INCOME TAX

Friday, 6 September 2019 8:37 PM

CHAPTER II - TAX ON INDIVIDUALS

SECTION SUBJECT SUBSECTIONS

24 INCOME TAX RATES A. IT of RC, NRC and RA
1. Sources
a. RC (in & out)
b. NRC (in)
c. RA (in)
2. Rates on TI of Individuals
a. Tax Schedule (20%-3
◊ Husband and Wif
▪ Separate
▪ But if cant d
EQUALLY
◊ Minimum Wage E
▪ Exempt fro
▪ As well as o
b. Purely Self-Employed
▪ GR; or
▪ 8% OSD ie of 250

c. Mixed Earners
i. Income from Com
▪ GR
ii. Income from BPP
a) GSGR/NOI N
▪ GR; or
▪ 8% OSD ie o
b) GSGR/NOI E
▪ GR

B. TR on Certain Passive Income

1. Interest, Royalties, Prizes a
◊ 20% FT
 RC Resident Citizen
NRC Non Resident Citizen
RA Resident Alien
35%) TI taxable income
fe
I/P Individual/Professional
determine if exclusive income, DIVIDE NE/E Does not exceed/exceeding
3M 3 Million VAT Threshold
Earners
om tax GR Graduated Rate
other benefits (HP, OT, ND, HzP) OSD
d I/P NE 3M
PT Percentage Tax
0k + PT BPP Business or Practice of Profe
GSGR/NOI Gross Sales or Gross Receip
mpensation Other Non-Operating Incom
FT Final Tax
P; either
FIT Final income tax
NE 3M
EFCDS Expanded Foreign Currency
of 250k + PT Deposit System
E 3M AJV Association, Joint Account, J
Venture or Consortium
NTSE Not traded in the Stock Exch
and Other Winnings NCG Net Capital Gains
GSP Gross Selling Price
g

ession
pts and
me

Joint

hange
 b) GSGR/NOI E
▪ GR

B. TR on Certain Passive Income

1. Interest, Royalties, Prizes a
◊ 20% FT
§ Interest from cur
§ Royalties
→ XPN: 10% F
- on bo
§ Prizes
→ XPN: subjec
- 10k o
§ Other Winnings
→ XPN: Exemp
- 10k o
◊ 15% FIT
§ Interest Income b
◊ Exempt
§ Long term depos
→ XPN: If pre-
- 5%: 4
- 12%:
- 20%:

2. Cash and/or Property Divi

◊ 10% FT
§ Actually or const
- Domestic C
Co., ROH of
net income

C. CG from Sale of SS NTSE

◊ 15% FT
▪ NCG from sale of SS
→ XPN: those traded

D. CG from Sale of RP
1. General Rule
◊ 6% FT
▪ On GSP or FMV; w
▪ Classified as Capi
other forms of co
◊ Sale to the Govt or agen
▪ Gains determined
 E 3M AJV Association, Joint Account, J
Venture or Consortium
NTSE Not traded in the Stock Exch
and Other Winnings NCG Net Capital Gains
rrency bank deposits/substitutes GSP Gross Selling Price
FMV Fair Market Value
FT
TP Taxpayer
ooks, literary works, musical composition
NPR New principal Residence
ct to GR
or less

pt
or less from PCSO

by RC/RA from depository bank under EFCDS

sit or investment
-terminated before 5th yr; FT of
4 to 5 yrs
: 3-4 yrs
: less than 3 yrs

idends

tructively received by an Individual from

Corp, Joint Stock Co., Insurance or Mutual Fund
f multinational Co., share from distributable
e, share on AJV

d in SE

whichever is higher
ital Assets, including pacto de retro sales,
onditional sales, estate and trust.
ncies
d under either: S24 or here, at the option of TP
Joint

hange
 ◊ 6% FT
▪ On GSP or FMV; w
▪ Classified as Capi
other forms of co
◊ Sale to the Govt or agen
▪ Gains determined
2. Exception
◊ Exempt: Sale of Princip
▪ Proceeds within 1
construction or a
▪ PROVIDED:
- Historical c
NPR
- Commission
statement c
- Availed of o
- Unutilized P
GSP/F

