INCOME TAXATION

FOR INDIVIDUALS
Concepts, Principles & Applications

based on Simplified Income Taxation by Gloria and Pantaleon

CONTENTS
• Brief Definition of Individual Taxpayers
• Classification of Individual Taxpayers
• Types of Income Tax
• Types of Incomes Subject to Income Tax
INDIVIDUAL TAXPAYERS

Individual Taxpayers are natural persons with income derived from within
the territorial jurisdiction of a taxing authority.

Under RA 8424, otherwise known as the National Internal Revenue Code

(NIRC), also known as Tax Code, as amended, individual taxpayers are classified.
CLASSIFICATION
OF INDIVIDUAL
TAXPAYERS
CLASSIFICATION OF INDIVIDUAL TAXPAYERS

1. Resident Citizen (RC)

2. Nonresident Citizen (NRC)
3. Resident Aliens (RA)
4. Nonresident Aliens (NRA)
● Engage in Trade (NRAET)
● Nonresident Aliens Not Engage in Trade or Business (NRANET)
● Alien Individuals employed by POGOs and/or OGLs
CITIZEN

Under Sec. 1, Article IV of the Philippine Constitution, the following are citizens of the
Philippines:

1. Those who are citizens of the Philippines at the time of the adoption of the 1987
Philippine Constitution.
2. Those whose fathers or mothers are citizens of the Philippines.
3. Those born before January 17, 1973 of Filipino mothers, who elect Philippine
citizenship upon reaching the age of majority.
4. Those who are naturalized in accordance with law.
NONRESIDENT CITIZEN OF THE PHILIPPINES

Sec. 22(E) of the NIRC describes a nonresident as a citizen who:

1. Establishes, to the satisfaction of the Commissioner of Internal Revenue, the fact of his physical
presence abroad with a definite intention to reside therein.

2. Leaves the Philippines during the taxable year to reside abroad.

○ As an immigrant; or
○ For employment on a permanent basis; or
○ For work and derives income from abroad and whose employment thereat requires him
to physically abroad most of the time during the taxable year.

3. A citizen of the Philippines who shall have stayed outside the Philippines for one hundred eighty-
three days (183) or more by the end of the year (aggregate).
NONRESIDENT CITIZEN OF THE PHILIPPINES

A non-resident citizen who arrives in the Philippines at any time during the taxable year to
reside permanently in the Philippines shall be considered a nonresident citizen for the taxable year in
which he arrives in the Philippines with respect to income derived from sources abroad until the date
of his arrival in the Philippines [Section 22 (E)(4) NIRC].

ILLUSTRATION 1:
Pedro, an OFW, returned in the Philippines for good on
May 2021. He shall be classified for 2021 taxable year as
follows:

January to April 2021- nonresident citizen

From May 2021 onwards- resident citizen
NONRESIDENT CITIZEN OF THE PHILIPPINES

The same rule shall apply to a resident citizen who leaves the Philippines anytime
during the for the following reasons:

• As an immigrant abroad; or
• For employment abroad on a permanent basis.

ILLUSTRATION 2:
Ana, a resident citizen, left the Philippines on July 1, 2021 to
reside permanently in U.S. together with he family. She shall be
classified for 2021 taxable year as follows:

January to June 2021- resident citizen

From July 2021 onwards- nonresident citizen
NONRESIDENT CITIZEN OF THE PHILIPPINES

OVERSEAS CONTRACT WORKERS (OCW) / OVERSEAS FILIPINO WORKERS (OFW)

• OCWs are defined by Revenue Regulation 1-2011 as Filipino citizens employed in foreign
countries, commonly referred to as OFWs, who are physically present in a foreign country as a
consequence of their employment thereat.

• To be considered as an OCW or OFW, they must be duly registered as such with the Philippine
Overseas Employment Administration (POEA) with a valid Overseas Employment Certificate
(OEC). For Seafarers or seamen, with additional requirement of Seafarers Identification Record
Book (SIRB) or Seaman's Book issued by the Maritime Industry Authority (MARINA).

• For income taxation purposes, OCWs/OFWs are classified as nonresident citizens.

RESIDENT CITIZEN OF THE PHILIPPINES

A Filipino citizen taxpayer not classified as a nonresident citizen is considered a

resident citizen for tax purposes.

ILLUSTRATION 3:
Allan is a natural born Filipino citizen. His family migrated in U.S.
fifteen (15) years ago. For personal reasons, he decided to return and
reside permanently in the Philippines on March 1, 2022.

From Jan. to Feb. 2022: Allan is classified as nonresident citizen (NRC)

From March 2022 onwards: Allan is classified as resident citizen (RC)
ALIEN

An alien is a foreign-born person who is not qualified to acquire

Philippine citizenship by birth or after birth.

RESIDENT ALIEN

Resident Alien is an individual whose residence is within the Philippines and who is not a citizen
thereof. Aliens who are actually present in the Philippines and who are not mere transients or
sojourners. An alien who lives in the Philippines with no definite intention as to his stay is also a
resident alien.

ILLUSTRATION 4:
G.I. Joe is an American information technology expert. He was signed by Doon Telecom,
a local telecommunication company, from January to March of 2022 to improve its
wireless services. Due to the anticipated entry of competitors from other countries, Doon
Telecom decided to extend indefinitely the services of G.I. Joe.

 He is a resident alien
An alien who comes to the Philippines for the purpose that requires extended stay for
its accomplishment, so he makes his home temporarily in the Philippines, is a resident
alien, regardless of his intention to return to his residence abroad.
NONRESIDENT ALIEN

Nonresident Alien is an individual whose residence is not in the

Philippines and who is not a citizen thereof. They are aliens who come to the
Philippines for a definite purpose, which in its nature may be promptly
accomplished. They are aliens who are mere transients or nonresidents.
NONRESIDENT ALIEN ENGAGED IN TRADE OR BUSINESS

Nonresident Alien Engaged in Trade or Business is an alien who stayed in the Philippines for
an aggregate period of more than 180 days during the taxable year and/or aliens who have business
income in the Philippines.

ILLUSTRATION 5:
Mika “The Iceman” Immonen, a Finnish cue artist and former world billiard
champion is a resident of Finland. He won the world 9-ball championship in 2005 in
the Philippines He is also the owner of one of the disco pubs in Malate since then.

 He is a NRA-ETB
He is engaged in actual conduct of trade or business in the Philippines but is
nonresident.
NONRESIDENT ALIEN NOT ENGAGED IN TRADE OR BUSINESS

Nonresident Alien Not Engaged in Trade or Business is an alien who stayed in the Philippines
for only 180 days or less, or he is not deriving business income in the Philippines..

ILLUSTRATION 6:
Greg Popovich, head coach of the San Antonio Spurs in the NBA is
in the Philippines for a month-long NBA promotional tour. He also
expressed his intention to regularly visit the Philippines.

