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Description

Income Tax is a tax on a person's income, emoluments, profits arising from property, practice of profession, conduct of trade or business or on the pertinent items of gross income specified in the Tax Code of 1997 (Tax Code), as amended, less the deductions and/or personal and additional exemptions, if any, authorized for such types of income, by the Tax Code, as amended, or other special laws.

Who Are Required To File Income Tax Returns


Individuals Resident citizens receiving income from sources within or outside the Philippines o employees deriving purely compensation income from 2 or more employers, concurrently or successively at anytime during the taxable year o employees deriving purely 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 to collectible or refundable return self-employed individuals receiving income from the conduct of trade or business and/or practice of profession individuals deriving mixed income, i.e., compensation income and income from the conduct of trade or business and/or practice of profession individuals deriving other non-business, non-professional related income in addition to compensation income not otherwise subject to a final tax individuals receiving purely compensation income from a single employer, although the income of which has been correctly withheld, but whose spouse is not entitled to substituted filing marginal income earners

o o o o

Non-resident citizens receiving income from sources within the Philippines Aliens, whether resident or not, receiving income from sources within the Philippines Corporation shall include partnerships, no matter how created or organized. Domestic corporations receiving income from sources within and outside the Philippines Foreign corporations receiving income from sources within the Philippines

Estates and trusts engaged in trade or business

Annual Income Tax For Individuals Earning Purely Compensation Income (Including Non-Business/Non-Profession Related Income) and For Marginal Income Earners Tax Rate

For Individuals Earning Purely Compensation Income and Individuals Engaged in Business and Practice of Profession Amount Income Over of Net Taxable Rate

But Not Over P10,000 5% P500 + 10% of the Excess over P10,000 P2,500 + 15% of the Excess over P30,000 P8,500 + 20% of the Excess over P70,000 P22,500 + 25% of the Excess over P140,000 P50,000 + 30% of the Excess over P250,000 P125,000 + 32% of the Excess over P500,000 in 2000 and onward

P10,000 P30,000 P70,000 P140,000 P250,000 P500,000

P30,000 P70,000 P140,000 P250,000 P500,000

Note: When the tax due exceeds P2,000.00, the taxpayer may elect to pay in two equal installments, the first installment to be paid at the time the return is filed and the second installment 15 of the same year at on or before July the Authorized Agent Bank (AAB) within the jurisdiction of the Revenue District Office (RDO) where the taxpayer is registered.

Tax Rate 1. Domestic Corporations: a. In General b. Minimum Corporate Income Tax* c. Improperly Accumulated Earnings 2. Proprietary Educational Institution 30% (effective Jan. 1, 2009) 2% 10%

Taxable Base Net taxable income from all sources Gross Income Improperly Accumulated Taxable Income Net taxable income provided that the gross income from unrelated trade, business or other activity does not exceed 50% of the total gross income Net taxable income provided that the gross income from unrelated trade, business or other activity does not exceed 50% of the total gross income

10%

3. Non-stock, Non-profit Hospitals 4. GOCC, Agencies & Instrumentalities a. In General b. Minimum Corporate Income Tax* c. Improperly Accumulated Earnings 5. National Gov't. & LGUs a. In General

10%

30% 2% 10%

Net taxable income from all sources Gross Income Improperly Accumulated Taxable Income Net taxable income from all sources

30%

b. Minimum Corporate Income Tax* c. Improperly Accumulated Earnings 6. Taxable Partnerships a. In General b. Minimum Corporate Income Tax* c. Improperly Accumulated Earnings 7. Exempt Corporation a. On Exempt Activities b. On Taxable Activities 8. General Professional Partnerships 9. Corporation covered by Special Laws 10. International Carriers 11. Regional Operating Head 12. Offshore Banking Units (OBUs)

2% 10%

Gross Income Improperly Accumulated Taxable Income Net taxable income from all sources Gross Income Improperly Accumulated Taxable Income

30% 2% 10%

0% 30% 0% Rate specified under the respective special laws 2.5% 10% 10% 30% Gross Philippine Billings Taxable Income Gross Taxable Income On Foreign Currency Transaction On Taxable Income other than Foreign Currency Transaction Gross Taxable Income On Foreign Currency Transaction On Taxable Income other than Foreign Currency Transaction Net taxable income from all sources

13. Foreign Currency Deposit 10% Units (FCDU) 30%

*Beginning on the 4th year immediately following the year in which such corporation commenced its business operations, when the minimum corporate income tax is greater than the tax computed using the normal income tax.