25 TAX ON NRA A. ETB

1. General Rule
◊ taxed in the same man
◊ Deemed NRA doing bus
§ Shall come and st

2. Cash and/or Property Divi

◊ 20% IT on total Amoun
§ Cash and/or Prop
§ Interest
§ Royalties in any f
→ XPN: 10% F
- Books
§ Prizes
→ XPN: subjec
- 10k o
§ Other Winnings
→ XPN: Exemp
- 10k o
◊ 25% T
§ Cinematographic
◊ Exempt
§ Long term depos
whichever is higher
ital Assets, including pacto de retro sales,
onditional sales, estate and trust.
ncies
d under either: S24 or here, at the option of TP

pal Residence
18 months from sale, fully utilized in the
acquisition of new principal residence

cost or adjusted basis be carried over to the

ner be notified within 30 days from sale; with

containing intention to avail tax exemption
only once (1) every 10 years
Proceeds subject to CG
FMV x UA = Taxable Portion
G/M

ETB Engaged in Trade or B

AIE Alien Individual Emplo
nner as RC/RA (in only)
siness in the Philippines RAHQ Regional or Area Head
tay for 180 days during a calendar year ROHQ Regional Operating He
MC Multinational Compan
idends from a DC etc
DC etc Domestic Corp, Joint S
nt Insurance or Mutual F
perty Dividends from DC etc ROH of multinational C
from distributable net
form? share on AJV
FT
NRAETB Non-resident alien doi
s, Literary Works, Musical Compositions business in the Philipp

ct to GR Salaries etc Salaries, wages, annui

compensation, remun
or less
other emoluments, ho
allowances
pt
or less from PCSO OBU Offshore Banking Unit
PSCS Petroleum Service Con
c films and similar works Subcontractor
PTT Preferential Tax Treat
sit or investment GPP General Professional
Business
oyed
dquarters
eadquarters
nies
Stock Co.,
Fund Co.,
Co., share
t income,

ing
pines
ities,
neration and
onoraria and

ts
ntractor and

tment
 → XPN: Exemp
- 10k o
◊ 25% T
§ Cinematographic
◊ Exempt
§ Long term depos
→ XPN: If pre-
- 5%: 4
- 12%:
- 20%:

3. CG
◊ SS
§ 15% FT
▪ NCG from s
→ XPN:

◊ RP
§ 6% FT
▪ On GSP or F
▪ Classified a
other forms
§ Sale to the Govt o
▪ Gains deter
of TP

B. NETB
◊ 25% of total income
▪ Interest, cash and/or p
premiums, annuities, c
other fixed or determin
profits, and income and
◊ 15% FT
▪ NCG from sale of SS
→ XPN: those traded
◊ 6% FT
▪ On GSP or FMV of RP; w
▪ Classified as Capital As
forms of conditional sa
▪ Sale to the Govt or agen
→ Gains determined

C. AIE by RAHQ/ROHQ of MC
◊ 15% GI
 pt
or less from PCSO OBU Offshore Banking Unit
PSCS Petroleum Service Con
c films and similar works Subcontractor
PTT Preferential Tax Treat
sit or investment GPP General Professional
-terminated before 5th yr; FT of Partnerships
4 to 5 yrs
: 3-4 yrs
: less than 3 yrs

sale of SS
those traded in SE

FMV; whichever is higher

as Capital Assets, including pacto de retro sales,
s of conditional sales, estate and trust.
or agencies
rmined under either: S24 or here, at the option

property dividends, rent, salaries, wages,

compensation, remuneration, emoluments, or
nable annual or periodic or casual gains,
d capital gains

d in SS

whichever is higher
ssets, including pacto de retro sales, other
ales, estate and trust.
ncies
d under either: S24 or here, at the option of TP
ts
ntractor and

tment
 forms of conditional sa
▪ Sale to the Govt or agen
→ Gains determined

C. AIE by RAHQ/ROHQ of MC
◊ 15% GI
▪ Salaries etc
◊ Provided:
▪ Same treatment shall a
same posts

D. AIE by OBU
◊ 15% GI
▪ Salaries etc
◊ Provided:
▪ Same treatment shall a
same posts

E. AIE by Petroleum Service Contra

◊ 15% GI
▪ Salaries etc
◊ Provided:
▪ Same treatment shall a
same posts

F. Preferential Tax Treatment PTT

◊ Not applicable to those regis
▪ ROHQ/RHQ
▪ OBU
▪ PSCS
◊ Provided:
▪ These 3 presently avail
▪ Shall continue to be en
qualified employees

