Kinds of Income Taxpayers

Individual Taxpayers.
Taxpayer - a person subject to tax imposed by Tax Code 1. Citizens of the Phils.
(Income Tax). 2. Aliens
Person – means any individual, a trust, estate or corporation. Citizens
Person – generic term used to refer to an income 1. Resident
taxpayer who may be an individual, estate, partnership, 2. Non- resident
association or corporation. Aliens
Person liable to tax – person subject to tax. 1. Resident alien
Both has legal duty to pay tax. 2. Non – resident alien

Important of Tax Status of Taxpayer – generally considered in Non-resident aliens

determining his / its income tax liability.
Resident Citizens and Domestic Corporations – are
taxable on their worldwide income
Other Types of individual and corporate taxpayers- are
taxable on income derived from sources within the Philippines
1. Engaged in trade or business in the Phils.
2. Not engaged in trade or business in the
Phils.
Ciitizens of the Phils.
Art. 3, Sec. 1 – 1987 Phil. Constitution

Citizens of the Phils. – taxable on all income derived 1. Those who re citizens of the Philippines at
from sources within and and without the Philippines. the time of the adoption of the Constitution
Non- resident citizen – is taxable only on income derived (Feb. 2, 1987);
from sources within the Philippines. 2. Those whose fathers or mothers are citizens
Citizen of the Phils. – working and deriving income from of the Philippines;
abroad as an overseas contract worker is taxable only on income 3. Those born before January 17, 1973 (date of
from sources within the Phils. adoption of the 1973 Constitution), of
Alien individual – whether resident or not of the Phils., Filipino mothers, who elect Philippine
is taxable only on income derived from sources within the Phils. citizenship upon reaching the age of
Domestic Corporation – taxable on all its income from majority; and
sources within and without the Philippines. 4. Those who are naturalized in accordance
Foreign Corporation – whether resident or not, is with law.
taxable only on income from sources within the Phils.
*Citizens of the Philippines - who marry aliens shall retain their
citizenship, unless by their omission they are deemed, under the
law, to have renounced their citizenship.
Philippine citizenship may be lost or reacquired in the manner
provided by law.
Citizen – Generally, one tax status during the calendar
year, either resident or non- resident citizen.
Exception: dual status (resident and non-
resident).
Residence of Citizens
Residence is important, to determine if a person
is taxable on his worldwide income if he is treated as resident
citizen, and he shall also be taxable on his income from sources
within the Philippines.
He shall be exempted on his income from source outside
the Phils. If he qualifies as a non-resident citizens.
A resident citizen of the Philippines is taxed on his
worldwide income because of the protection he gets from the
Phil. Government even when he is outside the country. The
Philippines retains personal jurisdiction over the person of the
citizen no matter how long as he remains citizen.
Resident Citizens
a. Can be engaged in trade or business or in the
exercise of his profession in the Phils.
b. Not engaged in trade or business or in the exercise
of his profession in the Phils.
c. Engaged in trade or business or in the exercise of his
profession and at the same time, he derives
compensation and / or other income. (mixed
income).
Resident citizens – derives non business or professional
income, but:
a. He receives either compensation income (er-
ee relationship);
b. He realizes capital gain from the sale or
transfer of shares of stock of a domestic
corporation or real property;
c. He derives passive investment income.
Non – resident citizens
1. 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;
2. 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;
3. 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;
4. A citizen who has been previously
considered s non-resident citizen and who
arrives in the Philippines at any time during
the taxable year to reside permanently in
the Philippines.
Balikbayan trip to Manila – non-resident citizen under
Balikbayan Program did not interrupt his residence abroad.
Sec. 22 (e) (2) of the 1997 Tax Code – the employment
abroad of a citizen must be “on a permanent basis” and not just
on a “more or less permanent basis” required under the 1977
Tax Code, as amended.
Pilots, sterwardesses, and other crew members- plying
international routes who are holders of immigrant or working
visas and have left the Philippines qualify as non-resident
