ANNEX B: INCOME TAX TABLES

TABLE 1 TAX RATES FOR INDIVIDUALS CITIZENS RESIDENTS NON-RESIDENTS PERMANENTLY STAYED STAYED OUTSIDE THE IN THE PHIL OR MAY PHIL. 183 DAYS OR HAVE STAYED OUTSIDE MORE THE PHIL. LESS THAN 183 DAYS ALL SOURCES WITHIN THE PHIL. ALIENS NRAEBT STAYED WITHIN THE PHIL. MORE THAN 180 DAYS

GENERAL CATEGORIES

PERIOD OF STAY

RESIDENTS STAYED WITHIN THE PHIL. FOR MORE THAN 12 MONTHS FROM DATE OF ARRIVAL

NRANEBT STAYED IN THE PHIL. 180 DAYS OR LESS

SOURCES OF INCOME

WITHIN THE PHIL.

WITHIN THE PHIL.

WITHIN THE PHIL.

NATURE OF INCOME

TAXABLE BASE/ TAX RATE

Compensation, Business, Trade, Profession (including casual gains, profits, income, and capital gains, prizes of P10,000 or less). Not included are items of income subject to final tax and or special tax treatment Interest from any currency bank deposit and yield or any other monetary benefit from deposit substitute and from trust funds and similar arrangements, royalties, prizes (except amounting to P10,000 or less) and other winnings except PCSO and lotto winnings) Royalties on books, as well as either literary works and musical composition

Taxable Income 5% - 34%(1998) - 33%(1999) - 32%(2000) (Normal Tax Rate)

Gross income (within) 25% Gross income (within) 20% Final Withholding tax (FWT)

Gross income (within) 10% FWT

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GENERAL CATEGORIES RESIDENTS Interest income from depository bank under the expanded foreign currency deposit system (FCDS)

CITIZENS NON-RESIDENTS Any income from transaction with depositary banks under the expanded FCDS or OBU Exempt [Sec27(D)(3)] [Sec.28(A)(4)] RESIDENTS Gross income(within) 7.5% FWT

ALIENS NRAEBT

NRANEBT

Gross income (within) 7.5% FWT (Exchange Rate to be used shall be the opening rate on remittance day)

Any income from transactions with depository bank under the expanded FCDS or ODU Exempt [Sec.(27)D(3)] [Sec.28(A)(4)]

Interest income from long-term deposit or deposit in the form of savings, common or individual trust funds, deposit substitute investment management accounts in denomination of P10,000 or as prescribed by the BSP.

Interest on long term deposit In case of Pretermination: Remaining maturity of 4 yrs. to less than 5 yrs 3 yrs. to less than 4 yrs. less than 3 yrs.

Exempt Gross income (within) 25%

5% 12% 20%

Cash and/or property dividends actually or constructively received from a domestic corp. or from a joint stock company, insurance or mutual fund companies, or on the share of an individual in the distributable net income after tax of a taxable partnership, or on the share on the net income after tax of an association, joint account, or a joint venture or consortium taxable as a corporation. Capital gains from shares of stock not traded in the local stock exchange

Gross income (within) FWT 6% 8% 10% -

Year 1998 1999 2000 Gross Income (within) 20% FWT

(Tax on dividends shall apply on income earned on or after Jan. 1, 1998. Sec. 73(c) provides that dividends distributed are deemed made from most recently accumulated profits)

Net capital gains (within) Not over P100,000 5% In excess of P100,000 10% 1. Gross Selling Price or FMV whichever is higher 6% Final Tax 2. If sold to the government or any of its political subdivision or agencies or to GOCC, 6% Final Tax or Normal Tax Rate, at the option of taxpayer. 3. If proceeds is from disposition of principal residence and is fully utilized in acquiring or constructing a new principal residence within 18 months from the date of disposition, (date of notarization) the capital gain is exempt from the capital gains tax subject to the following conditions. a. Historical cost or adjusted basis of property sold is carried over to the new principal residence.

Capital gains from sale or other disposition of real property located in the Phils.

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GENERAL CATEGORIES

CITIZENS ALIENS RESIDENTS NON-RESIDENTS RESIDENTS NRAEBT NRANEBT b. The commissioner is notified within 30 days from the date of disposition of the taxpayers intention to avail of the tax exemption. c. Tax exemption can only be availed of once every 10 years. d. Unutilized portions of the proceeds is subject to capital gains tax to be computed proportionately. The tax on the unutilized portion shall be paid within 30 days after the expiration of the 18-month period.

Cinematographic film and similar works

Individual Normal tax Rate shall apply

Gross Income (within) 25%

Gross Income (within) 25%

Proprietary Hospital

educational

institution/

Individual Normal tax Rate shall apply

N.A.

