextentofthedifference
betweenthemarketrateandtheactualrategranted;
f.membershipfees,duesandotherexpensesbornebytheemployerforthe
employeeinsocialandathleticclubsorothersimilarorganizations;
g.expensesforforeigntravel;
h.holidayandvacationexpenses;
i.educationalassistancetotheemployeeorhisdependents;and
j.lifeorhealthinsuranceandothernonlifeinsurancepremiumsorsimilar
amountinexcessofwhatthelawallows.
Toarriveatthegrossedupmonetaryvalueofthefringebenefitgrantedtononresidentalien
individualsnotengagedintradeorbusinessinthePhilippines,dividethemonetaryvalueofthefringe
benefitbyseventyfivepercent(75%).Inthecaseoffringebenefitsgrantedtoaliensemployedbyregional
orareaheadquartersorregionaloperatingheadquartersofmultinationalcompany,offshorebankingunits,
andforeignservicecontractorandsubcontractor,dividethemonetaryvalueofthefringebenefitbyeighty
fivepercent(85%).
84

Page 48
48

3.Nontaxablefringebenefits:
a.fringebenefitswhichareauthorizedandexemptedfromtaxunderspecial
laws;
b.contributionsoftheemployerforthebenefitoftheemployeetoretirement,
insuranceandhospitalizationbenefitplans;
c.benefitsgiventotherankandfileemployees,whethergrantedundera
collectivebargainingagreementornot;
d.deminimisbenefits.
4.Valuationoffringebenefits:
UnlessotherwiseprovidedinRevenueRegulationsNo.398,taxablefringe
benefitsshallbevaluedasfollows:
a.Ifthefringebenefitisgrantedinmoney,orisdirectlypaidforbythe

employer,thenthevalueistheamountgrantedorpaidfor.
b.Ifthefringebenefitisgrantedorfurnishedbytheemployerinpropertyother
thanmoneyandownershipistransferredtotheemployee,thenthevalueof
thefringebenefitshallbeequaltothefairmarketvalueofthepropertyas
determinedinaccordancewithSec.6(E)oftheCode(Authorityofthe
CommissionertoPrescribeRealPropertyValues).
c.Ifthefringebenefitisgrantedorfurnishedbytheemployerinpropertyother
thanmoneybutownershipisnottransferredtotheemployee,thevalueofthe
fringebenefitisequaltothedepreciationvalueoftheproperty.