Income Taxation Reviewer (CHAPTER 2)
INCOME TAXES FOR INDIVIDUALS
Individual Taxpayers – natural persons with income
derived from within the territorial jurisdiction of the
taxing authority.
Classification of Individual Taxpayer
 Resident Citizen (RC)
 Non-resident Citizen (NRC)
 Resident Alien (RA)
 Non-Resident Alien (NRA)
o NRA Engaged in Trade/Business (ETB)
o NRA Not Engaged in Trade/Business
(NETB)
Classification of Taxpayers
Resident Citizen – a Filipino citizen residing within the
Philippines
Section I, Article III of Philippine Constitution
A Filipino Citizen is a natural person who is/has:
1. Born (by birth) with father and/or mother as
Filipino citizens
2. Born before January 17, 1973 of Filipino mother
who elects Philippine citizenship upon reaching
age of majority
a. The 1973 Constitution gives different
meaning of “citizens”
b. The 1973 Constitution favor men over
women therefore a child born by a
Filipino mother and a father of different
race must elect citizenship upon
reaching age of majority.
3. Acquired Philippine citizenship after birth
(naturalized) in accordance with Philippine
Laws
Non-Resident Citizens
1. Definite Intention to reside abroad
2. Leaves the Philippines during taxable year to
reside abroad as:
a. An Immigrant
b. For employment on permanent basis
c. Derives income from abroad and
employment requires physical
appearance abroad during taxable year
3. A Filipino citizen who shall have stayed outside
the Philippine for 183 days or more
aggregately.
a. Meaning that the days a person stay
outside the Philippines is aggregated.
4. A non-resident citizen coming back to
Philippines for good at any time of the taxable
year shall only be considered non-resident on
the taxable year wherein his/her income is
derived from abroad until his arrival on the
Philippines.
a. This means that non-resident lang ang
isang tao dun sa part ng taxable year na
kumikita pa siya sa ibang bansa.
b. Example: Mr. A arrived in the
Philippines on July 01, 2018 for good
i. January-June 2018 – Non-
resident
ii. July 01, 2018 onwards –
resident
c. The same principle applies for those
who decided to migrate abroad for
good anytime of the taxable year.
5. OFW’s are considered as non-resident
Resident Alien
It is an individual who resides within the Philippines, but
is not considered as a citizen.
If an alien actually present in the Philippines are not
mere “transients”, he/she is considered as a resident
alien
If the intention to stay of an alien in the Philippines is
clear or not clear, he/she is considered a resident alien.
Non-resident Alien – ETB
If aggregated residence is equivalent to 180 or more
days AND the intention not to stay is definite, but has
an intention to earn by running a business in the
Philippines, then he/she is considered as NRA-ETB.
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 Income Taxation Reviewer (CHAPTER 2)
*FIRST LOOK ON THE INTENTION TO EARN AND NOT TO Sources of Income
STAY BEFORE LOOKING ON THE AGGREGATED STAY IN
TAXPAYER TAX BASE SOURCE OF TAXABLE
THE PHIL.*
INCOME
Non-Resident Alien – NETB RC NET INCOME Within & Without Phil.
NRC, NRA- Within Philippines
NRA-NETB is subject to a consistent 25% tax rate to NET INCOME
ETB Only
gross income from all sources within the premises of NRA-NETB GROSS INCOME Within Phil. Only
the Philippines.
As discussed, OFW’s income from abroad are exempted
HAS NO INTENTION TO EARN, BUT EARNED ANYWAYS, to income tax, However, OFW’s income from
THESE EARNINGS WILL BE SUBJECT TO 25% TAX BASED Philippines through an existing business venture is
ON GROSS. subject to income tax in Philippines.

SUMMATIVE EXAMPLE:
TAXPAYER
Business Income Philippines Php 5,000,000
Business Income Thailand Php 7,500,000
CITIZENS ALIENS Business Expenses Philippines Php 2,100,000
Business Expenses Thailand Php 3,400,000

Resident Citizen:
NON- NON-
RESIDENT RESIDENT Taxable Income = 5M+7.5M-2.1M-3.4M = 7,000,000
RESIDENT RESIDENT

INTENTION INTENTION Non-resident Citizen:

NOT TO TO STAY Taxable income = 5M-2.1M = 2,900,000
STAY CLEAR CLEAR/NOT
CLEAR Resident Alien:
Taxable income = 5M-2.1M = 2,900,000