26 TAX LIABILITY OF ◊ GPP

MEMBERS OF GPP ▪ Not subject to taxes here
▪ But be personally liable for in
capacities
◊ Compute Distributive Share of each
▪ Net income computed same a
◊ Each partner shall report
▪ As gross income his distribut

27 TAX ON DOMESTIC A. Rate for DC

ales, estate and trust.
ncies
d under either: S24 or here, at the option of TP

apply to Filipinos employed and occupying

apply to Filipinos employed and occupying

actor and Subcon

apply to Filipinos employed and occupying

T
stered in SEC

ling the PTT

ntitled to the same, for present and future

ncome tax only in their separate and individual

h partner
as that of a corporation

tive share actually or constructively received

 ◊ Compute Distributive Share of each
▪ Net income computed same a
◊ Each partner shall report
▪ As gross income his distribut

27 TAX ON DOMESTIC A. Rate for DC

CORPORATION - Corporations organized in, o
◊ 30% IT
◊ Fiscal- year accounting perio
▪ Income and expenses d
for each month
#M x TI
12
◊ 15% GI Gross Income Tax Op
▪ Conditions:
1. Ratio 20% of GNP
2. Ratio of 40% inco
3. VAT ratio 4% of G
4. 0.9% ratio to Con
◊ Option only available to firm
◊ Election of GITO irrevocable
◊ GI - GSGR less SRDA and COG
▪ COGS - all expenses dir
bring them to their pre
◊ For trading purposes
▪ GI - Invoice of COGS + i
◊ Manufacturing
▪ COGS - all costs of prod
manufacturing overhea
◊ Sale of Service
▪ GI - GSGR less SRDA
B. Proprietary Educational Institut
◊ 10% TI
→ XPN: Passive Income n
▪ Provided:
→ If UTBA exceeds 5
→ 30% be applied t
◊ UTBA
▪ Any TBA, the conduct o
exercise or performanc
◊ PEI
▪ Any private school mai
individuals or group w
CHED or TESDA
 h partner
as that of a corporation

tive share actually or constructively received

or existing under the laws of the Phil. GITO Gross Income Tax Option
SRDA Sales return, discounts and allo
od
deemed to have been earned and spent equally COGS Cost of goods sold
UTBA Unrelated Trade, business or o
activity
TBA Trade, business or other activit
ption
PEIH Proprietary Educational Institu
P Hospital
ome tax collection to total tax revenues
GOCC A I Government-owned or Contro
GNP
Corporation, Agencies or
nsolidated Sector Financial Position to GNP
Instrumentalities
ms whose ratio of COGS to GSGR NE 55%
for 3 years PI Passive Income
GS II Interest Income
rectly incurred to produce the merchandise to
esent location and use LCB Local Commercial Banks
MCIT Minimum Corporate Income T
import, freight, and insurance
SOF Secretary of Finance
duction (raw material used, direct labor,
ad, freight insurance and others)

tion and Hospitals (PEIH)

not covered

50% of total GI
to the entire TI

of which is not substantially related to the

ce of its primary purpose or function

intained and administered by private

with an issued permit to operate from DECS,
owances

other

ty
utions and

olled

Tax
 exercise or performanc
◊ PEI
▪ Any private school mai
individuals or group w
CHED or TESDA

C. GOCC A I
◊ Rate same as tax imposed on
in similar business, industry
→ XPN:
- Unless contrary i
- Certain GOCCs ex
1. GSIS
2. SSS
3. PhilHealth
4. Local Wate
D. Certain PI
1. Interest and Royalties
◊ 20% FT
▪ Received by DC
◊ 15% FIT
▪ II from depositor
2. CG on SS NTSE
◊ 15% NCG
→ XPN:
- Those SS so
3. EFCDS
◊ Exempt
▪ Income from For
RESIDENTS, OBU
→ XPN:
- Net income
payable by
- 10% FT on
RESIDENTS
the EFCDS
▪ Exempt
- Any Income
under EFCD
4. Intercorporate Dividends
◊ Not subject to tax
▪ Dividends receive
5. CG from Sale of RP
◊ 6% FT
▪ Gains from dispo
▪ Based on GSP or F
 ce of its primary purpose or function