Fringe Benefit except on the following: A. Not considered as gross income

A. Grossed up monetary value of fringe benefit furnished or granted to the employee (except rank and file) Tax Rate Grossed Up Divisor 66% 67% 68% Year 1998 1999 2000

1. if required or necessary to the business of employer 2. if for the convenience or advantage of employer

34% FWT 33% FWT 32% FWT

In the case of aliens, the tax rates to be applied on fringe benefit shall be as follows: 1. NRANEBT 25% 2. Aliens employed by regional HO 15 % 3. Aliens employed by OBU 15% 4. Aliens employed by Petroleum Service 5. Contractors and Subcontractors Gross up divisor is the difference between 100% and the applicable rates.

B. Fringe Benefit that is not taxable under Sec. 32 (B) Exclusions from Gross Income

B. Fringe Benefit include, but not be limited to the following: 1. Housing 2. Expense Account 3. Vehicle of any kind 4. Household personnel, such as maid, driver and others 5. Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted. 6. Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs and similar organizations 7. Expenses for foreign travel 8. Holiday and vacation expenses 9. Educational assistance to the employee or his

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GENERAL CATEGORIES

CITIZENS RESIDENTS NON-RESIDENTS dependents; and 10. Life or health insurance and other non-lire insurance premiums or similar amounts on excess of what the law allows. C. The following fringe benefits are not taxable under Sec. 33 Fringe Benefit Tax: 1. Fringe Benefits which are authorized and exempted under special laws. The 13th month Pay and Other Benefits with the ceiling of P30,000 may be increased through rules and regulations issued by the Secretary of Finance considering the effect on the same of the inflation rate at the end of the taxable year; 2. Contributions of the lawyer for the benefit of the employee to retirement, insurance and hospitalization benefit plans; 3. Benefits given to the Rank and File Employees, whether granted under a collective bargaining agreement or not; and 4. The De minimis benefits benefits which are relatively small in value offered by the employer as a means of promoting goodwill, contentment, efficiency of Employees D. The term Rank and File Employees shall mean all employees who are holding neither managerial nor supervisory position as defined in the Labor Code E. In the case of rank and file employees, fringe benefits other than those excluded from gross income under the Tax Code and other special laws, are taxable under the individual normal tax rate.

RESIDENTS

ALIENS NRAEBT

NRANEBT

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TABLE 2

PREFERENTIAL TAX TREATMENT ON CERTAIN INDIVIDUALS

CITIZENS RESIDENTS ALL SOURCES NON-RESIDENTS WITHIN THE PHIL. RESIDENTS WITHIN THE PHIL. ALIENS NRAEBT WITHIN THE PHIL. NRANEBT WITHIN THE PHIL.

GENERAL CATEGORIES SOURCE OF INCOME A. 15% Final Withholding Income Tax (FWIT)

A1. A tax rate of 15% is imposed on gross income(salaries, wages, etc. received by every Filipino employee occupying the same position as an alien employed by any of the following: a. Multinational company which is foreign firm or entity engaged in international trade with an established branch in the Phils. as follows: i) Regional or Area Headquarters ii) Regional Operating Headquarters b. Offshore Banking Units c. Foreign petroleum service contractor or sub-contractor

A1. A tax rate is imposed on gross income (salaries, wages, annuition, compensation ,remuneration, other emoluments such as honoraria and allowances) a. Regional or area Headquarters b. Regional Operating Headquarters c. Offshore Banking Units (OBUs) established in the Phil. d. Foreign petroleum service contractor or subcontractor engaged in Petroleum Operations in the Phil.

B. Partners in a general professional partnership

B.1. A general professional partnership is not subject to income tax. A partner in a general professional partnership is liable to income tax only in his separate and individual capacity 2. For purposes of computing the distributive share of the partners, the net income of the partnership is computed in the same manner as a corporation. 3. Each partner shall report as gross income his distributive share actually or constructively received in the net income of the partnership. C.1. Regardless of the period of stay in the Phil., foreign source (compensation income) is not taxable if received by any of the following non-resident citizen. a) Immigrant b) Foreign-based employee on a permanent basis c) Overseas Contract Worker, including overseas seaman 2. A Filipino employed as a Philippine Embassy/Consultant service personnel of the Phil. Embassy/consulate is not to be treated as a non-resident citizen, hence, his income is taxable.

