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TAXATION 1

Income Tax of Individuals

1. Individual Taxpayers defined


Individual taxpayers are natural person with income derived within the territorial
jurisdiction of a taxing authority.

2. Classification of Individual Taxpayers


Classification Of Definition
Individual Classification of Definition TAXABLE
Taxpayers Citizen INCOME
1. CITIZENS A Filipino citizen is a. RESIDENT A Filipino citizen who Income
he who : CITIZENS(RC) stayed permanently in derived
Born (by birth) the Philippines or within and
with father stayed outside the without
and/or mother as Philippines for less the
Filipino citizens than 183 days during Philippines.
Born before the taxable year.
January 17, 1973 b. NONRESIDENT A Filipino citizen who Income
of Filipino mother CITIZEN stayed outside the derived
who elects (NRC) Philippines for 183 within the
Philippine days or more during Philippines.
citizenship upon the taxable year and
reaching the age has established proof
of majority to the BIR
Acquired Commissioner of his
Philippine definite intention to
citizenship after reside outside the
birth (naturalized) Philippines on a
in accordance permanent basis as an
with the employee or an
Philippine Laws. immigrant.
Classification of Definition
A foreign-born Aliens
2. ALIENS person who is 1. Resident Alien Persons who are not Income
not qualified to (RA) citizens of the derived
acquire Philippines but are within the
Philippine residing within the Philippines
citizenship by Philippines including
birth or after foreign individuals
birth. who have stayed in
the Philippines for
more than one year
from date of arrival.
2. Nonresident Foreign individuals Income
Alien (NRA) whose residence are derived
not within the without
Philippines and are the
classified as : Philippines
-Engaged in trade or
business (NRAETB)
- Not engaged in trade
business (NRANETB)
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3. SPECIAL Are those alien individuals or Filipino citizens who are taxed with a fifteen
TAXPAYERS percent (15%) tax rate based on their gross compensation income, when the
following conditions are met:
1. They are employed occupying managerial and or technical positions with
regional area or requirements of multinational corporations, petroleum
service contractor and subcontractors or off shore banking units.
2. If the special taxpayer is an alien, all of his gross compensation income
received is subject to 15% final tax.
3. If the taxpayer is a Filipino citizen, he has the option to be taxed at 15%
final tax based on his gross compensation income received or at regular
income tax rate based on the net taxable income of his gross annual
taxable compensation is at least P975, 000 (whether or not actually
received)

3. Exercise:
1. A British computer expert was hired by a Philippine corporation to assist in its computer
system installation for which he had to stay in the Philippines for 6 months. Is he a
resident alien?
2. A British cultural performer was engaged to perform in the Philippines for two weeks
after which he returned to his country. Is he a resident alien?
3. An alien owns shares of stock in the Philippines. Is he engaged in business or trade in the
Philippines?
4. An alien temporarily serves as executive manager of an airline in Manila. Is he
considered engaged in trade or business in the Philippines?
5. A resident alien left the Philippines and abandoned his residency thereof without any
intention of returning. May he still be considered a resident alien?
6. A resident alien left the Philippines with a re-entry permit, Is he still a resident alien?
7. A nonresident citizen went to Manila under the Balikbayan Program. Does his return to
Manila interrupt his residence abroad?

4. Classification of Taxes on Individuals


(A) Normal (Tabular) graduated tax
(B) Passive income tax; and
(C) Capital gains tax

5. (A) Normal (Tabular) Tax


The tax rate to be used in computing income tax due of an individual taxpayer is the
normal graduated tax rates as provided in the Section 24(A) of the NIRC.
Individual taxpayers taxable income subject to normal (tabular) tax is on income
derived from compensation, business and profession.
It may include capital gains and passive income not subjected to final taxes.

Computation:
Gross Income (subject to normal tax)xx
Less: Basic Personal Exemption (xx)
Additional Exemption (xx) (xx)
Taxable Income xx
Multiply: Applicable Rate (Graduated Tax Table) %
Normal Tax Due xx
Less: Tax withheld xx
Normal Tax Payable xx
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6. Passive Income Tax


This is the tax to passive income.
The law subjects passive income to passive income tax.
This is a final tax.

Computation
Gross Income (subject to passive tax passive income) xx
Multiply: Applicable Rate __%
Passive Income Tax Due xx

7. Capital Gains Tax


Taxes imposed on sales or exchanges of capital asset.
This is a final tax

8. NORMAL TAX vs. FINAL TAX


Subject to NORMAL TAX
(A)
Is YES Report in year-end
taxable income Tax Return (ITR)
income
subject
to final
tax? NO No need to report in
the year-end ITR

*Income Tax Return (ITR) is a formal statement of the taxpayers taxable income and
deductions, reported in the BIR prescribed form, to be filed and paid quarterly.

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