intained and administered by private

with an issued permit to operate from DECS,

n TI by this Section upon Corp, Assoc engaged

or activity

is specified in special or general laws

xempt

er Districts

ry bank under EFCDS

old through SE

reign Currency transaction with NON-

U, LCB and Foreign Banks

e from such transactions subject to regular IT

banks
II from foreign currency loans granted to
S by depository banks other than banks under

e of Non-residents from depository banks

DS

ed by a DC from another DC

osition of RP treated as Capital Assets

FMV, whichever is higher
 ◊ Not subject to tax
▪ Dividends receive
5. CG from Sale of RP
◊ 6% FT
▪ Gains from dispo
▪ Based on GSP or F

E. MCIT on DC
1. Tax
◊ 2% GI
▪ When MCIT is gre
▪ From 4th year im
commencement o
2. Carry Forward of Excess Min
◊ Excess of MCIT over th
◊ Carried forward and cr
years
3. Relief from MCIT
◊ SOF authorized to susp
▪ If Corp suffers los
- Prolonged l
- Force majeu
- Legitimate
4. GI defined
◊ Same same from subse

28 TAX ON FOREIGN A. Rate for RFC

CORPORATION 1. RFC
- Corporation organized
foreign country, engage
◊ 30% IT
◊ Same as DC
▪ Fiscal- year accou
▪ 15% GI Gross Inc
2. MCIT
- Same as that of DC

3. International Carrier
◊ 2 1/2 of Gross Philippin
a. GPB: Internationa
▪ Gross reven
baggage, ca
▪ Irrespective
▪ Still include
- Ticke
 ed by a DC from another DC

osition of RP treated as Capital Assets

FMV, whichever is higher

eater than computed 30% TI

mmediately following the year of
of business operations
nimum Tax
he normal IT (MCIT - 30% of TI)
redited against the normal IT for the next 3

pend MCIT
sses
labor disputes
ure
business reverses

ection A hereof

RFC Resident Foreign Corporation

d, authorized, or existing under the laws of any GPB Gross Philippine Billings
ed in trade or business within the Phil NETB Not engaged in trade of business
FWT Final Withholding Tax
unting period C/P Cash and/or Property
come Tax Option

ne Billings
al Air Carrier
nue derived from carriage of person, excess
argo and mail originating from the Phil.
e of place of sale, payment or issue
ed:
ets revalidated, exchanged or indorsed to
 a. GPB: Internationa
▪ Gross reven
baggage, ca
▪ Irrespective
▪ Still include
- Ticke
anoth
a plan
- Flight
happe
ticket
b. GPB: Internationa
▪ Gross reven
from the Ph
payment

4. OBU
◊ Exempt
§ Income by OBU fr
RESIDENTS
→ XPN: net inc
regular IT
◊ 10% FT
§ II of OBU from Fo
◊ Exempt
§ Any income of no

5. Branch Profits Remittance

◊ 15% of total profit from
◊ Not treated as branch p
§ Interest, etc recei
→ XPN: if the s
conduct of i
6. RAHQ/ROHQ
a. RAHQ
◊ Not subject to inc
b. ROHQ
◊ 10% TI
7. Certain Income
a. Interest and Royalties
◊ 20% FIT
◊ 7 1/2% FIT
▪ II received b
b. EFCDS
◊ Exempt
 al Air Carrier
nue derived from carriage of person, excess
argo and mail originating from the Phil.
e of place of sale, payment or issue
ed:
ets revalidated, exchanged or indorsed to
her international airline; if passenger boards in
ne in a port or point in the Phil
t originate in the Phil, but transshipment
ens elsewhere; ONLY aliquot of portion of the
t corresponding to the leg flown
al Shipping
nue from passenger, cargo or mail originating
hilippines, regardless of place of sale or

rom foreign currency transactions with NON-

come from such transactions, subject to

oreign currency loans granted to residents

on-residents from transactions with said OBU

es
m remittance without deductions
profit
ived by a foreign corporation
same are effectively connected with the
its trade and business in the Philippines

come tax

by FC from depository under EFCDS

 a. Interest and Royalties
◊ 20% FIT
◊ 7 1/2% FIT
▪ II received b
b. EFCDS
◊ Exempt
▪ Income der
under EFCD
→ XPN: n
regula
◊ 10% FT
▪ II of OBU fr
residents

c. CG from Sale of SS NT
◊ 5% - not over 100
▪ NCG from s
d. Intercorporate Divide
◊ Not Subject to Ta
▪ Dividends r