 He is a NRA-NETB
IMPORTANCE/REASONS FOR CLASSIFICATION:

• Situs of Income

• Manner of Computing Tax

• Treatment of Passive Incomes

• Allowable Deductions

• References in the Tax Code

 Applicable Income
Taxes and Tax Rates
TYPES OF INCOME TAX

1. Basic Income Tax or Regular Tax

2. Final Withholding Tax (FWT) on certain passive incomes

3. Capital Gain Tax (CGT)

TYPES OF INCOME TAX

The applicable taxes for individuals depend on several factors such as but not limited to:
• Classification of the taxpayer
• Source of Income
• Type of Income

Table 1-1
Tax Payer Tax Base Source of Taxable Income
RC Net Income Within and Without
NRC, RA, NRA-ETB Net Income Within only
NRA-NETB Gross Income Within only
TYPES OF INCOME TAX

ILLUSTRATION 7:
Use the following data for cases A-E:
An individual taxpayer provided the following information for 2022:

Gross business income, Philippines 5,000,000

Gross business income, Canada 2,000,000
Gross business income, Singapore 1,000,000
Business expenses, Philippines 3,000,000
Business expenses, Canada 1,000,000
Business expenses, Singapore 500,000
TYPES OF INCOME TAX

Determine the taxable income assuming:

Case A: The taxpayer is a resident citizen
Answer: P3,500,000

Gross business income, Philippines 5,000,000

Gross business income, Canada 2,000,000
Gross business income, Singapore 1,000,000
Business expenses, Philippines (3,000,000)
Business expenses, Canada (1,000,000)
Business expenses, Singapore (500,000)
P3,500,000

• A resident citizen is taxable on income within and without the Philippines.

TYPES OF INCOME TAX

Case B: The taxpayer is a nonresident citizen

Answer: P2,000,000

Gross business income, Philippines 5,000,000

Business expenses, Philippines (3,000,000)
P2,000,000

• A nonresident citizen is taxable on income derived from within Philippine sources only.
TYPES OF INCOME TAX

Case C: The taxpayer is a resident alien

Answer: P2,000,000

Gross business income, Philippines 5,000,000

Business expenses, Philippines (3,000,000)
P2,000,000

• Same solution with Case B. A resident alien is taxable on income derived from Philippine
sources only.
TYPES OF INCOME TAX

Case D: The taxpayer is a nonresident alien engaged in trade or business

Answer: P2,000,000

Gross business income, Philippines 5,000,000

Business expenses, Philippines (3,000,000)
P2,000,000

• Same solution with Case A and B. A nonresident alien engaged in trade or business is taxable
on income derived from within the Philippine sourced only.
TYPES OF INCOME TAX

Case E: The taxpayer is a nonresident alien not engaged in trade or business (assume further
that the data pertaining to gross income is other than business income)
Answer: P5,000,000

• NRA-NETBs are taxable on their “gross income.”

 TYPES OF INCOMES
SUBJECT TO INCOME
TAX
TYPES OF INCOMES SUBJECT TO INCOME TAX

• Ordinary or regular income

• Passive Income derived from Philippine sources

• Capital gains subject to capital gain tax

TYPES OF INCOMES SUBJECT TO INCOME TAX

Ordinary or Regular Income refers to income such as compensation income

(salaries or wages), business income, income from practice of profession, income from
sale and/or dealings or property and miscellaneous income and passive income other
than those subject to final taxes and capital gains tax of the Tax Code, as amended.
TYPES OF INCOMES SUBJECT TO INCOME TAX

Passive Incomes subject to Withholding Taxes (FWT) are certain passive incomes
from sources within the Philippines as enumerated under Sections 24(B) and 25(A)(2) of the
Tax Code, as amended.

Passive Incomes derived from Philippine sources that are subject to final withholding
taxes:
1. Interest Income
2. Dividend Income
3. Royalties
4. Prizes
5. Other Winnings

Exemption: Other passive incomes derived from the Philippines but not in the list, if any, as
well as passive income derived abroad are subject to basic tax.
TYPES OF INCOMES SUBJECT TO INCOME TAX

TABLE 1-2: Passive Incomes derived from Philippine Sources subject to Final Withholding Tax
RECEIVE BY
(1) INTEREST Citizens & Residents NRA-ETB NRA-NETB

A. Interest from any currency bank deposit 20% 20% 25%

B. Yield or any other monetary benefit from 20% 20% 25%
deposit substitutes
C. Yield or any other monetary benefit from trust 20% 20% 25%
funds and similar arrangements
D. Interest incomes received from a depositary 15%
bank under expanded foreign currency deposit
system NRC= Exempt Exempt Exempt

NOTE: Only residents are subject to this type of

tax. Nonresident taxpayers are exempt from tax
on this particular income
TYPES OF INCOMES SUBJECT TO INCOME TAX

E. Interest income from long-term deposit or

investment Exempt Exempt 25%

If pre-terminated before fifth year, a final tax

shall be imposed based on remaining maturity as
follows:
 4 years to less than 5 years 5% 5% 25%
 3 years to less than 4 years 12% 12% 25%
 Less than 3 years 20% 20% 25%

(2) ROYALTIES

A. Royalties, in general (other than royalties 20% 20% 25%

describe din letter “B”)
B. Royalties on books, as well as other literary 10% 10% 25%
works and musical compositions
TYPES OF INCOMES SUBJECT TO INCOME TAX

(3) PRIZES

Prizes exceeding P10,000 20% 20% 25%

NOTE: Prizes ≤ P10,000 are subject to basic tax

except those received by NRAs NETB which
are subject to 25% FWT

(4) OTHER WINNINGS

Under CREATE Act 20% 20% 25%
OTHER WINNINGS Regardless of amount

PCSO Winnings:
 Amount is ≤ P10,000 Exempt Exempt 25%
 Amount is > P10,000 20% 20% 25%
TYPES OF INCOMES SUBJECT TO INCOME TAX

(5) CASH and/or PROPERTY DIVIDEND

A. Cash and/or property dividends 10% 20% 25%
actually/constructively received from a
domestic corp. or from a joint stock company,
insurance or mutual fund companies and ROHQ
of multinational companies

B. Share of an individual in the distributable 10% 20% 25%

net income after tax of a Partnership [Other
than a General Professional Partnership
(GPP)]**
C. Share of an individual in the net income 10% 20% 25%
after tax of an Association, a Joint Account, or a
Joint Venture or Consortium taxable as a
corporation, which he is a member or a co-
venturer.
TYPES OF INCOMES SUBJECT TO INCOME TAX

Incomes from sale of capital assets subject to capital gains tax (CGT):
1.Capital gains from sale of shares of stocks of a domestic corporation not traded in the local stock
exchange [Sec 24(C) NIRC]
2.Capital gains from sale of real property in the Philippines [Section 24(D) NIRC]\

Note: Capital gains not subject to capital gain tax are subject to basic tax.

