NATURE and

CONCEPT OF
INCOME
 TAXES are considered
GOVERNMENT REVENUE

Revenue pertains to all funds accruing

to the treasury of the government,
taxes are just a part of
government revenue.
 INCOME

All wealth that flows into the

hand of the taxpayer, except a
mere return of capital.
 INCOME
All wealth that flows into the hand of the
taxpayer, except a mere return of capital.

“HONORARIA” no matter how

negligible the amount, IS WEALTH
that flows into the hands of a
Barangay Official, Hence,
SUBJECT TO INCOME TAX and to
withholding tax on compensation.-bir
ruling 11/4/2011
INHERITANCE is not considered an
INCOME because the capital is just
transferred in the process of succession,
and it remains as the same capital as it
was in the hands of transferor.

THEREFORE: NOT SUBJECT TO INCOME

TAX . HOWEVER, IT IS SUBJECT OT
TRANSFER TAX.
A taxpayer could prove that the increase
in his wealth is not an income, but mere
return of capital by….

presenting his present his

audited financial statements as
proof.
WAY BY WHICH THE BIR DETERMINES
INCOME OF THE TAXPAYER IF NO
RELIABLE ACCOUNTING RECORDS
By THE use of net-worth method
(capital maintenance approach) of
determining income.
Rule of thumb:
increase in taxpayer’s net worth other
than return of capital is income.
 classifications of income
AS TO SOURCE

• income earned within

• income earned outside the
Philippines
• income earned partly within and
partly outside
• A resident foreign corporation is
doing business within the Philippines,
therefore its income is partly earned
within and partly earned outside the
Philippines, accordingly its declared
dividend is partly within and partly
outside the Philippines.
• Gross receipts of an international carrier arising
from tickets covering flight from Philippines
port to first port outside are considered
earned within the Philippines.

• Gross receipts of an international carrier arising

from tickets covering flight from outside into
the Philippines are considered earned
outside the Philippines.
classifications of income
AS TO TAX LIABILITY

• Taxable

• Non- taxable
 classifications of taxable income
AS TO MANNER OF REPORTING
- Reportable in the annual tax return
(SUBJECT TO NORMAL TAX,
sometimes subject to creditable
withholding tax)
- Non-reportable in the annual tax
return
(subject to final withholding tax)
 classifications of income
AS TO ITS NATURE
• Compensation income
• Business income
• Passive income
• Capital gains
• Other Sources, such as
– bad debts recovery
– tax refunds
 requisites of taxable income

• a. there must be a gain

• b. the gain must be realized or
received
• c. the gain must not be excluded
from taxation
 government units exempt
from income tax
Government units carrying proprietary
functions are generally taxable, UNLESS
exemption is provided in its charter or law
that creates them;
and
Government units carrying purely
governmental functions are exempt from
tax, UNLESS it expressly gives its consent
to be taxed.
different methods of reporting income

• a. cash basis, for income arising

from gross receipts such as
professional services and rent.

• b. accrual basis, for income arising

from sales
different methods of reporting income
• c. Others:
• % completion for construction contract that will
take more than 1 year to complete.
• installment method for installment sales
• * Installment basis for goods regularly sold on
installment basis in regular conduct of business
• * installment basis on casual sale of real property,
if the initial payment/downpayment is not
exceeding 25% of selling price.
different methods of reporting income
• income on leasehold improvements:
• outright method
• spread out method

• farming income:
• cash method
• accrual method
• crop method
Taxable Compensation Income are either:

–Reportable - those collected with

creditable withholding tax
–Non-Returnable - those collected
with final withholding tax
(Fringe benefit of Managerial employee and
compensation employed by offshore banking unit,
exploration service contractor)
Non-Taxable Compensation Income
– 13th month pay and similar benefits not
exceeding P82,000/year
– Benefits received for convenience of the
employer
(EMPLOYER’S CONVENIENCE RULE)
– Mandatory Contribution to
SSS/GSIS/Philhealth/Pag-ibig/Union dues (in
excess of the mandatory contributions)—IT
IS NOW TAXABLE----RMC No. 27-2011
– Benefits received from SSS/GSIS, under
Workmen’s Compensation Act
Non-Taxable Compensation Income
–Terminal pay ( received by heir upon
death of employee)
–Retirement pay:
–Has been in service of same employer
for at least 10 years
–Retiring at not less than 50 years of age
– Approved Retirement Plan by the BIR.
–Separation pay due to involuntary
causes
Non-Taxable Compensation Income
–Proceeds of life insurance policy
–Casual labor, if the employment is not
related in the conduct of business of
the employer.
–Minimum wage earners (RA 9504, Rev.Reg.
10-2008)
–Compensation income of qualified
senior citizens which are not exceeding
the poverty level of P60,000/year
the tax treatment of holiday pay,
overtime pay, night shift differential
and hazard pay of minimum wage
earner. (HON-H)

• Also exempt from income tax.

(Rev. rev 10-2008)
 minimum wage earners
who are not exempt from income tax

if the minimum wage earner also

receives/earns additional compensation
such as commissions, honoraria, fringe
benefits, benefits in excess of statutory
amount of P82,000, and other taxable
income (other than income subject
to final tax).
Non-Taxable Compensation Income

• Income excluded under treaty

Non-Taxable Compensation Income
–De minimis benefits: (NOW, it’s
diminishing the de minimis benefits)
• 10 days and below monetized unused
vacation leave of private employees.
And the monetized value of vacation and
sick leave credits paid to government
officials and employes regardless of the
number of days.
• medical cash allowance to dependents
not exceeding P125/employee/monthOR
P750/employee/year.
Non-Taxable Compensation Income
–De minimis benefits: (NOW, it’s
diminishing the de minimis benefits)
• actual yearly medical benefits not
exceeding P10,000

• rice subsidy of P1,500/month or 1 sack of

50kg. Rice per month not exceeding
P1,500.00

• uniform/clothing allowance, P5,000/year

Non-Taxable Compensation Income
–De minimis benefits:

• laundry allowance of P300/month

• daily meal allowance for over time work and
night/graveyard shift not exceeding 25% of basic
minimum wage on a per region basis.
• P5,000 Christmas gift or anniversary gift.
• P10,000 employees achievement award (need not
in cash)
• tokens/gifts for marriage, birth , illness --DELETED
tax treatment of de minimis benefits
that exceeds the prescribed ceiling

• The excesses should be considered

as part of the other benefits to be
added to 13th month pay and
bonuses, and the excess over
P82,000 shall become taxable.
compensation income that are subject
to final withholding tax at source
Fringe benefits of managerial or
supervisory employees:
Housing, car, household personnel, personal expense,
travel, holiday, membership, educational and
health
–Final tax of 32% on the grossed up
monetary value. (MV of FB/68%)=GMV
–Income tax of employee
–Liability of the employer to withhold
 tax base of 32% final tax on fringe
benefits of managerial employee

The final tax should be based on the

grossed up monetary value of fringe
benefits granted/paid.
 determination of the grossed up
monetary value of fringe benefit

• It is determined by dividing the

monetary value of fringe
benefits by 68%.
 compensation income that are
subject to final tax at source
Compensation of aliens or Filipino citizen
employed by:

- offshore banking unit

- petroleum exploration service contractor
- regional or area headquarter of
multinational corporations.

Final tax rate is 15% of Gross Income

other final tax rates of fringe benefits

• 25% of fringe benefits granted to non-

resident alien not doing business in the
Philippines., and
• 15% on fringe benefits granted to alien
employed by offshore banking unit,
petroleum exploration service contractor
and area headquarters of multinational.
foreign travel expense of manager,
paid for by employer not a taxable
fringe benefit

• When the purpose of the travel is

for business purposes.
 foreign travel expenses of manager
which are paid for by employer, for
business purposes become taxable

When inland travel expenses such as

local transportation and food
expenses exceeds $300/day and
when the plane ticket is first class, in
such case 30% of the cost of 1st class
plane ticket is subject to fringe
benefit tax.
 compensation income that are
subject to final tax at source
Compensation of aliens or Filipino citizen
employed by:

- offshore banking unit

- petroleum exploration service contractor
- regional or area headquarter of
multinational corporations.

Final tax rate is 15% of Gross Income

 business income

• Income earned from conduct of

business, which could be trading,
manufacturing, servicing,
leasing, construction or farming.
 tax exempts business income
• -Income accruing to the government of
the Philippines derived from any public
utility, or from exercise of essential
government functions.
• Income of cooperatives that are duly
registered and with good standing with
the Cooperative Development Authority
• Income of non-stock/non-profit
corporations/institutions
 business income are reportable in
income tax return
Business Income ( reportable every quarter)
–Sales less Cost of sales (reportable,
point of sale)
–Gross receipts (reportable, point of
collection)
–Gross receipts less cost of services for
long term contract, (reportable % of
completion)
 business income that are reportable
at point of collections
Gross receipts from rent and from
professional fee are reportable as
income in the year of collection.

A sale is a source of revenue, but

not all sales will result to
income.
 passive income

• Income earned not through

employment nor from doing business.

• Passive income earned within the

Philippines are taxed at source at
their gross amount.
 passive income
• Only passive income earned within are
subject to the following Philippine final
withholding tax
• Passive Income
(subject final withholding tax)

A. Interest income:

1. peso deposit, 20%

 passive income
A. Interest income:

1. peso deposit, 20%

• Except if pre terminated within:
–0% , five years or more maturity
–5%, 4 years to less than 5 years
maturity
–12%, 3 years to less than 4 years
maturity
–20%, less than 3 years.
 passive income
• Passive Income ( final tax):
A. Interest income:
2. 7.5% on income from Expanded foreign
currency deposit, earned by resident

- if earned/received by NRC - EXEMPT

- if earned/received by OCW
or OFW or SEAMAN - EXEMPT

If JOINT ACCOUNT with individual living in

the Philippines/Resident, then 50% of the
interest income is subject to 7.5%
 passive income

• Passive Income ( final tax):

A. Interest income:

3. 10% on income from expanded foreign

currency deposit earned by OBU’s
 passive income
B. Dividend income:

domestic corporation to INDIVIDUAL

TAXPAYERS:

• a. citizen or resident, 10%

• b. non-resident alien, doing business in
the Phil., 20%
• c. non-resident, not doing business in the
Phil., 25%
 passive income
B. Dividend income:
domestic corporation to CORPORATE
TAXPAYERS:

• d. domestic or resident foreign

corporation, EXEMPT
• e. non-resident foreign corporation,
without reciprocity, 30%
• f. non-resident foreign corporation, with
reciprocity, 15%
 passive income
B. Dividend income:

Other cash and property dividend other

than enumerated above are reportable,
if taxable.
(example: dividend received by
Domestic Corporation from Foreign
Corporation)
 passive income
• Royalties, final tax of 20%,
except royalty for copy rights (books
literary works and musical compositions),
10%

• Prizes, final tax of 20%,

except prizes P10,000 and below which are
reportable.

• Winnings, final tax of 20%.

passive income that are reportable in
the annual tax return

• passive income earned outside are

reportable by resident citizen and
domestic corporation.

example: Winnings from outside

the Philippines.
passive income earned in the Philippines
which are not taxable

• passive income derived by

foreign government
passive income earned in the Philippines
which are not taxable
• prizes and awards made primarily in
recognition of achievements in the
following fields:
• religious
• charitable
• scientific CRC-SEAL
• Educational
• artistic
• literary
• Civic
passive income earned in the Philippines
which are not taxable

• prizes and awards granted to

athletes to local and international
sports competitions and
tournaments whether held in the
Philippines or outside and
sanctioned by respective sports
association.
 capital gains

• Capital Gains , arising from capital asset

transactions

Capital assets--- not inventory,

not PPE, not receivable arising from
sale of inventory.
 cost basis to determine the amount
of capital gain or loss
• a. acquisition cost, if purchased