citizens. The fact that their salaries are paid locally does not
remove them from this category.
Employees under second agreement- The employees of a
company who are assigned abroad through secondary
agreement with its overseas client are classified as non-resident
citizens or overseas contract workers, or if the worker’s
employment contract passes through the POEA.
Aliens – classified as 1. Resident; 2. Non-resident.
Residence of Aliens
Tax Code does not define “residence”, but provide
relevant guidelines on this matter.
Alien – actually present in the Philippines who is not a
mere transient or sojourner is a resident of the Philippines for
income tax purposes.
If he lives in the Philippines and has no definite intention
as to his stay, he is a resident.
One who comes to the Philippines for a definite purpose,
which may be promptly accomplished, is a transient.
But if his purpose is of such nature that an extended stay
may be necessary for its accomplishment, and to that end the
alien make his home temporarily in the Philippines, he becomes
a resident, though it may be his intention at all times to return to
his domicile abroad when the purpose for which he came has
been consummated or abandoned.
A resident alien loses his residence status if he actually
leaves the Philippines and abandons his residency thereof
without any intention of returning.
It has been rules that the fact that a resident alien leaves
the Philippines with a re-entry permit proves that he has not
abandoned of returning.
Resident Aliens
Is an individual whose residence is within the Philippines
and who is not a citizen thereof.
He is taxed in the same manner as resident citizen,
except that only his income from Philippine sources is taxable in
the Philippines beginning January 1, 1998.
A resident alien – up to Dec. 31, 1997 was subject to
income tax on his worldwide income.
Non-resident Aliens
Is an individual whose residence is not within the
Philippines and who is not a citizen thereof.
a. Engaged in trade or business in the Philippines
 5-32% tax rate; 20% subject to final tax passive
investment income.
b. Not engaged in trade or business in the Philippines
25% tax rate income sources within the
Philippines, compensation income, business or
professional income, capital gain, passive
investment income and other income sources
within the Philippines.
Capital gains from sale or exchange of shares of
stocks in domestic corporation and real
property shall be subject to capital gains tax or
stock transaction tax as the case may be.
Engaged in trade or business in the Philippines includes the
performance of personal services within the Philippines.
Individuals subject to preferential tax rates
Certain individuals who are employed in the Philippines
are entitled to the 15% preferential income tax rate on their
gross compensation income from sources within the Philippines,
These employees are alien individuals employed by:
a. Regional or area headquarters and regional
operating headquarters of multinational companies
in the Philippines;
b. Offshore banking units established in the Philippines;
c. Foreign service contractor or subcontractor engaged
in petroleum operations in the Philippines.
The same tax treatment shall apply to Filipinos employed and
occupying the same position as those of aliens employed by the
entities mentioned above, regardless whether or not there is an
alien executive occupying the same position.
Filipinos employed by letter a governed by EO 226 as amended
by RA 8756 – choose tax rates
1. 15% preferential tax rates on their gross income or
2. Graduated tax rates
Estate and Trusts
Are taxed in the same manner and on the same basis as
an individual.
However, it is entitled only to personal exemption
equivalent to a single individual in the amount of 50,000
effective July 6, 2008
Co –ownership
Co–owners report their share of the income from the
property owned in common by them in their individual tax
returns for the year and the co ownership is not considered s a
separate taxable entity or a corporation as defined in sec 22b of
the 1997 Tax Code.
General Professional Partnership
It is formed by persons for the sole purpose of exercising
their common profession, no part of the income of which is
derived from engaging in any trade or business.
It is not considered as a taxable entity for income tax
purposes.
The partners themselves, are liable for the payment of
income tax in their individual capacity computed on their
respective distributive shares of the partnership profit.
Graduated rates of income tax ranging from 5-32% .