Summary of INCOME and the Applicable INCOME TAX:

TYPE OF INCOME APPLICABLE TAX
Regular Income Graduated Rate
Regular Income, Phils. Final withholding Tax (FWT)
Capital Gains (subject to CGT) Capital Gains Tax (CGT)
TYPES OF INCOMES SUBJECT TO INCOME TAX

TABLE 1-3: GRADUATED TAX RATE

AMOUNT OF INCOME TAX (2018 TO 2022) TAX (beg. 2023)

Not over P250,000 Exempt Exempt

Over P250,000 but not over 20% of excess over P250,000 15% of excess over P250,000
P400,000
Over P400,000 but not over P30,000 + 25% in excess of P400,000 P22,500 + 20% in excess of P400,000
P800,000
Over P800,000 but not over P130,000 +30% in excess of P800,000 P102,500 + 25% in excess of
P2,000,000 P800,000
Over P2,000,000 but not over P490,000 + 32% in excess of P402, 500 + 30% in excess of
P8,000,000 P2,000,000 P2,000,000
Over P8,000,000 P2,410,000 + 35% in excess of P2,202,500 + 35% in excess of
P8,000,000 P8,000,000
• Provided, that minimum wage earners as defined in Section 22 (HH) of the Tax Code shall be exempt from the payment of income tax on their taxable
income: Provided, further that the holiday pay, overtime pay, nightshift differential and hazard pay received by such minimum wage earners shall
likewise be exempt from income tax.
TYPES OF INCOMES SUBJECT TO INCOME TAX
ILLUSTRATION 8: COMPUTATION OF BASIC INCOME TAX DUE
PURELY COMPENSATION INCOME EARNER (from salaries or wages):
1. Determine the income tax due assuming the “taxable compensation income” for the year is P240,000
 Answer: P0; tax exempt based on graduated tax rate

2. Determine the income due assuming the “taxable compensation income” for the year is P300,000
 Answer: P10,000

Tax on
First P250,000 P0
In excess of P250,000; (P50,000 x 20%) 10,000
Tax Due P10,000
3. Determine the income tax due assuming the “net taxable compensation income” for the year is P1,850,000
 Answer: P445,000

Tax on
First P800,000 P130,000
In excess of P800,000; (P1,050,000 x 30%) 315,000
Tax Due P445,000
TYPES OF INCOMES SUBJECT TO INCOME TAX

SELF-EMPLOYED AND PROFESSIONALS (SEP)

Self-Employed is defined under RA10963 (Train Law) as "a sole proprietor or an

independent contractor who reports income earned from self-employment.
TYPES OF INCOMES SUBJECT TO INCOME TAX

Professionals is defined as a person formally certified by a professional

body belonging to a specific profession by virtue of having completed a required
course of studies and/or practice, whose competence can usually be measured
against an established set of standards. It also refers to a person who engages in
some art or sports for money, as a means of livelihood rather than a hobby.
TYPES OF INCOMES SUBJECT TO INCOME TAX

Requisites to avail the 8% Preferential Tax Rate

1. Gross sales/receipts and other non-operating income does not exceed the
vat threshold of P3,000,000.
2. The SEP shall be non-vat registered.
3. The gross sales/receipts were not derived from vat-exempt sales and
transactions;
4. The SEP is not subject to Percentage Tax other than under Section 116
of the Tax Code, as amended; and
5. The SEP signifies his/her intention to elect 8% income tax.
TYPES OF INCOMES SUBJECT TO INCOME TAX

SEP WITH MIXED INCOME

The taxpayer is considered as a mixed income earner if s/he is deriving

income from both self-employment and compensation income arising from the
presence of employer-employee relationship.
TYPES OF INCOMES SUBJECT TO INCOME TAX
ILLUSTRATION 9:
CASE A: MIXED Income Earner whose gross sales/ receipts and other non-operating income
does not exceed the VAT threshold of P3,000,000
Assume the following data the year:

Compensation Income P900,000

Gross Sales 2,800,000
Cost of Sales (1,500,000)
Operating Expenses (750,000)
Total Taxable Net Income P1,450,000
1) Determine the correct income tax due.
 Answer: P325,000

Tax on
First P800,000 P130,000
In excess of P800,000 income (P1,450,000-P800k x 30%) 195,000
Tax Due P325,000
TYPES OF INCOMES SUBJECT TO INCOME TAX

2) Assume the SEP opted to avail the 8% tax under the TRAIN LAW, determine the income tax
due:
 Answer: P384,000

On his compensation income:

Tax on P130,000
First P800,000 30,000 160,000
In excess of P400,000
On his business income
**(P2.8M x 8%) 224,000
TOTAL Tax Due 384,000
• The 8% tax shall not be applied to compensation income.
• **For mixed income earners, the P250,000 deduction is not allowed
• The P384,000 represents two taxes, income and business taxes
TYPES OF INCOMES SUBJECT TO INCOME TAX

CASE B: MIXED Income Earner whose gross sales/receipts and other non-operating income EXCEEDs
the VAT threshold of P3,000,000
Determine the income tax due assuming the following data:
Compensation Income P900,000
Gross Sales 5,000,000
Cost of Sales (2,250,000)
Operating Expenses (1,250,000)
Total Taxable Net Income P2,400,000
 Answer: 618,000
Tax on
First P2,000,000 P490,000
In excess of P2,000,000 income (P2.4M – P2M x 32%) 128,000
Tax Due P618,000
The VAT is computed as follows:
 VAT= P5,000,000 x 12% = P600,000

The 8% tax in LIEU of the graduated tax rate and Section 116 is not applicable if the gross sales/receipts and other non-operating income exceeds the vat
threshold of P3M.
TYPES OF INCOMES SUBJECT TO INCOME TAX

FINAL WITHHOLDING TAX

Final Withholding Tax is a kind of tax which is prescribed on "certain income" (interest income,
dividends, royalties, prizes, and winnings) derived from Philippine sources and is not credible against the
income tax due of the payee on income subject to regular rates of tax for the taxable year.

Passive Income derived from abroad is subject to basic income tax, therefore, included in the
income tax return of resident citizen taxpayers.
TYPES OF INCOMES SUBJECT TO INCOME TAX

ILLUSTRATION 10:
A resident citizen taxpayer provided the following information :
Gross business income, Philippines P2,000,000
Gross business income, Canada 3,000,000
Business expenses, Philippines 1,400,000
Business expenses, Canada 2,050,000
Interest income, BDO Philippines 100,000
Interest income, BDO in Canada 50,000
Dividend income from a domestic corporation 125,000
Dividend income-resident foreign corporation 75,000
Dividend income-nonresident foreign corporation 102,000
Interest income received from a depository bank under 50,000
TYPES OF INCOMES SUBJECT TO INCOME TAX

FCDS, Philippines
Philippine lotto winnings 10,000
Philippine Charity Sweepstakes winnings 500,000
Singapore Sweepstakes winnings 200,000
Other winnings- Philippines 50,000
Prizes – Robinsons Manila 8,000
Prizes – SM Manila 20,000
Prizes – SM “Shanghai, China” 30,000
TYPES OF INCOMES SUBJECT TO INCOME TAX
Determine the following:
(1) Taxable income
Answer: P2,015,000 computed as follows:
Gross business income, Philippines P2,000,000
Gross business income, Canada 3,000,000
Business expenses, Philippines (1,400,000)
Business expenses, Canada (2,050,000)
Interest income – BD0 in Canada 50,000
Dividend income – resident foreign corporation 75,000
Dividend income – nonresident foreign corporation 102,000
Singapore sweepstakes winnings 200,000
Prizes – Robinsons Manila 8,000
Prizes – SM “Shanghai China” 30,000
Taxable income P2,015,000
TYPES OF INCOMES SUBJECT TO INCOME TAX

(2) The amount of final taxes on “passive income”.