B. Rate for NRFC

1. NRFC
- NETB in the Phil
◊ 30% GI
▪ Interest etc.
2. NR Cinematographic Film Ow
◊ 25% GI

3. NR Vessel Chartered by Phili

◊ 4 1/2% Gross rentals, l

4. NR Aircraft, Machineries and

◊ 7 1/2% Gross rentals a

5. Certain Income
a. Interest on Foreign Loa
◊ 20% FWT
b. Intercorporate Dividen
◊ 15% FWT
▪ C/P Dividen

c. CG from Sale of SS NTS

◊ 5% - not over 100
▪ NCG from s
 s

by FC from depository under EFCDS

rived by Depository Bank from transactions

DS with non-residents etc
net income from such transactions, subject to
ar IT

rom Foreign currency loans granted to

TSE
0k; 10% in excess of 100k
sale or disposition of SS NTSE
ends
ax
received by RFC from DC

wner, Lessor or Distributor

ippine Nationals
lease or charter fees

d Other Equipment
and fees

ans

nds

nds received from DC

SE
0k; 10% in excess of 100k
sale or disposition of SS NTSE
 ▪ C/P Dividen

c. CG from Sale of SS NTS

◊ 5% - not over 100
▪ NCG from s

29 IMPOSITION OF A. IAET
IMPROPERLY ◊ 10% IATI
ACCUMULATED B. Corporations Subject to IAET
EARNINGS TAX 1. General Rule
◊ Apply to every compan
avoiding the income ta
◊ By permitting earnings
divided or distributed
2. Exception
◊ same does not apply to
a. Publicly-held cor
b. Banks and other
c. Insurance compa

C. Evidence of Purpose to Avoid In

1. Prima Facie Evidence
◊ Corporation a mere ho

2. Evidence Determinative of
◊ Earnings permitted to a
the business
→ XPN: if company

D. Improperly Accumulated Taxab

◊ IATI means taxable income a
a. Income exempt from ta
b. Income excluded from
c. Income subject to final
d. Amount of net operatin
◊ Reduced by sum of:
nds received from DC

SE
0k; 10% in excess of 100k
sale or disposition of SS NTSE

IAET Improperly Accumulated Earning

IATI Improperly Accumulated Taxable
ny formed or availed for the purpose of
ax with respect to its SH or SH of other Corp
s and profits accumulate instead of being

o:
rporation
non-bank financial intermediaries
anies

ncome Tax

olding or investment company

f Purpose
accumulate beyond the reasonable needs of

can prove by clear preponderance of evidence

ble Income
adjusted by:
ax
gross income
l tax
ng loss carry-over deducted
gs Tax
e Income
 ◊ IATI means taxable income a
a. Income exempt from ta
b. Income excluded from
c. Income subject to final
d. Amount of net operatin
◊ Reduced by sum of:
a. Dividend actually or co
b. Income tax paid for the
◊ Adoption of fiscal period rule

E. Reasonable Needs of Business

◊ Includes the reasonably antic

30 EXEMPTIONS FROM TAX ◊ Organizations not subject to tax:

ON CORP. a. Labor Organizations not orga
b. Mutual Savings Bank
c. Beneficiary Society/Non-Prof
d. Cemetery Company for exclu
e. Non-Stock Corporation Religi
f. Business league chamber of c
g. Civic league or organization
h. NS/NP educational institution
i. Government Educational Inst
j. Farmer's or other mutual typ
k. Farmers' , fruit growers' asso
adjusted by:
ax
gross income
l tax
ng loss carry-over deducted

onstructively paid
e taxable year
e applies

cipated needs of the business

:
anized for profit

fit organized by Employees

usive benefit of its members
ious, Charitable, Scientific, Athletic, or cultural
commerce

n
titution
phoon insurance companies
ociations operated as a sales agent