C. Foreign Source Compensation. Income is not subject to income tax

NOT TAXABLE

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TABLE 3

TAX RATES FOR CORPORATIONS

DOMESTIC CORPORATIONS IN GENERAL, INCLUDING GOCCs, AGENCIES OR INSTRUMENTALITIES (EXCEPT GSIS, SSS, PHIC, PCSO AND PAGCOR) ENGAGED IN A SIMILAR BUSINESS INDUSTRY OR ACTIVITIES ALL SOURCES FOREIGN CORPORATIONS RESIDENT FOREIGN CORPORATIONS NON-RESIDENT CORPORATIONS (NOT (EXISTING UNDER THE LAWS OF FOREIGN ENGAGED IN TRADE OR BUSINESS IN THE COUNTRY, ENGAGED IN TRADE OR PHIL.) BUSINESS WITHIN THE PHIL.) WITHIN THE PHIL. WITHIN THE PHIL. TAXABLE BASE/RATE TAXABLE INCOME Same as Normal Domestic Rate and with the same option of 15% tax on gross income effective Jan. 1,2000. GROSS INCOME Same as Normal Domestic Rate but without option to pay the 15% tax on gross income.

GENERAL CATEGOTIES

SOURCES OF INCOME NATURE OF INCOME In General

TAX INCOME 35%(Normal Domestic Rate) 34% - 1998 33% - 1999 32% - 2000 A. Transition Period 1. For Corp. Adopting fiscal year accounting period, income and expenses shall be deemed to have been earned and spent equally for each month of the period. 2. Taxable Income x No. of Mos. Covered x Tax Rate 12 Mos. by the tax rate B. Optional Corporate Tax Rate of 15% of Gross Income 1. The President upon recommendation of the Secretary of Finance, may, effective January 1, 2000 allow corporations the option to be taxed at 15% of the gross income subject to certain conditions. C. Government or its Political Subdivision. 1. Income derived from any public utility or from the exercise of any essential government function accruing to the Government of the Phil. Or to any political subdivision thereof is excluded from gross income[Sec. 32(B)(7)(b)]

Interest on currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements royalties

Interest Income on foreign loans contracted on or after Aug. 1, 1986(20%fwt) Gross Income ( within ) 20% FWT

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GENERAL CATEGOTIES

Income derived under the expanded FCDS

Inter-corporate dividends and income from a taxable partnership Capital Gains from the sale of shares of stocks not traded in the local stock exchange. Capital Gains Realized from the Disposition of Land and/or Buildings Minimum Corporate Income Tax (MCIT)

DOMESTIC CORPORATIONS FOREIGN CORPORATIONS IN GENERAL, INCLUDING GOCCs, AGENCIES OR RESIDENT FOREIGN CORPORATIONS NON-RESIDENT CORPORATIONS (NOT INSTRUMENTALITIES (EXCEPT GSIS, SSS, PHIC, PCSO AND (EXISTING UNDER THE LAWS OF FOREIGN ENGAGED IN TRADE OR BUSINESS IN THE PAGCOR) ENGAGED IN A SIMILAR BUSINESS INDUSTRY OR COUNTRY, ENGAGED IN TRADE OR PHIL.) ACTIVITIES BUSINESS WITHIN THE PHIL.) 1. Gross interest income derived by a domestic corporation and a resident foreign corporation from a depositary 1. Any income from transaction with bank 7.5% FWT. depository banks under FCDS shall be exempt 2. Income derived by a depository bank from foreign currency transactions with local commercial banks including from income tax branches of foreign banks, other depositary banks, and residents 10% Final Tax. Dividends received by a domestic corporation from another Dividends received from a domestic corporation Dividend received from a domestic corp. domestic corporation shall not be subject to tax. not subject to tax. 15% FWT, Provided foreign law allows taxpayer clause, otherwise it will be subject to the normal domestic rate Net Capital Gain Not over P100,000 5% Excess of P100,000 10% Gross Selling Price or FMV whatever is higher 6% Final Tax

1. Gross Income 2% MCIT beginning on the fourth taxable year immediately following the year in which such corporation commenced its business operation. 2. Carry Forward of Excess MCIT- to be carried forward and provided against the normal income tax [as computed under Sec. 27(A) for the (three(3) succeeding taxable years 3. The Secretary of Finance is authorized to suspend MCIT on a corporation which suffers losses on account ofA. Prolonged dispute; or B. Force majeure C. Legitimate business reverses; or 4. A Gross Income = Gross Sales Sales Returns, Discounts, and allowances Cost of Goods (Trading or Manufacturing Concern) - Cost of Goods and shall include all business expenses directly incurred to produce the merchandise to bring them to their present location and use. - For trading or merchandising , cost of goods sold shall include a. Invoice cost b. Import duties c. Freight d. Assurance while goods are in transit

N.A.