ETB NETB Non-Resident Alien ETB

Taxable income = 5M-2.1M = 2,900,000
INTENTION NOT INTENTION NOT
TO STAY CLEAR TO STAY CLEAR Non-Resident Alien NETB
INTENTION TO NO INTENTION
TO EARN
Taxable income = 5,000,000
EARN BY
OWNING ALL
BUSINESS IS UNINTENTIONAL A Filipino citizen with duly processed papers in POEA
CLEAR GROSS INCOME headed Qatar last May 01, 2019
SUBJECT TO 25%
Business Income January – April Php 400,000
Business Income May – December Php 350,000
Applicable Taxes and Tax Rates Business Expenses January – April Php 210,000
Classification of Taxpayers Business Expenses May – December Php 140,000
NOTE: OFW’s are considered as non-resident citizens
Taxpayers classified as NRA-NETB are taxed 25% based
on their gross income, while other classifications of Taxable Income: 400,000 – 210,000 = 190,000
taxpayers are taxed based on their net income.
Types of Income
Some of these taxpayers may be taxed on their income
within or outside the Philippines and some may be For purposes of income taxation there are three types
taxed on their income only within the Philippines of income subject to income tax.

KIRA
 Income Taxation Reviewer (CHAPTER 2)
1. Ordinary/Regular Income – these incomes are IF PURELY SEP
taxed based on the graduated tax rates. Such
- These are taxpayers that are either Self-
incomes includes: compensation income,
Employed or earning Professional Income
business income, income from practice of
profession, income from sale of property and 250K < Gross Receipts <3M 8% in excess of 250,000
miscellaneous income. Further, passive income 3M< Gross Receipts Basic tax / Graduated Tax
other than those that are subject to final
withholding tax are also considered as ordinary
IF MIXED INCOME EARNER
income.
- These are taxpayers that are employed at the
2. Passive Income – these are income sourced same time earns Professional/Business Income
within the Philippines that are subject to final
withholding tax and tax rates for such income COMPENSATION 250K < Gross Gross Receipts
+
are enumerated under Section 24(B) of the Tax INCOME Receipt < 3M < 3M
Code Basic Basic Tax OR Basic
+
Tax/Graduated 8% on Gross Tax/Graduated
3. Capital gains subject to CGT – these are income Tax Receipts Tax
that arises from sale of capital assets that are NOTE: The problem must say if the taxpayer elected the
subject to capital gains tax 8% option if the problem becomes silent assumed that
a. Capital gains from sale of shares of it is based on basic tax rates.
stocks of a domestic corporation that is NOTE: The election of 8% must be made on the 1st
not traded in local stock exchange Quarter otherwise income will be taxed based on
b. Capital gains from sales of real property graduated tax/basic tax rates
that is inside the Philippines.
EXAMPLE:
GRADUATED TAX % for ORDINARY INCOME
INCOME TAX% Mr. A is classified as purely Self-employed taxpayer
Not over 250,000 Exempt earning solely on his business. The following is the list of
250,000< X <400,000 20% in excess of 250,000 his quarterly gross income and expenses.
30,000 + 25% in excess of
400,000< X <800,000 QUARTERLY INCOME QUARTERLY EXPENSES
400,000
1,000,000 320,000
130,000 + 30% in excess of
800,000< X <2M 500,000 125,000
800,000
1,000,000 350,000
2M< X <8M 490,000 + 32% in excess of 2M
800,000 375,000
2,410,000 + 35% in excess of
8M < X 3,300,000 1,170,000
8M
NOTE: THE PROBLEM IS SILENT THEREFORE ASSUME THAT INCOME
WILL BE BASED ON INCOME TAX
Self-employed / Professionals (SEP)
TAXABLE INCOME = 3,300,000 – 1,170,000 = 2,130,000
Upon the effectivity of TRAIN Law, self-employed or
professionals may choose to elect that their Total Income Tax Payable = 490,000 + ((2.13M –
ordinary/regular income may be taxed based on 8% of 2M)(32%)) = 531,600
gross receipts (GROSS SALES not gross income) if their
income is higher than Php 250,000 but not greater than WHAT IF: Mr. A elected 8% on the 1ST Quarter of the
3,000,000 in every taxable year. Taxable year