Answer: P154,000 computed as follows:
Interest income – BDO Philippines (20%) P20,000
Dividend income from a domestic corporation (10%) 12,500
Interest income received from FCDU deposit (15%) 7,500
PCSO Winnings (P500,000 x 20%) 100,000
Other winnings – Philippines (P50,000 x 20%) 10,000
Prizes – SM Manila (P20,000 x 20%) 4,000
Total final tax on passive income P154,000
TYPES OF INCOMES SUBJECT TO INCOME TAX

Deposit Substitutes is defined as an alternative form of obtaining funds from the

public other than deposits, through the issuance, endorsement, or acceptance of debt instruments
for the borrower's own account, for the purpose of re-lending or purchasing of receivables and
other obligations, or financing their own needs or the needs of their agent or dealers.
TYPES OF INCOMES SUBJECT TO INCOME TAX

Long-term deposit or Investment certificate refers to certificate of time deposit or

investment in the form of savings, common or individual trust funds, deposit substitutes,
investment management accounts and other investments with a maturity period of not less than
five (5) years, the form of which shall be prescribed by the Bangko Sentral ng Pilipinas (BSP)
and issued by banks only to individuals(should not be under the name of a corporation or a bank
or a trust department of a bank) in denominations of P10,000 and other denominations as
prescribed by BSP (RR 14-2012).
TYPES OF INCOMES SUBJECT TO INCOME TAX

Requisites/Conditions for exemption:

1. The depositor or investor is an individual citizen, a resident alien or nonresident alien
engaged in trade or business in the Philippines.
2. The long-term deposits or investment certificates should be under the name of the
individual and not under the name of the corporation or the bank or the trust department/unit of the
bank.
3. The long-term deposits or investments must be in the form of savings, common or
Individual trust funds, deposit substitutes, Investment management accounts and other investments
evidenced by certificates in such form prescribed by the Bangko Sentral ng Pilipinas (BSP).
4. The long-term deposits or investments must be issued by banks only and not by other
financial institutions.
TYPES OF INCOMES SUBJECT TO INCOME TAX

5. The long-term deposits or investments must have a maturity period of not less than five (5)
years.
6. The long-term deposits or investments must be in denominations of Ten thousand pesos
(P10,000) and other denominations as may be prescribed by the BSP.
7. The long-term deposits or investments should not be terminated by the original investor
before the fifth (5th) year, otherwise they shall be subjected to final tax rates of 5%, 12% or 20% on
interest income earnings.
8. Except those specifically exempted by law or regulations, any other income such as gains
from trading, foreign exchange gain shall not be covered by income tax exemption.
TYPES OF INCOMES SUBJECT TO INCOME TAX

For interest income derived by individuals investing in common or individual trust funds or investment
management accounts to be exempt from income tax, the following additional characteristics/conditions
must ALL be present:

1. The investment of the individual investor in the common or individual trust fund or investment
management account must be actually held/managed by the bank for the named individual for at
least five (5) years without interruption. The tem "bank" referred to herein are banks duly licensed
as such by the Bangko Sentral ng Pilipinas;
TYPES OF INCOMES SUBJECT TO INCOME TAX

2. The underlying investments of the common or individual trust account or investment management
accounts must comply with the requirements of Section 22(FF) of the NIRC of 1997, as amended, as
well as the requirements mentioned above;

3. The common or individual trust account or investment management account must hold on to such
underlying investment in continuous and uninterrupted period for at least five (5) years For
nonresident alien not engaged in trade or business in the Philippines, interest income received from
long-term deposit or investment shall be subject to a Final Withholding Tax at the rate of twenty five
percent (25%).
TYPES OF INCOMES SUBJECT TO INCOME TAX

PRE-TERMINATION OF LONG-TERM DEPOSIT (RR 14-2012)

Interest income from long-term deposit or investment that is pre-terminated by the depositor or
the investor before the 5th year shall be subject to the following graduated rates of final withholding tax
on the entire income and shall be withheld by the depository bank from the proceeds of the long-term
deposit or investment certificate based on the remaining maturity (holding period) thereof as follows:

Four (4) years to less than five (5) years 5%

Three (3) years to less than four (4) years 12%
Less than three (3) years 20%
TYPES OF INCOMES SUBJECT TO INCOME TAX

ILLUSTRATION 10:
(As illustrated under RR 14-2012 and RMC 7-2015)

Case A:
An instrument with a maturity period of ten (10) years was held by Juan (resident citizen) for two
(2) years and was transferred to Smith (resident alien), who, in turn, held it for eight (8) years.
The final withholding taxes are as follows:

Juan 20% final tax

Smith Exempt
TYPES OF INCOMES SUBJECT TO INCOME TAX

Case B:
An instrument with a maturity period of ten (10) years was held by Juan (nonresident citizen) for
three (3) years and transferred it to Smith, resident alien. Smith held it for two (2) years before
subsequently transferring it to Pedro (resident citizen) who held it until the day of maturity or for
a period of five (5) years. The final withholding taxes are as follows:

Juan 12% final tax

Smith 20% final tax
Pedro Exempt
TYPES OF INCOMES SUBJECT TO INCOME TAX

Case C:
An instrument with a maturity period of ten (10) years was held by Smith (nonresident alien
engage in trade or business) for three (3) years and transferred it to Juan, resident citizen. Juan
held it for two (2) years before subsequently transferring it to James (resident alien) who pre-
terminated it after four (4) years. The final withholding taxes are as follows:

Smith 12% final tax

Juan 20% final tax
James 5% final tax
TYPES OF INCOMES SUBJECT TO INCOME TAX

ORDINARY ASSET VS. CAPITAL ASSET

The following are ordinary assets:
1. Stock in trade of the taxpayer or other property of a kind which would properly be included in
the inventory of the taxpayer if on hand at the close of the taxable year.
2. Property used in trade or business subject to depreciation.
3. Real property held by the taxpayer primarily for sale to customers in
the ordinary course of trade or business
4. Real property used in trade or business of the taxpayer.