• b. fair market value at date of

inheritance, if inherited

• c. the lower of cost to the donor or fair

market value at date of donation ,
whichever is lower if received as gift.
 treatment of the cost /expenses of
disposition of capital assets

• These are treated as reduction

from selling price to determine
capital gain or loss.
rule on holding period governing capital
asset transactions of individual taxpayer
Holding period and carry-over (net capital
loss carry over) only for individual
taxpayers:
• If capital asset is held for more than
12 months, only 50% of gain or loss is
considered
• Net capital loss is allowed as carry
over only for the next year.
rules on capital asset transactions
Rules on capital gains and losses:
• Capital losses are deductible only to
the extent of capital gain
• Net capital loss is not deductible from
reportable ordinary income
• Net capital gains are added to
reportable ordinary income
• Net operating loss is deductible from
net capital gain
Not all capital gains are reportable in
the tax returns
the following capital assets transactions
are Subject to Final Tax:

• Sale of Real Property, 6% of selling

price or zonal value whichever is
higher.
Shares of stock (as capital asset):

If sold outside stock exchange, tax is

5% on the first P100,000 gain, +
10% on gains in excess of P100,000

The computation is on per transaction

basis.

If sold inside the stock exchange; ½% of 1%

of GSP transaction tax.
ownerships of shares of stocks of
other entity are considered as
capital assets
… if the shares are
holdings of dealers in
securities, then these are
its inventories.
 capital gains which are exempt from
income tax

1. gains realized from the sale, exchange

or retirement of bonds with
maturity of more than 5 years.

2. gains realized upon redemption of

investment in mutual fund company.
sale of real property (capital assets)
which is exempt from income tax or
capital gains tax

--If the sale is pertaining to the

official residence of the taxpayer
–The Commissioner is notified
within 30 days from date of sale
sale of real property (capital assets)
which is exempt from income tax or
capital gains tax
- The exemption is just once every 10
years
–the proceeds is fully utilized in the
acquisition of his new residence
within 18 months from sale
 If the sale of the official residence of the
taxpayer is exempt from capital gain tax, the
cost basis of the newly acquired residence
would be:
Cost basis of new residence:

• If proceed is fully utilized, new

cost basis = cost of property
disposed of
 If the sale of the official residence of the
taxpayer is exempt from capital gain tax, the
cost basis of the newly acquired residence
would be:
Cost basis of new residence:
• If partially utilized, new cost
basis = cost of property disposed
of x (proceeds utilized/selling
price of old residence)
 If the sale of the official residence of the
taxpayer is exempt from capital gain tax, the
cost basis of the newly acquired residence
would be:

Cost basis of new residence:

• If acquisition cost of new
residence exceeds the proceeds
of sale, new cost basis = excess +
cost of property disposed of.
 wash sales of shares of stocks

• sales of stocks or securities where

substantially identical securities are
acquired or purchased with a 61-day
period, beginning 30 days before
sale and ending 30 days after sale.
Treatment of gains or losses on wash
sales in taxation…

gain is reportable or recognized

BUT the loss is not deductible.

 stock dividend is GENERALLY NOT
TAXABLE….

• BUT…Issuance of stock dividend

followed by its redemption may give
rise to taxable dividend and when there
is a violation of the corporation’s TRUST
FUND DOCTRINE or when the issuance
of the stock dividend is in the nature of
disguise dividend.
 installment reporting of sale of real
property is allowed
An individual may elect to
report the capital gain and pay
the capital gain tax on
installment when the initial
payments made by the buyer
do not exceed 25% of the
selling price.
 expanded withholding taxes
-versus-
final withholding taxes
• EXPANDED WITHHOLDING TAXES are
creditable against the payee's income tax
liabilities in his tax return.
• FINAL WITHHOLDING TAXES constitutes as
full and final payment of the income tax
due from such particular income of the
payee.
expanded or creditable withholding taxes
will be claimed as tax credit by the payee

• These shall be allowed as tax credit

against his tax due reported in his
quarterly tax return.
• These are to be supported with form
2307 issued by the withholding agent
or the payor of the income.
 obligation to withhold arises when….

• The obligation of the payor of the

income to deduct and withhold the
tax arises at the time an income
payment is paid or becomes payable,
whichever comes first.
 WITHHOLDING TAXES

• Withholding of taxes

It is a systematic way of collecting

taxes at source.

It is an indispensable method for

collecting taxes in order that the
government can obtain adequate revenue.
 WITHHOLDING TAXES

• Withholding of taxes

• There will be a disallowance of

deductible business expenses if no
corresponding required tax is
withheld by the payor claiming
such deduction.
 Classification of Withholding Tax at Source

• 1) Final Withholding Tax, and

• 2) Creditable Withholding Tax

- Expanded Withholding Tax
- Withholding Tax on Compensation
- Withholding Tax on Government
Money Payments
 FINAL WITHHOLDING TAXES
• Under the final withholding tax system
the amount of income tax withheld by the
withholding agent is constituted as a full
and final payment of the income tax due
from the payee on the said particular income.

not required to file an

• The payee is
income tax return for the particular
income, the final tax on which has been
withheld (Sec.79B, NIRC.).
 creditable withholding taxes

• Under the creditable withholding tax

system, taxes withheld on certain payments are
intended to equal or at least approximate
the tax due of the payee on said income.
•
• The income recipient is still required to file his
income tax return as prescribed in the Section
51 of the NIRC, either to report the income
and/or pay the difference between the tax
withheld and the tax due on the income.
(Sec.57B, NIRC).
 1606 Withholding tax Remittance Return for
onerous transfer of real property other than
capital assets, meaning ORDINARY ASSETS
TAX
TRANSACTION RATE
 Transaction of realtor duly registered and certified by the Housing and Land
Use Regulatory Board as engaged in socialized housing projects. The selling
price of the house and lot or only the lot does not exceed P180,000 in
Metro Manila and other highly urbanized area or P150,000 in other areas or
on the adjusted amount of selling price for socialized housing as may be
determined later by the HLURB.
0%
 Not registered with the HLURB as engaged in socialized housing project,
the seller is habitually engaged in real estate business, the selling price is not
over P500,000. 1.5%

 Not registered with the HLURB as engaged in socialized housing project,

the seller is habitually engaged in real estate business, the selling price is
over P500,000, not over P2,000,000. 3%

 Not registered with the HLURB as engaged in socialized housing project,

the seller is habitually engaged in real estate business, the selling price is
over P2,000,000 5%

 Where the seller is not habitually engaged in the real estate business 6%
 required Time of Withholding

• The obligation of the payor to deduct and

withhold the tax under Section 25.7 of these
regulations arises at the time an income is
paid or payable, whichever comes first.