Passive Income 1. Interest from currency deposits, trust funds and deposit substitutes - In general 3. Prizes (P10,000 or less ) - In excess of P10,000 4. Winnings (except from PCSO and lotto) 5. Interest Income of Foreign Currency Deposit 6. Cash and Property Dividends - To individuals from Domestic Corporations 10 % 20% 20% 5% 20% 20% 7.5%

2. Royalties (on books as well as literary & musical composition) 10%

- To Domestic Corporations from Another Domestic Corporations 7. On capital gains presumed to have been realized from sale, exchange or other disposition of real property (capital asset) 8. On capital gains for shares of stock not traded in the stock exchange - Not over P100,000 - Any amount in excess of P100,000 9. Interest Income from long-term deposit or investment in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments evidenced by certificates Upon pretermination before the fifth year , there should be imposed on the entire income from the proceeds of the longterm deposit based on the remaining maturity thereof: Holding Period Four (4) years to less than five (5) years Three (3) years to less than four (4) years Less than three (3) years

0% 6%

5% 10% Exempt

5% 12% 20%

B. For Non-Resident Aliens Engaged in Trade or Business 1. Interest from currency deposits, trust funds and deposit substitutes 20%

2. Interest Income from long-term deposit or investment in the form of savings, common or individual trust funds, deposit Exempt substitutes, investment management accounts and other investments evidenced by certificates Upon pretermination before the fifth year, there should be imposed on the entire income from the proceeds of the longterm deposit based on the remaining maturity thereof: Holding Period: -Four (4) years to less than five (5) years -Three (3) years to less than four (4) years -Less than three (3) years 3. On capital gains presumed to have been realized from the sale, exchange or other disposition of real property 4. On capital gains for shares of stock not traded in the Stock Exchange - Not over P100,000 - Any amount in excess of P100,000 C) For Non-Resident Aliens Not Engaged in Trade or Business 1. On the gross amount of income derived from all sources within the Philippines 2. On capital gains presumed to have been realized from the exchange or other disposition of real property located in the Phils. 25% 6% 5% 10% 5% 12% 20% 6%

3. On capital gains for shares of stock not traded in the Stock Exchange Not Over P100,000 Any amount in excess of P100,000 5% 10%

D) On the gross income in the Philippines of Aliens Employed by Regional Headquarters (RHQ) or Area Headquarters and Regional Operating Headquarters 15% (ROH), Offshore Banking Units (OBUs), Petroleum Service Contractor and Subcontractor E) General Professional Partnerships F) Domestic Corporations 1) a. In General on net taxable income b. Minimum Corporate Income Tax on gross income c. Improperly Accumulated Earnings on improperly accumulated taxable income 2) Proprietary Educational Institution and Non-profit Hospitals - In general (on net taxable income) - If the gross income from unrelated trade, business or other activity exceeds 50% of the total gross income from all sources 4) GOCC, Agencies & Instrumentalities a. In General - on net taxable income 30% 2% 10% b. Minimum Corporate Income Tax on gross income c. Improperly Accumulated Earnings on improperly accumulated taxable income 5) Taxable Partnerships a. In General on net taxable income b. Minimum Corporate Income Tax on gross income c. Improperly Accumulated Earnings on improperly accumulated taxable income 6) Exempt Corporation a. On Exempt Activities b. On Taxable Activities 8) Corporation covered by Special Laws 0% 30% Rate specified under the respective special laws 30% 2% 10% 30% 2% 10% 10% 10% 30% 0%

G) Resident Foreign Corporation 1)a. In General on net taxable income b. Minimum Corporate Income Tax on gross income c. Improperly Accumulated Earnings on improperly accumulated taxable income 2) International Carriers on gross Philippine billings 3) Regional Operating Headquarters on gross income 4) Corporation Covered by Special Laws 30% 2% 10% 2.50% 10% Rate specified under the

respective special laws 5) Offshore Banking Units (OBUs) on gross income 6) Foreign Currency Deposit Units (FCDU) on gross income 10% 10%