Gain on sale ordinary assets are commonly known as ordinary or regular income that are subject to
basic income tax or graduated tax rate as provided for under Section 124(A) of the Tax Code.
TYPES OF INCOMES SUBJECT TO INCOME TAX

Capital assets include all other property held by the taxpayer (whether or not
connected with his trade or business) not included in the definition of ordinary assets
above. Generally, assets not used or held for sale in the ordinary course of business (i.e.,
personal assets) are classified as capital assets.
TYPES OF INCOMES SUBJECT TO INCOME TAX

Gains on sale of capital assets are classified as capital gains subject to the following taxes:
1. Capital Gains Tax (CGT) if pertaining to the following:
a) Capital gain on sale of shares of stocks of a closely-held domestic corporation is subject to
a capital gains tax of 15%

REQUISITES:
1. The shares of stock sold, bartered or exchanged must be from a domestic corporation.
2. The transaction must be not through the local stock exchange (the shares are not listed and
traded in the local stock exchange). Hence, the sale is made directly to the buyer.
3. The seller should not be a dealer in securities (the shares are held as capital assets).
4. The transaction should result in a capital gain based on the computation shown below:
TYPES OF INCOMES SUBJECT TO INCOME TAX

TAX BASE:

• Capital gain computed as follows

Selling Price Pxx

Cost (xx)
Capital Gain Pxx
Rate (beg. Jan. 1, 2018) 15%
CGT Pxx
TYPES OF INCOMES SUBJECT TO INCOME TAX

b) Sale of real properties classified as capital assets located in the Philippines is subject to six percent
(6%) capital gains tax (CGT) imposed under Section 124(D) of the Tax Code, as amended.

REQUISITES:
(regardless of whether the transaction resulted to a gain or loss)
● The land and/or building must be a capital asset; and
● It must be located in the Philippines.
TYPES OF INCOMES SUBJECT TO INCOME TAX

FORMULA:

Tax Base (selling price or FMV, whichever is higher) Pxx

Rate 6%
CGT Pxx

TAX BASE:
• Selling price or fair market value (FMV), whichever is higher.

Fair market value (FMV) or real property shall refer to the higher between:
• Fair market value as provided by City or Provincial assessors (also known as assessed value or
FMV for real property tax declaration purposes); and
• Zonal value as provided by the Commissioner of Internal Revenue (CIR)
TYPES OF INCOMES SUBJECT TO INCOME TAX

Sale of Real Property to the Government

If a real property classified as capital asset located in the Philippines is sold to

the government or any of its political subdivisions or agencies or to government owned
or controlled corporations (GOCCs), the individual taxpayer shall have the option to be
taxed at 6% CGT or basic income tax using the graduated tax rate.
TYPES OF INCOMES SUBJECT TO INCOME TAX

2. Percentage tax

Shares of stock sold or disposed of through the local stock exchange exempt from income
tax. It is not subject to capital gains tax but to a Percentage tax of 6/10 of 1% of gross
selling price [also known as Stock Transaction Tax (STT)] imposed under Section 127 of
the Tax Code, as amended. It is a business tax known as Stock Transaction Tax and the
basis is the gross selling price. Stock transaction tax is extensively discussed in a separate
tax subject entitled Transfer and Business Taxation.
TYPES OF INCOMES SUBJECT TO INCOME TAX

ILLUSTRATION 11- CGT ON SALE OF SHARES OF STOCK

Determine the applicable amount of CGT for the following transactions:

(1) George sold 2,000 shares of a domestic corporation in the local stock
exchange at P110 per share. The shares were purchased 3 years ago for P100
per share

Answer: P0. Subject to 6/10 of 1% stock transaction tax, not CGT

TYPES OF INCOMES SUBJECT TO INCOME TAX

(2) George sold 2,000 shares of a domestic corporation directly to a buyer (Clifford) at P180
per share. The shares were acquired six (6) months ago at P105 per share.

Answer: P22,500

Solution:

Selling price (2,000 sh. x P180) P360,000

Cost (2,000 sh. x P105) (210,000)
Capital gain P150,000
CGT rate (TRAIN Law) 15%
CAPITAL GAINS TAX P22,500
TYPES OF INCOMES SUBJECT TO INCOME TAX

ILLUSTRATION 12 – CGT ON SALE OF REAL PROPERTIES

Determine the applicable amount of CGT for the following transactions:

CASE A:
1. Pedro sold of a parcel of land used in his trading business. Selling price was P3,000,000. The property was
acquired five (5) years ago at P1,500,000.
2. Pedro sold a residential lot for P5,000,000. The fair market value of the property was P6,000,000. The
property was acquired three (3) years ago at P4,000,000.

Question 1: How much is the total CGT for the aforementioned real estate transactions?
Answer: P360,000 (P6M x 6%)
Transaction *1* pertains to an ordinary asset, hence not subject to capital gains tax. The difference of
P1.5M (P3M-P1.5M) shall be included in the determination of gross income subject to basic income tax.
TYPES OF INCOMES SUBJECT TO INCOME TAX

Question 2: Assume that the residential lot in transaction *2* was sold at P3,000,000, how much should be the
correct amount of capita; gains tax?
Answer: P360,000 (P6m x 6%)

• Capital gains tax is 6% of the higher amount between selling price and fair market value. Unlike in
capital gains in the case of shares of stock directly sold to a buyer, the capitals gains tax on the sale of a real
property classified as capital asset situated in the Philippines is not dependent on the gain derived from the
transaction. Thus, regardless of gain or loss, the transaction is still subject to 6% capital gains tax unless
exempt under the law.
.
TYPES OF INCOMES SUBJECT TO INCOME TAX

Sale of Principal Residence

Under certain conditions, sale of real property located in the Philippines classified
as principal residence is exempt from capital gains tax.

Principal Residence is the family home of the individual taxpayer. It

refers to the dwelling house, including the land on which it is situated, wherein an
individual including his family resides as a permanent dwelling, or whenever
absent, wherein the said individual intends to return (RR 14-2000).
TYPES OF INCOMES SUBJECT TO INCOME TAX

REQUISITES FOR TAX EXEMPTION

As a rule, sale of principal residence is subject to 6% capital gain tax based on the selling price or fair
market value, whichever is higher, except, when the proceeds are fully utilized in acquiring or constructing a
new principal residence subject to the following conditions:

1. The proceeds is fully utilized in acquiring or constructing a new principal residence within eighteen
(18) calendar months from the date of disposition.

2. The historical cost or adjusted basis of the real property sold or disposed shall be carried over to the
new principal residence built or acquired.

3. The BIR shall have been duly notified by the taxpayer within 30 days from the date of sale or
disposition through a prescribed return of his intention to avail of the tax exemption.

4. The tax exemption can only be availed once every 10 years.

TYPES OF INCOMES SUBJECT TO INCOME TAX

CREDITABLE VS. FINAL TAX

Final Withholding Tax (FWT)

Certain Incomes such as those enumerated under section 24(B) of the Tax Code are subject to final taxes
instead of basic tax or graduated tax rates.