• The term “payable” refers to the date the

obligation becomes due, demandable or
legally enforceable (Sec. 2.47.4, NIRC).
Exemptions from Withholding taxes

• The National government

and its instrumentalities,
including provincial, city or
municipal governments;
 Exemptions from Withholding taxes

• Persons enjoying exemption from

payment of income taxes pursuant
to the provisions of any law, general
or special such as but not limited to
the following:
Exemptions from Withholding taxes
Sales of real property by a corporation which is
registered and certified by the Housing and
Land Use Regulatory Board (HLURB) or HUDCC
as engaged in socialized housing project where
the selling price of the house and lot
(maximum price of P450,000) or only the lot
(maximum price of (P180,000) such adjusted
amount of selling price for socialized housing
as may later be determined and adopted by
the HLURB, as provided under Republic Act No.
7279 and its implementing regulations;
Exemptions from Withholding taxes
Corporations registered with
the Board of Investments and
enjoying exemption from the
income tax provided by
republic Act No. 7916 and the
Omnibus Investment Code of
1987.
Exemptions from Withholding taxes

Corporations which are exempt from the

income tax under Section 10 of NIRC, to
wit: the Government Service Insurance
System (GSIS), the Social Security
System (SSS), the Philippine Health
Insurance Corporation (PHIC), the
Philippine Charity Sweepstakes Office
(PCSO) and special law , the PAG-IBIG or
HDMF.
Exemptions from Withholding taxes

However, the income payments

arising from any activity which
is conducted for profit or income
derived from real or personal
property shall be subject to a
withholding tax as prescribed in
these regulations.
(Sec. 2.57.5, NIRC.)
 FILING and REMITTANCE of withheld
withholding tax
• Creditable and final withholding taxes deducted and withheld
by the withholding agent shall be paid upon filing a return in
duplicate with the authorized agent banks located within the
Revenue District Office (RDO) having jurisdiction over the
residence or principal place of business of the withholding
agent.
• In places where there is no authorized agent banks, the return
shall be filed directly with the Revenue District Officer,
Collection Officer or the duly authorized Treasurer of the city
or municipality where the withholding agent’s residence or
principal place of business is located, or where the withholding
agent is a corporation, where the principal office is located
except in cases where the Commissioner otherwise permits.
(Sec.81, NIRC.)
 FILING and REMITTANCE of withheld
withholding tax
• For both large and non-large taxpayers,
the tax return, whether creditable or
final shall be filed and payments should
be made within 10 days after the end of
each month except for taxes withheld
for the months of December of each
year, which shall be filed on or before
January 15 of the following year.
(Revenue Regulations No. 6 – 2001,
as amended effective September 2001.)
 considered as Large Taxpayer

• Value-Added Tax (VAT) – Business

establishment with VAT paid or payable
of at least one hundred thousand pesos
(P100,000) for any quarter of the
preceding taxable year;

• Excise Tax – Business establishment

with excise tax paid or payable of at
least one million pesos (P1,000,000) for
the preceding taxable year;
 considered as Large Taxpayer

• Corporate Income Tax – Business

establishment with annual income tax
paid or payable of at least one million
pesos (P1,000,000) for the preceding
taxable year; and

• Withholding Tax – Business

establishment with withholding tax
payment or remittance of at least one
million pesos (P1,000,000) for the
preceding taxable year.
 INCOME
TAXATION
FOR
INDIVIDUAL
 situs of income taxation for
individual taxpayer
Taxable Income
Within Outside
• Citizen, Resident yes Yes
• Citizen, Non-resident yes No
• Alien, Resident yes No
• Alien, Non-Resident yes No
For individual, RESIDENT CITIZEN is the
GLOBAL TAXPAYER
considered citizens of the Philippines

• Filipino citizens by birth,

• Acquired Filipino citizenship after
birth through naturalization
 considered Resident Citizens of the
Philippines

Resident citizen, stayed permanently

in the Philippines or stayed outside
the Philippines during the taxable
year for less than 183 days.
 considered as Resident Alien of the
Philippines

Resident aliens, those who stayed in

the Philippines for more than
one (1) year from date of
arrival in the Philippines.
 considered as Non-resident alien
Engaged in Trade or Business in the
Philippines
Non Resident aliens-ETB, those who
are engaged in business in the
Philippines and those who stayed in
the Philippines for more than
180 days.
 husband and wife in filing their
income tax return

• husband and wife should file their

taxable income in a consolidated
return
 individual taxpayer can opt for
installment payment of his tax due
–If the tax due is more than P2,000, the
taxpayer has the option to pay the tax
in two equal installment, the second
installment falling due July 15

–The tax due on the respective income

earned by husband and wife should be
computed separately.
Aside for personal exemption,
Hospitalization insurance premium of
not more than P2,400/year or 200
monthly, if combined income of
husband and wife is not exceeding
P250,000 could be claimed as
deductions against the reportable
COMPENSATION INCOME of an
individual taxpayer.
WHEN BOTH spouses are working,
the husband is the legal claimant of
additional personal exemption and
hospitalization insurance premium.
EXCEPTIONS:
- when husband works abroad.
- only the wife is working.
- when there is express waiver by
husband in favor to the wife.
The tax return for individual are
to be file and paid to AAB’s

and

file it to BIR-RDO if no amount of

tax is to be paid.
 exempted from filing
individual income tax return
Those whose gross compensation income
does not exceed his total personal
exemption. BUT if there are two
employers, even if COMPENSATION
INCOME is lesser or equals to PERSONAL
EXEMPTION.
The gross compensation income does not
exceed P60,000 and the amount is
correctly withheld with amount of tax.
 exempted from filing
individual income tax return
The following employees whose
compensation income was withheld final
income tax of 15% on GROSS
compensation income;
–Employed by regional or area
headquarter of multinational
–Employed by Petroleum service
contractor and sub-contractor
–Employed by an Offshore banking unit
• In lieu of BIR form 1700, the annual
information return of income taxes
withheld on compensation and final
withholding taxes form 1604C filed by
the employer shall tantamount to
filing of regular income tax returns.