TAXABLE INCOME = 3,300,000

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 Income Taxation Reviewer (CHAPTER 2)
Tax Payable = [490k + ((3.3M – 2M)(32%))] – OTHER WINNINGS
[(1M+0.5M+1M)(8%)] = 706,000 REGARDLESS OF
20% 20% 25%
nd
AMOUNT
2 Version 8%: If the given values are accumulating LOTTO WINNINGS
QUARTERLY INCOME QUARTERLY EXPENSES X <= 10,000 - - 25%
1,000,000 320,000 X > 10,000 20% - 25%
1,500,000 445,000 CASH/PROPERTY
10% 20% 25%
DIVIDENDS
2,500,000 795,000
3,300,000 1,170,000
NOTE: THAT THE 4TH QUARTER IS THE TOTAL ALREADY
Passive income are subject to Final Withholding Tax,
Tax Payable per quarter: thus it is not included in the computation for the
income tax payable of an individual.
1st Quarter = 1,000,000 x 8% = 80,000
These taxes from the aforementioned passive incomes
2nd Quarter = 1,500,000 x 8% = 120,000 are analogous as an advance tax payment of an
120,000 – 80,000 = 40,000 individual because it is the bank, publishing, PCSO or etc
that would remit these taxes to BIR not the individual.
3rd Quarter = 2,500,000 x 8% = 200,000
EXAMPLE:
200,000 – 80,000 – 40,000 = 80,000
or 200,000 – 120,000 = 80,000 ABROAD PHILIPPINES
Interest Income from
4th Quarter = [490k + ((3.3M – 2M)(32%))] – 200,000 1,000 2,000
personal loans
Interest Income from
= 706,000 3,500 3,000
bank deposits
PASSIVE INCOME WITHIN PHILIPPINES Interest Income from
11,000 10,000
RC & NRA- NRA- FCDU bank
NRC ETB NETB Interest Income from
INTEREST INCOME Pre-terminated Long -
- 5,000
From: term deposit held for
Bank Deposits; any 4.5 years out of 8yrs
20% 20% 25% Int. Income from a 6
currency 7,0000 9,000
Deposit substitutes 20% 20% 25% year Time deposit
Trust Funds 20% 20% 25% Royalty income 9,500 10,500
Depository Banks under RC = Raffle draw winning 5,000 9,500
- - Dividend income 2,000 10,200
FCDU/FCDS 15%
NOTE: PASSIVE INCOME subject to Final Withholding are those
Long Term Deposits - - -
income that only came from Philippines
(above 5yrs) Interest Income from personal loans is subject to basic tax
PRETERMINATED because wala naming intermediary na siya na mismo magbibigay
4 yrs to less than 5yrs 5% 5% 25% ng income tax other than yourself.
3 yrs to less than 4yrs 12% 12% 25%
Less than 3yrs 20% 20% 25% RC
ROYALTIES Passive Income Tax Payable (FWT) =
In General 20% 20% 25%
(3,000 + 10,500 + 9,500)20% = 4,600
on Books, literary works
10% 10% 25% (10,000)(15%) = 1,500
and compositions
(5,000)(5%) = 250
PRIZES
(10,200)(10%) = 1,020 TOTAL: 7,370
More than 10,000 20% 20% 25%
Less than 10,000 - - -
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 Income Taxation Reviewer (CHAPTER 2)
NRC CAPITAL GAINS TAX
ORDINARY
CAPITAL ASSETS
ASSETS
(3,000 + 10,500 + 9,500)20% = 4,600 SHARES OF OTHER
(5,000)(5%) = 250 REAL P.
STOCKS ASSETS
(10,200)(10%) = 1,020 TOTAL: 5,870 6% of 15% of
Selling Capital gain
NRA-ETB
Price or from sale of
(3,000 + 10,500 + 9,500 + 10,200)20% = 6,640 Fair MV shares of
(5,000)(5%) = 250 TOTAL: 6,890 (whichever stock by a
is higher) closely held
corporation
Maybe
Deposit Substitutes – alternative form of obtaining
exempt if if sales of
funds from public, other than deposits, through the BASIC TAX sale of stock that is BASIC
issuance, endorsements, or acceptance of debt principal publicly TAX
instruments for the purpose of re-lending or purchasing residence listed/traded
receivables or other obligations or financing their own it is not CGT
needs. 6% or but Stock
basic tax if Transaction
Long-term deposits – deposits or investments in the it is sold to Tax
form of savings with maturity value of not less than 5 gov’t
years. Basic tax is
Basic tax if shares of a
 Requisites for Tax Exemption
situated foreign
o The depositor is a RC, NRC, RA, NRA-ETB
abroad corporation
o Deposit must be under the name of a NOTE: The Fair MV includes the FMV given by the City/Municipal
“natural person” or Provincial Assessors AND the Zonal Value given by CIR
o Deposits/Investments must be in the If both given, whichever is higher will be used.
form of savings, individual trust funds, Capital Assets vs Ordinary Assets
deposit substitutes, investments
management accounts or other Capital Assets – these are assets that are not intended
investments evidenced by certs to be sold, for a business, these assets are not used in
prescribed by BSP trade or ordinary course of business. (BASTA HINDI
o Deposits must be issued by a BANK GINAGAMIT FOR BUSINESS PURPOSES)
o Not less than 5yrs maturity
Ordinary Assets – assets that are being used for
o In denominations of 10,000 and other
business purposes.
denominations prescribed by BSP
o Must be terminated or held by the Tax Exemption for Sale of Principal Residence
depositor for not less than 5yrs
Requisites:
o Gains from trading, foreign exchange is
not covered by the exemption. - Proceeds must be “fully utilized” in acquiring or
 Non-resident foreign corporations’ interest constructing new principal home
income from long-term deposit is subject to o If not fully utilized, the unutilized part
30% Final Withholding Tax (FWT) would be subject to CGTax. The formula
for the taxable amount is as follows
READ INFORMER’S REWARD on page 85-86
Taxable Amount = (Unutilized/Gross