Corporations
Domestic – created or organized in the Philippines or
under its laws.
Foreign - a corporation is not a domestic.
Resident foreign corporation – engaged in trade
or business within the Phiippines.
Non-resident foreign corporation – not engaged
in trade or business within the Philippines.
Test in determining residence of a corporation
Law of incorporation test. – a corporation is considered
domestic corporation, if it is organized or created in accordance
with or under the laws of the Philippines. Foreign if it is
organized or created in accordance with or under the laws of a
foreign country.
A corporation registered under SEC- domestic
corporation provided it is organized under the laws of the
Philippines even if managed and controlled by foreigners.
A corporation established by Filipino citizens under the
laws of a foreign country will be treated as a foreign corporation,
and the branch that such foreign corporation sets up in the
Philippines is a resident foreign corporation.
Domestic Corporation
Taxable on all income derived from sources within and
without the Philippines,
Foreign Corporation – taxable only on income derived from
sources within the Philippines.
Corporation – under the Tax Code includes all types of
corporations, partnerships – no matter how created or
organized, joint stock companies, joint account associations, or
insurance companies whether or not registered with the SEC.
However, it does not include the following:
a. General professional partnership
b. Joint venture or consortium formed for the purpose
of undertaking construction projects, or
c. Joint venture or consortium engaging in petroleum,
coal, geothermal and other energy operations
pursuant to an operating or consortium agreement
under a service contract with the government.
Corporation – includes not only private corporations organized
under the corporation law and GOCC, but also registered or
unregistered general partnerships, limited partnerships, joint
stock companies, insurance companies, joint venture except
those expressly exempt by law, and similar entities.
Bank with RDU and FCDU
General Rule: One Income Tax Return shall be filed by
the taxpayer in reporting his income for a taxable year.
Exception: banks which perform regular banking
activities through the Regular Banking Unit (RBU) and at the
same time have Foreign Currency Deposit Units (FCDU) dealing
in foreign currency transactions.
Banks which is authorized to operate an FCDU is considered for
income tax purposes to have dual tax status.
Income of the bank from its RBI = subject to the regular income
tax rate or MCIT under Sec. 27(Rates on Income Tax on Domestic
Corporations) of the Tax Code, or Sec. 28 (Rates in Foreign
Corporations).
Income derivbed under the Expanded Foreign Currency Deposit
System from foreign currency transactions with local commercial
bank, including branches of foreign banks authorized by BSP
transact business with FCDU’s and other depository banks under
the expanded foreign curency deposit system, including interest
income from foreign currency loans granted by FCDU’s to
residents = are subject to a final tax at the rate of 10% of suc
income pursuant to Secs. 27 (D)(3) and 28 (A)(7)(b) of the Code.
Other FCDU income which could not be classified as either
onshore or offshore = subject to the regular income tax rate
under Sec. 27 (A) or (E) or 28(A) (1) or (2).
Filing of 2 income tax return (BIR FORM 1702)
1. Exclusively for its RBU – RBU Income
2. Covering FCDU transactions income subject to the
10% rate and other income of the FCDU subject to
the regular corporate income tax rate. – FCDU
Income
Local Water Districts
- Subject to corporate income tax despite the fact that
they are GOCC incorporated as public utilities, since
they are not composite of the essential government
functions as contemplated by law.
- The Income Tax Exemption Privilege granted to local
water districts was limited to a period of 5 years
from the effectivity of RA 7109 on Aug. 13, 1996.
Partnership taxable as a Corporation
Except for a general professional partnership and an
unincorporarted joint venture or consortium engaged in
construction or energy projects under Sec.22(B) of the
Tax Code, which is in reality also a partnership.
The Tax Code mandates that every other type of
business partnership is subject to income tax in the same
manner and at the same rate as a corporation.
Business Partnership Net Income = subject to 30%
regular corporate income tax.
General Professional Partnership = exempt from income
tax.
Joint Venture and Consortium
Joint Venture –
a. Each party to the venture must make a
contribution, not necessarily of capital but
by way of services, skill, knowledge, material
or money;
b. Profits must be shared among the parties;
c. There must be a joint proprietary interest
and right of mutual control over the subject
matter of the enterprise;
d. There is single business transaction.
Exempt Joint Venture or Consortium
Exempt joint venture is an unincorporated
jopint venture engaged in construction or energy-
related project.
Joint Venture / Consortium – Sec. 22(B) – not
considered as a separate taxable entity.
The net income or lose of the joint venture or
consortium is taken up and reported by the co-ventures
or consortium members in accordance with their
participation in the project as set forth in their
agreement.
2 elements must be present:
1. Unincorporated Entity – (entity not registered with
the SEC);
2. For the purpose of undertaking construction or
energy-related project.
Foreign joint venture not selling services in the
Philippines
A joint venture or consortium formed among non
resident foreign corporations in connection with a
local project in the Philippines – is not subject to
Philippine Income Tax.
Where said foreign joint venture or consortium
does not sell goods nor perform any service int the
Philippines.
It is anchored on the fact that a foreign
corporation is taxable only on income from sources
within the Philippines.
No withholding tax is required to be deducted
and withheld by thge Philippine payor from income
payments to the foreign joint venture or consortium.
Exempt joint venture may become taxable partnership.
An exempt joint venture or consortium undertaking a
construction of office tower project may subsequently become
subject to income tax as a separare joint venture or consortium,
where after the construction period, the joint venture partners
engaged in the business of leasing the building floors or portions
thereof separately owned by them.
The tax exemption of the joint venture granted under
the law is valid only up to the completion of the construction
project and does not extend to the sale or lease of the
developed condominium floors or units to customers after the
completion of the project.
Books of accounts and records of exempt joint venture.
Since no IRR for this particular provision, a joint venture
or consortium may:
a. Maintain and keep a separate set of books for the
project and the share of the joint venture or
consortium member in the net incme or loss of the
venture or consortium at the end of the year may be
reported by it in its income tax return; or
b. Choose not to maintain a separate set of books for
the joint venture or consortium and record all its
transactions relating to the project in its own books
of accounts.
In any case, it appears that the joint venture or
consortium is not required under existing rules to file
an information return for the project.