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GENERAL CATEGOTIES

DOMESTIC CORPORATIONS FOREIGN CORPORATIONS IN GENERAL, INCLUDING GOCCs, AGENCIES OR RESIDENT FOREIGN CORPORATIONS NON-RESIDENT CORPORATIONS (NOT INSTRUMENTALITIES (EXCEPT GSIS, SSS, PHIC, PCSO AND (EXISTING UNDER THE LAWS OF FOREIGN ENGAGED IN TRADE OR BUSINESS IN THE PAGCOR) ENGAGED IN A SIMILAR BUSINESS INDUSTRY OR COUNTRY, ENGAGED IN TRADE OR PHIL.) ACTIVITIES BUSINESS WITHIN THE PHIL.) For manufacturing: cost of goods manufactured and sold shall include all cost of production of farmer goods such as a. Raw materials used b. Direct labor c. Manufacturing overhead d. Freight cost e. Insurance premium f. other cost to bring the raw materials to the factory or warehouse B. Gross Income = Gross Receipt Sales Return; allowances, discount cost of Service(Service) 1. Cost of service shall mean all direct cost and expenses necessarily incurred to provide the service including a. Salaries and employee benefits of personnel, consultants and specials directly utilized in providing the service such as depreciation or rental of equipment used and cost of supplies. 2. In the case of banks, cost of service shall include interest expense

Improperly Accumulated Taxable Income means taxable income adjusted by: 1. Income exempt from tax 2. Income excluded from gross income 3. Income subject to final tax 4. The amount of net operating loss carryover deducted. And reduced by the sum of: 1. Dividends actually or constructively paid; and 2. Income tax paid for the taxable year

1. Improperly Accumulated Taxable Income 10% tax in addition to other income taxes 2. The improperly accumulated earnings tax shall not apply to: a. Publicly held corporations b. Banks and other non-banks Financial intermediaries c. Insurance companies 3. The fact that any corporation is a mere holding company or investment company shall be prima facie evidence of a purpose to avoid the tax upon its shareholders or members 4. The fact that the earnings or profits of a corporation are permitted to accumulate beyond the reasonable needs of the business shall be determinative of the purpose to avoid the tax upon its shareholders or members unless the corporation, by the clear preponderance of evidence, shall prove the contrary. 5. For corporations using the calendar basis the accumulated earnings tax shall not apply on improperly accumulated income as of Dec. 31,1997. For fiscal year basis, the tax shall not apply to the 12 month period of fiscal year 1997-1998. Improperly accumulated earnings as of the end of a calendar or fiscal year period on or after Dec. 31, 1998 shall be subject to the 10% tax on such improperly accumulated earnings.

N.A.

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TABLE 4

PREFERENTIAL TAX TREATMENT ON CERTAIN CORPORATION

FOREIGN CORPORATIONS RESIDENT FOREIGN CORPORATION NON-RESIDENT FOREIGN CORP. International Carrier (within) Gross Phil. Billings Non-Resident Owner or Lessor of Sea Vessel Chartered by Philippine National Gross rental lease charter

DOMESTIC CORPORATION 1. Educational Institution 2. Hospital 1. A NON-STOCK, Non-Profit Educational Institution is exempt from Income Tax on its Revenue as educational institution and from the operation of ancillary activities located within the school premises a. b. c. d. e. f. Cafeteria/canteen Dormitories Bookstores School Bus Hospitals Pharmacies or Drugstores and from banks deposits subject to certain condition.

Offshore Banking Unit (OBU) Income derived by OBU from foreign currency transaction with local commercial bankers, including branches of foreign bank, including any interest income derived from foreign currency loans granted to residents. 10% - Final Tax Branches (Except those registered with PEZA). Any profit remitted to the head office (total profit applied or earmarked for remittance without any deduction for the tax component thereof). 15% - FWT

Any income from transaction with OBU shall be exempt from income tax

2.

If gross income from unrelated trade business or other activity does not exceed 50% of the total gross income derived from all sources 10% of the Taxable Income will be imposed on the following: a. Proprietary/ profit oriented educational institution b. Non-stock, non-profit hospital

Non-resident owner or lessor of aircraft machinery and other equipment Gross Rental or fees 7.5%

Regional or Area Headquarters not subject to Income Tax

N.A.

3.

If gross income from unrelated trade business or other activity exceeds 50% of the total gross income derived from all sources, the Regular Domestic Rate will be imposed to the following: a. Proprietary/ profit oriented educational institution b. Non-stock, non-profit hospital

Regional Operating Headquarters

N.A.

4.

Regardless of the proportion explained in item No. 2 and 3 a profit oriented hospital will be treated as an ordinary domestic corporation , hence subject to the Normal Domestic rate.

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