SUBSTITUTED FILING OF
INCOME TAX RETURN
Income of unmarried minors
derived from property
received from a living parent
shall be included in the return
of the parent, except when
donor’s tax has been paid on
the transfer of such property
tax returns are needed to be
certified by an accredited CPA if
the quarterly gross receipts
exceed P150,000.
Professional income of individual
is subject to creditable
withholding tax of:

10% if not exceeding P720,000

15% if exceeding P720,000.

New personal exemptions of
individual taxpayers, under R.A.
9504, Rev. Reg. 10-2008
• Basic, P50,000
(single, married and Head of Family)

• Additional, P25,000/child, maximum

of 4 children
Personal exemptions are available only to
CITIZENS and RESIDENTS, including
ESTATE and TRUST.

–Non-resident alien engaged in business

in the Philippines is allowed with
personal exemption based on
reciprocity;
(Section 35D of the NIRC states “personal
exemption”---SO, basic and additional personal
exemption.
 allowed as deductions from
reportable business income

• For Residents or Citizens, Itemized

Deductions or Optional Standard
Deduction under RA 9504 is 40% of
sales or gross receipts, effective July
6, 2008.
 INCOME
TAXATION
FOR
CORPORATE
TAXPAYERS
For income taxation, entities that are
considered as corporations
Corporation includes:
• joint stock companies,
• joint accounts,
• association, insurance companies or
• partnerships no matter how they are
created or organized, except
professional partnership..
 For income taxation, entities that are excluded
from the tax definition of corporations
Corporation does not include

• general professional partnerships and

• joint venture or consortium formed to
undertake construction projects or engage
in petroleum, coal, geothermal and other
energy related operation, pursuant to an
operating or consortium agreement with
the Government
Other than domestic corporations
(taxable WITHIN and WITHOUT),
as GLOBAL CORPORATE
TAXPAYER…
ALL OTHER CORPORATIONS are
taxable only with Philippine
income tax for income earned
within the Philippines.
Classification of Corporate Taxpayers

(a) Domestic Corporation, and

(b) Foreign Corporation.

- Resident Foreign Corporation
- Non Resident Foreign Corporation
 considered as Domestic Corporations

• A domestic corporation is one organized

and existing under Philippine laws.

• The term “domestic corporation” includes

Government-Owned and Controlled
Corporations (GOCC) since they are now
subject to the corporate income tax like
ordinary corporations.
 considered as Foreign Corporations

• Foreign Corporation is a corporation organized

and existing under the laws of foreign country
irrespective of the nationality of its
stockholders (Sec. 22(D), NIRC).

• Foreign Corporation is taxable only on

income from sources within the
Philippines. (Sec. 23(F), NIRC).
 foreign corporation considered as
Resident Foreign Corporation

• It refers to a foreign corporation that

is engaged in business or trade in
the Philippines. Generally, it
establishes a branch or office for the
purpose of doing business or trade
(Sec. 22(H), NIRC).
 foreign corporation considered as
Non Resident Foreign Corporation
A foreign corporation that does not engage
in business or trade in the Philippines is
called “nonresident foreign corporation”
(Sec. 221, NIRC).

Its earnings are derived from fixed

determinable income from sources within the
Philippines
the taxable income of Nonresident
Foreign Corporations which are
considered earned within
• Interest, dividends, royalties;
• Rents, salaries;
• Premiums, except reinsurance
premiums;
• Annuities, emoluments or other fixed
or determinable annual, periodic or
casual gains, profits and income
 CORPORATIONS WHICH ARE
EXEMPT FROM INCOME TAX
• Non-stock and non-profit educational
institutions.

• Government educational institutions.

• Non-profit labor, agricultural or horticultural

organizations.

• Associations of farmers, fruit growers, and the

like whose primary function is to market the
product of their members.
 CORPORATIONS WHICH ARE
EXEMPT FROM INCOME TAX
• Organizations with a purely local
operation whose income is derived only
from assessments, dues, and fees
collected from their members to meet
operational expenses such as fire
insurance company, farmers’ or other
mutual typhoon associations, mutual
ditch or irrigation company and mutual
or cooperative telephone company.
 CORPORATIONS WHICH ARE
EXEMPT FROM INCOME TAX

• Non-stock Corporation or association

organized and operated exclusively for
religious, charitable, scientific, athletic,
or cultural purposes, or for the
rehabilitation of veterans; provided that
no individual person owns its assets or
no individual person receives benefit on
its earnings.
 CORPORATIONS WHICH ARE
EXEMPT FROM INCOME TAX
• Non-stock/ non-profit mutual savings bank
or non-stock/ non-profit cooperative bank.

• Non-profit civic league or organization

operating exclusively for the promotion of
social welfare.

• Cemetery company owned and operated

exclusively for the benefit of its members.
 CORPORATIONS WHICH ARE
EXEMPT FROM INCOME TAX
• Non-profit business league, chamber of
commerce, or board of trade.

• Associations, orders, beneficiary

societies operating for the exclusive
benefits of their members.

(Sec. 30, NIRC.)

 REAL ESTATE INVESTMENT TRUST
“REIT”
• It is a stock corporation principally
for the purpose of owning income-
generating real estate assets.