1) What is income? Income means all wealth, which flows into the taxpayer other than as a mere return of capital. 2) What is Taxable Income? Taxable income means the pertinent items of gross income specified in the Tax Code as amended, less the deductions and/or personal and additional exemptions, if any, authorized for such types of income, by the Tax Code or other special laws. 3) What is Gross Income? Gross income means all income derived from whatever source. 4) What comprises gross income? Gross income includes, but is not limited to the following: Compensation for services, in whatever form paid, including but not limited to fees, salaries, wages, commissions and similar item Gross income derived from the conduct of trade or business or the exercise of profession Gains derived from dealings in property Interest Rents Royalties Dividends Annuities Prizes and winnings Pensions

Partner's distributive share from the net income of the general professional partnerships

5) What are some of the exclusions from gross income? Life insurance Amount received by insured as return of premium Gifts, bequests and devises Compensation for injuries or sickness Income exempt under treaty Retirement benefits, pensions, gratuities, etc. Miscellaneous items income derived by foreign government income derived by the government or its political subdivision prizes and awards in sport competition prizes and awards which met the conditions set in the Tax Code 13th month pay and other benefits GSIS, SSS, Medicare and other contributions gain from the sale of bonds, debentures or other certificate of indebtedness gain from redemption of shares in mutual fund

6) What are the allowable deductions from gross income? Except for taxpayers earning compensation income arising from personal services rendered under an employer-employee relationships where the only deduction provided that the gross family income does not exceed P250,000 per family is the premium payment on health and/or hospitalization insurance, a taxpayer may opt to avail any of the following allowable deductions from gross income: a)Optional Standard Deduction - an amount not exceeding 40% of the net sales for individuals and gross income for corporations; or

b) Itemized Deductions which include the following:


o o o o Expenses Interest Taxes Losses

o o o o o o

Bad Debts Depreciation Depletion of Oil and Gas Wells and Mines Charitable Contributions and Other Contributions Research and Development Pension Trusts

In addition, individuals who are either earning compensation income, engaged in business or deriving income from the practice of profession are entitled to personal and additional exemptions as follows: Personal Exemptions: For single individual or married individual judicially decreed as legally separated with no qualified dependentsP 50,000.00 For head of familyP 50,000.00 For each married individual *P 50,000.00 Note: In case of married individuals where only one of the spouses is deriving gross income, only such spouse will be allowed to claim the personal exemption. Additional Exemptions: For each qualified dependent, an P25,000 additional exemption can be claimed but only up to 4 qualified dependents The additional exemption can be claimed by the following: The husband who is deemed the head of the family unless he explicitly waives his right in favor of his wife The spouse who has custody of the child or children in case of legally separated spouses. Provided, that the total amount of additional exemptions that may be claimed by both shall not exceed the maximum additional exemptions allowed by the Tax Code. The individuals considered as Head of the Family supporting a qualified dependent

The maximum amount of P 2,400 premium payments on health and/or hospitalization insurance can be claimed if: Family gross income yearly should not be more than P 250,000 For married individuals, the spouse claiming the additional exemptions for the qualified dependents shall be entitled to this deduction

7) Who are required to file the Income Tax returns? Individuals Resident citizens receiving income from sources within or outside the Philippines

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employees deriving purely compensation income from 2 or more employers, concurrently or successively at anytime during the taxable year employees deriving purely 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 to collectible or refundable return self-employed individuals receiving income from the conduct of trade or business and/or practice of profession individuals deriving mixed income, i.e., compensation income and income from the conduct of trade or business and/or practice of profession individuals deriving other non-business, non-professional related income in addition to compensation income not otherwise subject to a final tax individuals receiving purely compensation income from a single employer, although the income of which has been correctly withheld, but whose spouse is not entitled to substituted filing marginal income earners

o o o o

Non-resident citizens receiving income from sources within the Philippines Aliens, whether resident or not, receiving income from sources within the Philippines

Corporations no matter how created or organized including partnerships o o o domestic corporations receiving income from sources within and outside the Philippines foreign corporations receiving income from sources within the Philippines taxable partnerships

Estates and trusts engaged in trade or business

8) Who are not required to file Income Tax returns? a. An individual who is a minimum wage earner

An individual whose gross income does not exceed his total personal and additional exemptions
b.

c.