Creditable Withholding Tax (CWT)

Certain regular incomes not subject to final taxes on passive income and capital gains tax are subject to
"creditable" withholding taxes. Creditable withholding tax (CWT) is not an internal revenue tax but a
method of collecting income tax "in advance" from the recipient of income through the payor thereof, which
is constituted by law as the withholding agent of government.
TYPES OF INCOMES SUBJECT TO INCOME TAX

CREDITABLE WITHHOLDING TAX (CWT)

Gross Compensation Income Pxxx

Gross business/professional income xxx
(xxx)
Less: Allowable business/professional expenses
Pxxx
Taxable net income
Pxxx
Income Tax Dues (Graduated tax rate)
LESS:
CREDITABLE WITHHOLDING TAXES:
CWTx on compensation income Pxxx
xxx
CWTx withheld at source
OTHER TAX CREDITs:
xxx
Prior year’s excess credit xxx
Tax payments for the previous quarter(s) xxx _____
Foreign income tax credit Pxxx
Other Tax Payable
TYPES OF INCOMES SUBJECT TO INCOME TAX

QUARTERLY TAX RETURNS

Income tax return for income derived from business and/or practice of profession are required
to be filed on a quarterly and annual basis (regardless of the results of operations) as follows:

1st Quarter May 15

Quarterly 2nd Quarter Aug. 15 (45 days after end of Quarter)
Returns 3rd Quarter Nov. 15 (45 days after end of quarter)
Annual Final adjusted return April 15 of the succeeding year
Return
TYPES OF INCOMES SUBJECT TO INCOME TAX

FORMULA:

Q1 Q2 Q3 Annual
Gross income (cumulative amounts) Pxxx Pxxx Pxxx Pxxx
Business expenses (cumulative amounts) (xxx) (xxx) (xxx) (xxx)
Taxable net income Pxxx Pxxx Pxxx Pxxx

Basic Income Tax Due Pxxx Pxxx Pxxx Pxxx

Less: Creditable withholding taxes:
Prior year’s excess credit (xxx) (xxx) (xxx) (xxx)
Quarterly withholding taxes (xxx) (xxx) (xxx) (xxx)
Quarterly tax payments - (xxx) (xxx) (xxx)
Foreign tax credit (xxx) (xxx) (xxx) (xxx)
Income tax payable Pxxx Pxxx Pxxx Pxxx
TYPES OF INCOMES SUBJECT TO INCOME TAX

INCOME TAX DUE OF MARRIED TAXPAYERS

Under RA 10953, husband and wife, shall compute separately their individual
income tax based on their respective total taxable income: Provided, that if any income
cannot be definitely attributed to or identified as income exclusively earned or realized
by either of the spouses, the same shall be divided equally between the spouses for the
purpose of determining their respective taxable income.
TYPES OF INCOMES SUBJECT TO INCOME TAX

Minimum Wage Earners (MWE)

The term "statutory minimum wage earner (SMW)" or minimum wage earner (MWE)" under
RA 9504 shall refer to a worker in the private sector paid the statutory minimum wage, or to an employee in
the public sector with compensation income of not more than the statutory minimum wage in the non-
agricultural sector where he/she is assigned.

The rate is fixed by the Regional Tripartite Wage and Productivity Board as defined by the Bureau of
Labor and Employment Statistics (BLES) of the Department of Labor and Employment (DOLE). Regional
Tripartite Wage and Productivity Boards (RTWPB) of each region determine the wage rates in the different
regions based on established criteria and shall be the basis of exemption from income tax.
TYPES OF INCOMES SUBJECT TO INCOME TAX

Minimum Wage Earners are exempt from income tax on:

1. Minimum wage
2. Holiday pay
3. Overtime pay
4. Night shift differential
5. Hazard pay
TYPES OF INCOMES SUBJECT TO INCOME TAX

MWE with additional "compensation" income in excess of P90,000

An employee who receives/earns additional "compensation" such as

commissions, honoraria, fringe benefits, benefits in excess of the allowable P90,000 (as
amended), taxable allowances and other taxable income other than the statutory
minimum wage, overtime pay, holiday pay, night shift differential, hazard pay shall still
enjoy the privilege of being a minimum wage earner. The intent of the income tax
exemption of MWEs is to free the low-income earner from the burden of tax, RA. No.
9504. The law exempts from income taxation the most basic compensation an employee
receives - the amount afforded to the lowest paid employees by the mandate of law.
TYPES OF INCOMES SUBJECT TO INCOME TAX

MWE with additional "business" income

Minimum wage earners receiving other income such as income from the
conduct of trade, business or practice of profession, except income subject to final tax, in
addition to compensation income are not exempted from income tax on their entire
income earned during the taxable year. This rule, notwithstanding, statutory minimum
wage, overtime pay, holiday pay, night shift differential, and hazard pay shall still be
exempt from income tax and consequently to withholding tax.
TYPES OF INCOMES SUBJECT TO INCOME TAX

APPLICABLE TAXES OF MWEs

CREDITABLE
TAXPAYERS INCOME TAX
WITHHOLDING TAX
1. Purely MWE Exempt Exempt

2. MWE with additional Still treated as MWE, Still treated as MWE,

“benefits” from the employer hence, exempt hence, exempt
exceeding tax-exempt
threshold such as the
P90,000 limit

3. MWE with additional Min. wage = exempt Min. wage = exempt

“business” income Bus. Income = subject Bus. Income = subject to
to basic tax creditable withholding tax
TYPES OF INCOMES SUBJECT TO INCOME TAX

HAZARD PAY GIVEN TO MINIMUM WAGE EARNERS

Exposure to hazards is compensable for those who work on hazardous

workplaces where an accident could result in serious injury or death, such as a duty
performed on a high structure where protective facilities are not used, or on an open
structure where adverse conditions such as darkness, lightning, fumes/gases, steady rain,
or high wind velocity exist, health-related work that may results to radiation/
contamination/ communicable/ infectious. Exposure to hazards are compensable.
TYPES OF INCOMES SUBJECT TO INCOME TAX

The following are considered "hazardous workplaces"

1. Where the nature of work exposes the workers to dangerous environmental elements,
contaminants or work conditions including ionizing radiation, chemicals, fire, flammable substances,
noxious components and the like;

2. Where the workers are engaged in construction work, logging, fire-fighting, mining, quarrying,
blasting, stevedoring, dock work, deep-sea fishing and mechanized farming:

3. Where the workers are engaged in the manufacture or handling of explosives and other
pyrotechnic products;

4. Where the workers use or are exposed to power driven or explosive powder actuated tools;

5. Where the workers are exposed to biologic agents such as bacteria, fungi, Viruses, protozoa,
nematodes, and other parasites.
TYPES OF INCOMES SUBJECT TO INCOME TAX

Senior Citizens (SCs) and Persons with Disabilities (PWDs)

Senior Citizens and PWDs are subject to income tax the same as an ordinary individual
taxpayer. Citizens and PWDs deriving returnable income during the taxable year are required to file their
income tax return and pay the tax as they file the return. However, if the returnable income of a Senior
Citizen/PWD is in the nature of compensation income and qualifies as a minimum wage earner under RA
No. 9504, he shall be exempt from income tax on the said compensation income. If he earned a gross
income not exceeding P250,000, he shall be exempt from income tax and shall not be required to file
income tax return.
TYPES OF INCOMES SUBJECT TO INCOME TAX

Senior citizen/PWD can still be liable for other taxes such as:

1. The 20% final withholding tax on interest income from any currency bank deposit.

2. The 15% final withholding tax on interest income from a depository bank under the expanded
foreign currency deposit system (Sec. 24(B)(1), Tax Code.