• Becomes REIT if approved by SEC. So,

taxpayer is engaged in real estate
business. Subject to income tax, VAT
and DST.
(Rev. Reg. 13-2011)
 CORPORATE INCOME TAX RATES
• Normal Corporate Income Tax
(NCIT) 32% in year 2000, and 35%
effective 2005; 30% effective
2009

• Minimum Corporate Income Tax

(MCIT) 2% of gross income;
 CORPORATE INCOME TAX RATES
• Gross Income Tax (GIT)
15% – Optional Upon satisfaction of
set economic conditions;

• Capital Gains Tax – on sale of real

property or on sale of shares of stock;
and

• Final Tax on Passive Income.

 MINIMUM CORPORATE INCOME TAX (MCIT)

• Pursuant to Section 27(E) and Sec. 28 (A2) of the

NIRC, domestic and resident foreign
corporations shall be taxed with 2% based on
gross income (Only if the sale is SERVICE, then GI less
SR,SA,SD and Cost Services) if they have:

• been in their fourth year of operation, and

• have incurred a net loss or zero taxable income,

or a normal income tax that is lesser than
minimum income tax.
 exemptions on the minimum corporate
income tax
The Secretary of Finance is authorized to
suspend the imposition of the minimum
corporate income tax on a corporation
that:
- suffers losses on account of prolonged
labor dispute, or
- because of force majeure, or
- because of legitimate business
reverses
tax treatment of Excess of MCIT over
normal tax

• Any excess of the minimum

corporate income tax (MCIT) over
the normal tax shall be carried
forward and credited against the
normal tax for the three (3)
immediately succeeding taxable
years
 Expanded Withholding Taxes are allowed
as Deductions from MCIT
• A taxpayer who is liable to MCIT and
at the same time has an expanded
withholding tax (EWT) may deduct
the EWT from MCIT and if there is
still an excess EWT, he may request
for tax credit or refund of tax
withheld
(BIR Ruling 001-99).
• MCIT” account is not allowed as
deduction from gross income, it
being an income tax (NOT
DEDUCTIBLE TAX)
(Rev.Reg.9-98).
The term “domestic corporation” includes
Government-Owned and Controlled
Corporations (GOCC)
• So, the 2% Minimum Corporate Income
Tax (MCIT) shall also be imposed on the
gross income of GOCC beginning the 4th
taxable year in which such GOCC
commenced its business operations even
though it has a zero or negative taxable
income or whenever the amount of MCIT
is greater than the normal income tax (BIR
Ruling 041-2000).
 domestic corporations subject to
special corporate tax rates

• Proprietary domestic Educational

Institution and Hospitals
= 10% if the unrelated business
income is not more than 50%
of the income from main
business.
proprietary educational and hospitals
are also subject to MCIT if their
business income from unrelated
business is more than 50% of their
main business income
(as if they are considered ordinary
domestic corporation) SO, 30% NT base
on Taxable Income and 2% MCIT based
on Gross Income.
resident foreign corporations which are not
subject to normal corporate tax rate of 30%
on their taxable income

• International carrier, 2.5% of gross

receipts within

• Offshore banking unit, 10% of income

transacted with the residents.
 resident foreign corporations which are not
subject to normal corporate tax rate of 30% on
their taxable income

• Branch profit remittance by local branch .=

15% of remittance to H.O.

• Regional operating headquarters of Multi-

national companies = 10% of gross income
within
non-resident foreign corporations which are
not subject to corporate final tax rate of
30% on their gross income
• Cinema film owner, lessor/distributor = 25% of gross
income within

• Lessor of machinery, other equipment, aircraft to

resident = 7.5% of gross income within. (TAKE NOTE:
GAMING EQUIPMENTS considered as other
equipment as per CTA En Banc Decision.)

• Lessor of vessels chartered by Philippine Nationals =

4.5% of gross income within
 tax treatment of cash/property dividend
earned by CORPORATIONS
•received by domestic FROM
another domestic corporation=====TAX EXEMPT
•received by resident foreign corporation
from domestic corporation =====TAX EXEMPT
•received by non resident foreign corporation
from domestic corporation
=====If with reciprocity 15% of Gross Income
===== If WITHOUT RECIPROCITY 30% of Gross
Income
•received by DOMESTIC corporation from
FOREIGN Corporation=====subject now to
NORMAL TAX of 30% (so,
it should be included in
the Gross Income.)
 INCOME TAX RETURNS of corporations
and the TIME required filing

• 1702QQuarterly, to be filed within 60

days following the close of each quarter.

• 1702, Final Adjustment Return, to be

filed on before April 15 or on or before
15th day of the 4th month following the
close of the taxable year.
deductions allowed on reportable income of
corporations

• ITEMIZED DEDUCTIONS, governed

by the same rule as deductions
allowed for taxable income of
individual taxpayers.
corporations are allowed to opt for standard
deduction

• Under RA 9504, effective July 6,

2008, allowed with 40% standard
deduction on their gross income.
….NOT gross receipts.
• Individual taxapayers 40% OSD is
based on Gross Receipts.
corporations allowed to claim Net
Operating Loss (NOLCO) as item of
deduction from their reportable
income for the next succeeding
three (3) years
 If the corporation opted for standard
deduction, it could not anymore claim for
NOLCO

It is either itemized or optional

deduction each taxable year.
If opted for OSD, it is irrevocable for
that taxable year and the return
cannot be amended from OSD to
itemized deductions.
 corporations are NOT allowed to
deduct their Net Capital Loss incurred
for the taxable year, against their
reportable income for the same year
….

Because Capital Losses are deductible

only up to the extent of Capital Gain
corporations are NOT even allowed
to carry over their capital loss for
the next period as deduction
from their capital gain…

because Net Capital Loss Carry over

is allowed only for individual
taxpayer.
 capital gains or losses arising from merger or
consolidation are NOT recognized for tax purposes
because the transactions
are purely in kind.