An individual whose compensation income derived from one employer does not exceed P 60,000 and the income tax on which has been correctly withheld

d.

An individual whose income has been subjected to final withholding tax (alien employee as well as Filipino employee occupying the same position as that of the alien employee of regional headquarters and regional operating headquarters of multinational companies, petroleum service contractors and subcontractors and offshore-banking units, non-resident aliens not engaged in trade or business)

e.

Those who are qualified under substituted filing. However, substituted filing applies only if all of the

following requirements are present o o o the the the the

employee received purely compensation income (regardless of amount) during taxable year employee received the income from only one employer in the Philippines during taxable year

the amount of tax due from the employee at the end of the year equals the amount of tax withheld by the employer the employees spouse also complies with all 3 conditions stated above the employer files the annual information return (BIR Form No. 1604-CF) the employer issues BIR Form No. 2316 (Oct 2002 ENCS version ) to each employee.

o o o

9) Who are exempt from Income Tax? Non-resident citizen who is: a) A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad with a definite intention to reside therein b) A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either as an immigrant or for employment on a permanent basis c) A citizen of the Philippines who works and derives income from abroad and whose employment thereat requires him to be physically present abroad most of the time during the taxable year d) A citizen who has been previously considered as a non-resident citizen and who arrives in the Philippines at any time during the year to reside permanently in the Philippines will likewise be treated as a non-resident citizen during the taxable year in which he arrives in the Philippines, with respect to his income derived from sources abroad until the date of his arrival in the Philippines. Overseas Filipino Worker, including overseas seaman An individual citizen of the Philippines who is working and deriving income from abroad as an overseas Filipino worker is taxable only on income from sources within the Philippines; provided, that a seaman who is a citizen of the Philippines and who receives compensation for services rendered abroad as a member of the complement of a vessel engaged exclusively in international trade will be treated as an overseas Filipino worker. NOTE: A Filipino employed as Philippine Embassy/Consulate service personnel of the Philippine Embassy/consulate is not treated as a non-resident citizen, hence his income is taxable. 10) What are the procedures in filing Income Tax returns (ITRs)? For with payment ITRs (BIR Form Nos. 1700 / 1701 / 1701Q / 1702 / 1702Q / 1704) File the return in triplicate (two copies for the BIR and one copy for the taxpayer) with the Authorized Agent Bank (AAB) of the place where taxpayer is registered or required to be registered. In places where there are no AABs, the return will be filed directly with the Revenue Collection Officer or duly Authorized Treasurer of the city or municipality in which such person has his legal residence or principal place of business in the Philippines, or if there is none, filing of the return will be at the Office of the Commissioner.

For no payment ITRs -- refundable, break-even, exempt and no operation/transaction, including returns to be paid on 2nd installment and returns paid through a Tax Debit Memo(TDM) File the return with the concerned Revenue District Office (RDO) where the taxpayer is registered. However, "no payment" returns filed late shall be accepted by the RDO but instead shall be filed with an Authorized Agent Bank (AAB) or Collection Officer/Deputized Municipal Treasurer (in places where there are no AABs), for payment of necessary penalties.

11) How is Income Tax payable of individuals (resident citizens and non-resident citizens)computed? Gross Income
Less: Allowable Deductions (Itemized or Optional) Net Income Less: Personal & Additional Exemptions Net Taxable Income Multiply by Tax Rate (5 to 32%) Income Tax Due: Tax withheld (per BIR From 2316/2304) Income tax payable P ___________ ___________ P ___________ ___________ P ___________ ____________ P ___________ P____________

12) How is Income Tax paid? Through withholding o

or 15% if the gross annual business or professional income exceeds P720,000 per year
Generally 10% 20% - Fees paid to directors who are not employees and 20% of professional fees paid to non-individuals Other withholding tax rates

o o

Pay the balance as you file the tax return, computed as follows: Income Tax Due
Less: Withholding Tax Net Income Tax Due P ___________ ___________ P ___________