3. Pre-termination of long-term deposit or investment under Section 24(B)(1) of the Tax Code:

Four years to less than five years (5%)

Three years to less than four years (12%)
Less than three years (20%)
TYPES OF INCOMES SUBJECT TO INCOME TAX

4. The 10% final withholding tax:

● On cash and/or property dividends actually or constructively received from a domestic
corporation or from a joint stock company, insurance or mutual fund company and a regional
operating headquarters of a multinational company; or
● On the share of an individual in the distributable net income after tax of a partnership (except a
general professional partnership) of which he is a partner; or
● On the share of an individual in the net income after tax of an association, a joint account, or a
joint venture or consortium taxable as a corporation of which he is a member or a co-venturer (Sec
24(B)(2), Tax Code).
5. The Capital gains tax from sales of shares of stock not traded in stock exchange (Sec. 24(C), Tax
Code); and
TYPES OF INCOMES SUBJECT TO INCOME TAX

6. The 6% final withholding tax on presumed capital gains from sale of real property, classified as
capital asset, except capital gains presumed to have been realized from the sale or disposition of principal
residence (Sec. 24(D), Tax Code).

7. OTHER TAXES. A Senior Citizen/PWD shall also be subject to the following internal revenue taxes,
among others, imposed under the Tax Code:
● Value Added Tax or Other Percentage Taxes. If he is self-employed or engaged in business or
practice of profession, and his gross annual sales and/or receipts exceeds the revised vat threshold of
P3,000,000 or such amount to which this may be adjusted pursuant to Sec. 109(1)(V) of the Tax
Code, he shall be subject to VAT. Otherwise, he shall be subject to Percentage Tax under Section 116
of the Tax Code.
TYPES OF INCOMES SUBJECT TO INCOME TAX

● Donor's Tax on all donations made by a Senior Citizen/PWD during any calendar year, unless
exempt under a specific provision of law.
● Estate Tax. In the event of death, the estate of the Senior Citizen/PWD may also be subject to
the estate tax following the rules enunciated under Title ll of the Tax Code and its implementing
Regulations
● Excise Tax on certain goods
● Documentary Stamp Tax
TYPES OF INCOMES SUBJECT TO INCOME TAX

Benefits for Senior Citizens and/or PWDs

Senior citizens and/or PWDs, as the case may be, under under the law are entitled to the following benefits:
● 20% discount and exemption from VAT on their purchase of specified goods and services
● 5% discount on basic and prime commodities
● P500 monthly social pension, for indigent senior citizens;
● Death benefit assistance;
● 5% discount on utilities; and
● Income tax exemption for minimum wage earners or for senior citizens/PWDs whose annual
taxable income is not more than P250,000
TYPES OF INCOMES SUBJECT TO INCOME TAX

TAXATION OF ALIEN INDIVIDUALS EMPLOYED BY POGOs or OGI

Alien Individuals Employed by an offshore Gaming Licensee and Service Providers -Alien
individuals regardless of residency and who are employed and assigned in the Philippines,
regardless of term and class of working or employment permit or visa, by an offshore gaming
licensee or its service provider as defined in Section 22(11) and Section 27(G) of the Tax Code
as amended.
TYPES OF INCOMES SUBJECT TO INCOME TAX

Applicable Income Tax

TYPES OF INCOME

GROSS INCOME FROM OGL INCOME TAX PER MONTH

Gross income** from OGL 25% FWT or P12,500 per month,
whichever is higher

Income from all other sources within the Subject to pertinent income tax imposed
Philippines under the Tax Code, as amended
TYPES OF INCOMES SUBJECT TO INCOME TAX

Gross Income (whether in cash or in kind):

● Basic salary/wages, annuities, compensation, remuneration and other emoluments,

such as honoraria and allowances, received from such service provider or offshore gaming
licensee.
● OGLs and Service Providers shall submit to the Bureau of Internal Revenue (BIR)
the original copy of notarized contract of employment clearly stating therein the annual
salary and other benefits and entitlements of the concerned alien.
TYPES OF INCOMES SUBJECT TO INCOME TAX
DEFINITION OF TERMS

• PHILIPPINE OFFSHORE GAMING OPERATION (POGO) refers to the operation by an OGL of

online games of chance or sporting events via the internet using a network and software program,
exclusively for offshore customers/players who are non-Filipinos. The term POGO shall also refer to OGLs
and Accredited Services Providers.

• OFFSHORE GAMING LICENSEE (OGL) refers to an offshore gaming operator, whether organized in
the Philippines (Philippine-based) or abroad (Offshore or foreign-based), duly licensed and authorized
through a gaming license issued by a POGO Licensing Authority to conduct offshore gaming operations,
including the acceptance of bets from offshore customers. OGLs are also referred to as Interactive Gaming
Licensee (GL) by other POGO Licensing Authorities. OGLs shall be considered in doing business in the
Philippines.

• ACCREDITED SERVICE PROVIDER refers to a natural person regardless of citizenship

• or residence, or juridical person regardless of place of organization, which provides ancillary services to an
OGL or any other offshore gaming operator with license acquired from other jurisdictions.
TYPES OF INCOMES SUBJECT TO INCOME TAX

SAMPLE ANCILLARY SERVICES (RR 20-2021)

● Customer and technical relations support

● Information technology
● Gaming software
● Data provision
● Payment solutions
● Live studio and streaming services
TYPES OF INCOMES SUBJECT TO INCOME TAX

• POGO Licensing Authority- refers to Philippine Amusement and Gaming Corporation

(PAGCOR or any other special economic zone authority, tourism zone authority or freeport
authorized by their respective charters to issue gaming licenses and accreditation to POGO
entities.