BUT, if aside from the exchange of securities,

money and other property are allowed to be
received by the stockholders
(so the transaction is not anymore solely in kind)

then GAIN is recognized/taxable but the

LOSS is not recognized/not deductible.
 improperly accumulated earning tax

• It is a 10% surtax imposed on

improperly accumulated earnings of
corporations (domestic and
resident).
• If it is determined that a corporation
has an unreasonable accumulated
income.
 earnings considered as improperly
accumulated

• When the corporation is a mere holding

company

• When the corporation is an investment

company

• When the corporation permits its profit to

accumulate beyond its reasonable needs
 NOT all domestic and resident foreign
corporations are subject to IAE tax

ONLY

holding companies
investment companies and
closely held or family corporations

are subject to IAE tax.

corporations are exempt from IAE tax

• Publicly-owned corporations

• Banks and other non-bank financial

intermediaries

• Insurance companies
 required payment of dividend

• The dividends must be declared and

paid or issued not later than one
year following the close of the
taxable year, otherwise, the IAET, if
any, should be paid within 15 days
thereafter.
 Effect of 10% IAET, if the earnings
collected with IAE tax is still undeclared
the succeeding year/s

• Once the profit has been subjected

to IAET, the same shall no longer be
subjected to IAET in later years, even
if not declared as dividend.
 CLASSFICATIONS OF PARTNERSHIP
for tax purposes

• General professional partnership, and

• General Co-partnership/Commercial
Partnership
 distinctions of the two types of partnership
TYPE OF PARTNERSHIP
PROFESSIONAL COMMERCIAL
Nature of income Professional fee Trading income

Required to file tax return Yes Yes

Income tax of business exempt Same manner as corporation

Distributive share of partner Business income Dividend income

Distributive Amount Not reduced by Partnership Net of partnership income

income tax tax

W/tax on distributive share 10% creditable w/tax 10% final tax

Although, not included in the definition
of corporation for income tax purposes-
thus exempt from income tax…

General Professional partnerships are

still required to file its annual tax
returns and can also avail of OSD.
 Joint Venture under the Tax Code
A business activity that is organized or
established only, for temporary or
short-period of time.
• Partnership : individuals, and
joint venture : corporations.
Corporations cannot enter into a
contract of partnership
 two types of joint ventures
1. Un-incorporated joint venture in
general

like general commercial partnership, it is

taxed in the same manner as a
regular corporation.

The share of the joint venture partners

will no longer be taxable, because
dividends payable to another
corporations are tax exempt.
 two types of joint ventures
2. Un-incorporated joint venture formed
for specific purpose of engaging in
petroleum operations pursuant to
the consortium agreement with
the Philippine Government

It is not subject to income tax. Only the

joint venture partners, like in
professional partnership. It will be taxed
on their respective shares in the income
of joint venture.
 CO-OWNERSHIP

• Exists when more than one

person acquired the right to
own a piece of property or
mass of properties.
 co-ownership which are exempt from
income tax
Co-ownership that exists as
–inheritance
–Donation

Although co-ownership is tax exempt,

the income derived by a co-owner from
the property shall be reported in his
individual tax return regardless of
whether such income is actually or
constructively received.
 co-ownerships become taxable
• When a co-ownership is formed or
established voluntarily, or upon
agreement of the parties.

• When the individual co-owner

reinvested his share in the co-
ownership to produce another
income-generating activity.
 co-ownerships become taxable

• Where the inherited property remained

undivided for more than ten years, and
no attempt was ever made to divide the
same among the co-heirs, nor was the
property under administration
proceedings nor held in trust, the
property should be considered as
owned by an unregistered partnership.
(BIR Ruling August 18, 1959).
DETERMINATION OF TAX on the INCOME of
ESTATE AND TRUST

1. the taxable income of the estate/ trust

shall be determined in the same
manner and basis as in the case of
individual taxpayers (Sec.60, NIRC.).

2. The items of gross income of the

estate are the same items as the items
of gross income of individual taxpayers
(Sec. 32A, NIRC).
DETERMINATION OF TAX on the INCOME of
ESTATE AND TRUST
3. Deductions from the gross income of the
estates/trusts are the same as the items of
deduction allowed to individual taxpayer
(Section 34 and Sec. 61, NIRC).

4. the income from estate/trusts is allowed

for a personal exemption of P20,000
(Sec.62, NIRC).

(TAKE NOTE: IT IS NOT P50,000)

 DETERMINATION OF TAX on the INCOME of
ESTATE AND TRUST

4. In addition to the allowable deductions

under Section 34 of the Tax Code, the
estate is also allowed to deduct the
amount of income of the estate during
the taxable year that is paid or credited
to the legatee, heir or beneficiary,
subject to a creditable withholding tax
of fifteen percent (15%)

(Sec. 2.57- 1[h], Rev. Regs. 2 – 98).

DETERMINATION OF TAX on the INCOME of
ESTATE AND TRUST
5. the amount so allowed as a deduction
shall be a part of the taxable income of
the legatee, heir or beneficiary to be
reported in their respective Income Tax
Return.
6. If the taxpayer dies during the taxable
year, his estate may still claim the
personal and additional exemptions for
himself and his dependent(s) as if he
died at the close of the year.” (Sec.35C,
NIRC)
DETERMINATION OF TAX on the INCOME of
ESTATE AND TRUST
7. The tax rate applicable is the tax rate
prescribed for individual taxpayers (Sec.
24A, NIRC).

8. The beneficiary of an estate engaged in

business has the status of self-employed
individual taxpayer. It follows, therefore,
that such beneficiary can claim the
itemized deduction or optional deduction
in the computation of his net taxable
income.
 TRUST
• A legal institution used to administer
funds in behalf of individuals or
organizations. Trust device is used
frequently to transfer property from one
generation to another.

• When a trust is created, a new entity

comes into being for which returns must
be filed and taxes must be paid.
 two types of Trusts

•a. revocable and

•b. irrevocable trust
 REVOCABLE TRUSTS
(Sec. 63, NIRC.)

• Generally, revocable trusts exist when

the trustor (grantor) reserves the
power to change at any time any
part of the terms of the trust.
• For tax purposes, the rule is that the
grantor is liable for the income of a
revocable trust.
 IRREVOCABLE TRUSTS

• It is TAXABLE as a separate entity

from grantor.