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 Income Taxation Reviewer (CHAPTER 2)
Selling Price) x (Gross Selling Price or Creditable Withholding Tax – nileless sa income tax
FMValue whichever is higher) payable/tax due of an individual.
- Historical Cost of the sold property will be
Purchase/Payment CWT
carried over to new principal residence
Professional Fees
- BIR must be duly notified for tax exemption
Individual Payee
within 30 days after sale of property
- Gross income <= 3M 5%
- Can only be availed once in every 10 years. - Gross income > 3M 10
EXAMPLE: Non-individual Payee
- Gross income <= 720k 10%
The table below shows the summary of Mr. A’s sale of - Gross income > 720k 15%
properties Rentals 5%
Goods 1%
1.Sale of Shares of No. of Stocks – 1,000 Services 2%
Stock from a closely Acquisition Value – 100/stock Income payments to beneficiaries of trusts 15%
held Corporation Selling Price – 130/stock Income payments to partners of GPP’s
2.Sale from Shares of No. of Stocks – 1,200 - Gross income <= 720k 10%
Stock from a Acquisition Value – 50/stock - Gross income > 720k 15%
Corporation listed on Selling Price – 70/stock Income made by Credit Card Companies 1%
SEC
3.Sale of land used in Acquired @ – 1,000,000
the operations of the Selling Price – 1,650,000 Income Tax Due of Married Taxpayers
business abroad Market Value – 1,500,000
Zonal Value – 1,300,000 - Income Tax shall be computed separately
4.Sale of a house Acquired @ – 2,000,000 provided that the income exclusive earned by
located at Pasig City Selling Price – 2,550,000 either of the couple
deemed as capital Market Value – 2,800,000 - If in any case an income is attributed to both,
asset Zonal Value – 2,700,000 the income is divided equally between the
5.Sales of a house Acquired @ – 3,000,000 spouses.
deemed as ordinary Selling Price – 3,250,000
asset (Meaning it is Market Value – 3,500,000 Minimum Wage Earners (MWE)
the principal Zonal Value – 3,300,000
Taxpayer Income Tax CWT
residence)
Purely MWE EXEMPT EXEMPT
Additional Information:
MWE w/additional EXEMPT EXEMPT
a. The proceeds from sale of principal residence were benefits exceeding 90k
not fully utilized only 2,000,000 MWE w/business Wage = Exempt W= Ex
What is the CGT of Mr. A? income (B.I.) B.I = Basic Tax B.I= CWT
1.) [(1000 Stocks x 130) – (1000 x 100)] x 15% =
4,500 Payment
4.) (2,800,000 x 6%) = 168,000 Under RA 10963 (TRAIN Law), when tax due exceed
5.) [(3,250,000-2,000,000)/3,250,000)] x 3,500,000 2,000 the taxpayer my elect to pay tax in 2 equal
= 1,346,154* installments: (1) at the time of filing at BIR, (2) on or
1,346,154 x 6% = 80, 769 TOTAL: 253,269 before October 15 of the same year.
Final Tax vs Creditable Tax Quarterly Payments
Final Withholding Taxes – basta ito yung mga passive
income within the Philippines subject to tax that are Income Tax Returns from income derived from business
under Section 24B of the Tax Code. Hindi kasama or and/or profession are required to be filed on a quarterly
nileless sa income tax payable/tax due of an individual basis.
KIRA