• OGL Gaming Agent Refers to a representative in the Philippines of a foreign-based OGL who
shall act as a resident agent for the mere purpose of receiving summons, notices and other legal
processes for the OGL and to comply with the disclosure requirements of the
TYPES OF INCOMES SUBJECT TO INCOME TAX

FILING OF INCOME TAX RETURNS

BASIC TAX
● FOR PURELY COMPENSATION INCOME EARNERS:
○ Once a year only (unless qualified for substituted filing)
○ On or before April 15 of the following year.
● FOR BUSINESS INCOME EARNERS including income from practice of profession:
The individual taxpayer is required to file quarterly tax return on or before the following dates (regardless of
the results of operations):
1st Quarter — May 15
2nd Quarter — Aug. 15 (45 days after end of Quarter)
3rd Quarter — Nov. 15 (45 days after end of Quarter)
Final adjusted annual return — April 15 of the succeeding year
TYPES OF INCOMES SUBJECT TO INCOME TAX

FINAL WITHHOLDING TAX ON PASSIVE INCOME

PRIOR to 2018
January to November— 10th day of the month following the month the withholding was made
December— January 15 of the succeeding year

Beginning 2018
—For Final and Creditable Withholding taxes, the return shall be filed and paid not later than the last day of
the month following the dose of the taxable quarter during which the withholding was made. The power of
the Secretary of Finance to require withholding agents to pay or deposit taxes deducted or withheld at more
frequent intervals is repealed under RA10963.
TYPES OF INCOMES SUBJECT TO INCOME TAX

CAPITAL GAINS TAX

a) Shares of stock
● Ordinary Return - within 30 days after each transaction
● Final Consolidated Return - on or before April 15 of the following year
b) Real Property - within 30 days following each sale or one disposition.
TYPES OF INCOMES SUBJECT TO INCOME TAX

Manner of Filing

Filing of ITR may be made through:

a) Manual Filing
b) Electronic Filing and Payment System (EFPS)
c) eBIR Forms
TYPES OF INCOMES SUBJECT TO INCOME TAX

Payment
Generally, the income tax payable shall be paid at the time the return is filed (also known as
"Pay as you file system"). However, RA 10963 (TRAIN Law) provides that when the tax due
is in excess of P2,000, the individual taxpayer may elect to pay the tax in two equal
installments as follows:

1st installment: at the time of filing the annual ITR.

2nd installment: on or before October 15 following the close of the calendar year.
TYPES OF INCOMES SUBJECT TO INCOME TAX
ILLUSTRATION 13:
Juan Dela Cruz, a practicing CPA, with four dependent children, provided the following data
for 2018 taxable year; Gross receipts, P10,000,000, direct cost and expenses, P5,000,000,
creditable withholding taxes, P1,250,000. His income tax payable is computed as follows:
Gross receipts P10,000,000
Direct cost and expenses (5,000,000)
Taxable net income P 5,000,000

Income Tax:
1st P2M P 490,000
In excess of P2M @ 32% (P3M x 32%) 960,000
Total Income Tax Due P1,450,000
Less: Creditable withholding taxes (1,250,000)
Income Tax Payable P 200,000
NOTE:
• Juan Dela Cruz is required to file quarterly and annual income tax returns
• The creditable withholding tax is deductible from income the tax due
• He is allowed to pay the income tax payable in two (2) equal annual installments
• In addition to income tax, as a practicing professional, he is also required to pay business tax
TYPES OF INCOMES SUBJECT TO INCOME TAX

Place of Filing Income Tax Return

The income tax return shall be filed and paid with any of the following:
1. Authorized agent banks
2. Revenue District Officer
3. Collection agent
4. Duly authorized city or municipal Treasurer in which the taxpayer has his
legal residence or principal place of business in the Philippines or if there be
legal residence or place of business in the Philippines, with the Office of the
Commissioner of Internal Revenue.
TYPES OF INCOMES SUBJECT TO INCOME TAX

For With Payment Returns

File the return with the Authorized Agent Bank (AAB) of the place where
the taxpayer registered or required to be registered. In places where there are no
AABs, the return shall be filed directly with the Revenue Collecting Officer or duly
Authorized Treasurer of the city or municipality in which such person has hs legal
residence or principal place of business in the Philippines or if there is none, filing
of the retum will be at the Office of the Commissioner.
TYPES OF INCOMES SUBJECT TO INCOME TAX

For "No Payment" Returns (refundable, break-even, exempt and no

operation)

File the return with the concemed Revenue District Office (RDO) where
the taxpayer is registered. However, "no payment" returns filed late shall be
accepted by the RDO but shall be filed with an AAB of Collection
Officer/Deputized Municipal Treasurer (in places where there are no AABs, for
payment of necessary penalties.
TYPES OF INCOMES SUBJECT TO INCOME TAX

Persons Required to file Income Tax Return

1. Individuals engaged in business and/or practice of profession, regardless of the results of

operations.

2. Individuals deriving compensation from two or more employers concurrently or successively at

any time during the taxable year.

3. Employees deriving compensation income, regardless of the amount, whether from a single or
several employers during the calendar year, the income tax of which has not been withheld
correctly (i.e. tax due is not equal to the tax withheld) resulting in collectible or refundable
return.

4. Individuals deriving other non-business, non-profession-related income in addition to

compensation income not otherwise subject to final tax.
TYPES OF INCOMES SUBJECT TO INCOME TAX

5. Individuals receiving purely compensation income from a single employee although the income
tax of which has been correctly withheld, but whose spouse is required to file income tax return.

6. Non-resident alien engaged in trade or business in the Philippines deriving purely compensation
income, or compensation income and other no business, non-profession-related income.
TYPES OF INCOMES SUBJECT TO INCOME TAX

Persons not Required to file Income Tax Return (RR 8-2018)

1. An individual earning purely compensation income whose taxable income does

not exceed P250,000.

2. An individual whose income tax has been correctly withheld by his employer,
provided that such individual has only one employer for the taxable year - the
Certificate of Withholding filed by the respective employers, duly stamped
"Received by the Bureau, shall be tantamount to the substituted filing of income
tax returns by said employees.

3. An individual whose sole income has been subjected to final withholding tax.

4. Minimum wage earners

TYPES OF INCOMES SUBJECT TO INCOME TAX

CERTIFICATE OF WITHHOLDING BY THE EMPLOYER (BIR FORM 2316)

Employers must provide BIR Form 2316 to employees (including minimum wage earners) on
or before January 31 of the calendar year, or if employment is terminated, on the day on which the last
payment of compensation is made. Failure to do so can lead to an audit of payor's income tax liabilities
including withholding tax upon verified complaint of the payee.

The BIR now requires employers to submit the duplicate copy of BIR Form 2316 to the BIR
by February 28 following the close of the calendar year. Failure to do so will result in a penalty of
P1,000 for each failure, or a maximum of P25,000 for all failures during a calendar year. Failure to
comply for two consecutive years, the employer shall be liable in a fine amounting to P10,000 and
imprisonment of not less than one year but not more than 10 years upon conviction. In settlement, a
compromise fee of P1,000 for each BIR Form 2316 not filed without any maximum threshold will be
collected by the BIR.
TYPES OF INCOMES SUBJECT TO INCOME TAX

Substituted Filing of Income Tax Returns

Under RA 9504 and RR 10-2008, individual taxpayers may no longer file income tax return on or
before April 15 of the following taxable year provided the taxpayer is/has (all the requirements must be
satisfied):

1. Receiving purely compensation income, regardless of amount.

2. The amount of income tax withheld by the employer is correct (Tay due = Tax
withheld)
3. Only one employer during the taxable year.
4. If married, the employee's spouse also complies with all three aforementioned
conditions, or otherwise receives no income.
THANK YOU!!
END OF LECTURE
REFERENCE:

. • Tabag, Garcia (2022) Income Taxation

• Gloria, Pantaleon (2024) Simplified Income Taxation
• Banggawan, Rex (2021) Income Taxation