• The computation of the net

taxable income of trust shall be in
the same manner as that of the
net taxable income of an estate.
 IRREVOCABLE TRUSTS

• The net taxable income shall be

taxed by using the graduated
tabular (normal) tax for an
individual taxpayer based on Sec.
24 A of the Tax Code.
 WITHHOLDING TAXES

• Withholding of taxes

It is a systematic way of collecting

taxes at source.

It is an indispensable method for

collecting taxes in order that the
government can obtain adequate revenue.
 WITHHOLDING TAXES

• Withholding of taxes

• There will be a disallowance of

deductible business expenses if no
corresponding required tax is
withheld by the payor claiming
such deduction.
 Classification of Withholding Tax at Source

• 1) Final Withholding Tax, and

• 2) Creditable Withholding Tax

- Expanded Withholding Tax
- Withholding Tax on Compensation
- Withholding Tax on Government
Money Payments
 FINAL WITHHOLDING TAXES
• Under the final withholding tax system
the amount of income tax withheld by the
withholding agent is constituted as a full
and final payment of the income tax due
from the payee on the said particular income.

not required to file an

• The payee is
income tax return for the particular
income, the final tax on which has been
withheld (Sec.79B, NIRC.).
 creditable withholding taxes

• Under the creditable withholding tax

system, taxes withheld on certain payments are
intended to equal or at least approximate
the tax due of the payee on said income.
•
• The income recipient is still required to file his
income tax return as prescribed in the Section
51 of the NIRC, either to report the income
and/or pay the difference between the tax
withheld and the tax due on the income.
(Sec.57B, NIRC).
 1606 Withholding tax Remittance Return for
onerous transfer of real property other than
capital assets, meaning ORDINARY ASSETS
TAX
TRANSACTION RATE
 Transaction of realtor duly registered and certified by the Housing and Land
Use Regulatory Board as engaged in socialized housing projects. The selling
price of the house and lot or only the lot does not exceed P180,000 in
Metro Manila and other highly urbanized area or P150,000 in other areas or
on the adjusted amount of selling price for socialized housing as may be
determined later by the HLURB.
0%
 Not registered with the HLURB as engaged in socialized housing project,
the seller is habitually engaged in real estate business, the selling price is not
over P500,000. 1.5%

 Not registered with the HLURB as engaged in socialized housing project,

the seller is habitually engaged in real estate business, the selling price is
over P500,000, not over P2,000,000. 3%

 Not registered with the HLURB as engaged in socialized housing project,

the seller is habitually engaged in real estate business, the selling price is
over P2,000,000 5%

 Where the seller is not habitually engaged in the real estate business 6%
 required Time of Withholding

• The obligation of the payor to deduct and

withhold the tax under Section 25.7 of these
regulations arises at the time an income is
paid or payable, whichever comes first.

• The term “payable” refers to the date the

obligation becomes due, demandable or
legally enforceable (Sec. 2.47.4, NIRC).
Exemptions from Withholding taxes

• The National government

and its instrumentalities,
including provincial, city or
municipal governments;
 Exemptions from Withholding taxes

• Persons enjoying exemption from

payment of income taxes pursuant
to the provisions of any law, general
or special such as but not limited to
the following:
Exemptions from Withholding taxes
Sales of real property by a corporation which is
registered and certified by the Housing and Land Use
Regulatory Board (HLURB) or HUDCC as engaged in
socialized housing project where the selling price of
the house and lot or only the lot does not exceed one
hundred eighty thousand pesos P180,000) in Metro
Manila and other highly urbanized areas and one
hundred fifty thousand pesos (P150,000) in other
areas or such adjusted amount of selling price for
socialized housing as may later be determined and
adopted by the HLURB, as provided under Republic Act
No. 7279 and its implementing regulations;
Exemptions from Withholding taxes
Corporations registered with
the Board of Investments and
enjoying exemption from the
income tax provided by
republic Act No. 7916 and the
Omnibus Investment Code of
1987.
Exemptions from Withholding taxes

Corporations which are exempt from the

income tax under Section 10 of NIRC, to
wit: the Government Service Insurance
System (GSIS), the Social Security
System (SSS), the Philippine Health
Insurance Corporation (PHIC), the
Philippine Charity Sweepstakes Office
(PCSO) and special law , the PAG-IBIG or
HDMF.
Exemptions from Withholding taxes

However, the income payments

arising from any activity which
is conducted for profit or income
derived from real or personal
property shall be subject to a
withholding tax as prescribed in
these regulations.
(Sec. 2.57.5, NIRC.)
 FILING and REMITTANCE of withheld
withholding tax
• Creditable and final withholding taxes deducted and withheld
by the withholding agent shall be paid upon filing a return in
duplicate with the authorized agent banks located within the
Revenue District Office (RDO) having jurisdiction over the
residence or principal place of business of the withholding
agent.
• In places where there is no authorized agent banks, the return
shall be filed directly with the Revenue District Officer,
Collection Officer or the duly authorized Treasurer of the city
or municipality where the withholding agent’s residence or
principal place of business is located, or where the withholding
agent is a corporation, where the principal office is located
except in cases where the Commissioner otherwise permits.
(Sec.81, NIRC.)
 FILING and REMITTANCE of withheld
withholding tax
• For both large and non-large taxpayers,
the tax return, whether creditable or
final shall be filed and payments should
be made within 10 days after the end of
each month except for taxes withheld
for the months of December of each
year, which shall be filed on or before
January 15 of the following year.
(Revenue Regulations No. 6 – 2001,
as amended effective September 2001.)
 considered as Large Taxpayer

• Value-Added Tax (VAT) – Business

establishment with VAT paid or payable
of at least one hundred thousand pesos
(P100,000) for any quarter of the
preceding taxable year;

• Excise Tax – Business establishment

with excise tax paid or payable of at
least one million pesos (P1,000,000) for
the preceding taxable year;
 considered as Large Taxpayer

• Corporate Income Tax – Business

establishment with annual income tax
paid or payable of at least one million
pesos (P1,000,000) for the preceding
taxable year; and

• Withholding Tax – Business

establishment with withholding tax
payment or remittance of at least one
million pesos (P1,000,000) for the
preceding taxable year.