TAXATION INCOME TAX

NOTES AND CLASSIFICATION OF TAXPAYERS AND TAXABLE SOURCES OF INCOME

What is income?

 Income means all wealth which flows into the taxpayer other than as a mere return of capital.

What is income tax?

 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 if any, authorized for such types
of income, by the Tax Code, as amended, or other special laws.

CLASSIFICATION OF TAXPAYER TAXABLE SOURCES

Resident Citizen ALL SOURCES
Nonresident Citizen Within
Overseas Contract Worker / Seaman Within
Resident Alien Within
Nonresident Alien Within
Domestic Corporation ALL SOURCES
Foreign Corporation Within

Under the 1987 Philippine Constitution, Article IV, Section 1, it states that The following are CITIZENS of
the Philippines:

1. Those who are citizens of the Philippines at the time of the adoption of this Constitution;

2. Those whose fathers or mothers are citizens of the Philippines;

3. Those born before January 17, 1973, of Filipino mothers, who elect Philippine citizenship
upon reaching the age of majority; and

4. Those who are naturalized in accordance of law

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TAXATION INCOME TAX

FILING OF INCOME TAX RETURNS

Who are REQUIRED to File Income Tax Returns?

I. Individuals

1. RESIDENT CITIZENS

Employees deriving purely compensation income from two or more employers,

concurrently or successively at any time 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

2. NON-RESIDENT CITIZENS

3. ALIENS

II. Non-Individuals

1. Corporations including partnerships, no matter how created or organized.

2. Domestic corporations

3. Foreign corporations

4. Estates and trusts engaged in trade or business

Who are NOT REQUIRED to file Income Tax returns?

a. An individual earning purely compensation income whose taxable income does not exceed
P250,000.00

b. An individual whose income tax has been withheld correctly by his employer, provided that
such individual has only one employer for the taxable year

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c. An individual whose sole income has been subjected to final withholding tax or who is
exempt from income tax pursuant to the Tax Code and other special laws.

d. An individual who is a minimum wage earner

e. Those who are qualified under “substituted filing”. However, substituted filing applies only
if ALL of the following requirements are present:

 the employee received purely compensation income (regardless of amount) during

the taxable year;
 the employee received the income from only one employer in the Philippines
during the 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 employee’s 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 to each employee.

Who are EXEMPT from Income Tax?

a. Income from abroad of a non-resident citizen who is:

i. 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

ii. 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

iii. 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

iv. 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.

b. 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.

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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.

c. General Professional Partnership

d. Government Service Insurance System (GSIS)

e. Social Security System (SSS)

f. Philippine Health Insurance Corporation (PHIC)

g. Local Water Districts (LWD)

What are the procedures in filing INCOME TAX RETURNS (ITRs)?

a. For “with payment” ITRs

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, file the return 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.

b. 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 not be accepted by the RDO but
instead, they shall be filed with an Authorized Agent Bank (AAB) or Collection
Officer/Deputized Municipal Treasurer (in places where there are no AABs), for collection
of necessary penalties.

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How is Income Tax Paid?

A. Through withholding

a. Individual Payee: Rate

If the gross annual business or professional income did not exceed 5%
P3,000,000.00
If the gross annual business or professional income is more than 10%
P3,000,000.00
b. Non-individual Payee Rate
If the gross annual business or professional income did not exceed 10%
P720,000.00
If the gross annual business or professional income is more than 15%
P720,000.00

B. Pay the balance as you file the tax return, computed as follows:

Income Tax Due P ___________

Less: Withholding Tax ___________

Net Income Tax Due* P ___________

*Note:

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

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GROSS INCOME

What is Taxable Income?

 Taxable income means the pertinent items of gross income specified in the Tax Code as amended,
less the deductions, if any, authorized for such types of income, by the Tax Code or other special
laws.

What is Gross Income?

 Gross income means all income derived from whatever source.

What comprises gross income?

Gross income includes, but is not limited to the following: (NOT EXCLUSIVE) MEMORIZE!

 Compensation for services, in whatever form paid, including but not limited to fees, salaries, wages,
commissions and similar items
 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

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 not exceeding P90,000
 GSIS, SSS, Medicare and other contributions
 Gains from the sale of bonds, debentures or other certificate of indebtedness with a maturity of
more than five (5) years
 Gains from redemption of shares in mutual fund

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What are the ALLOWABLE DEDUCTIONS FROM GROSS INCOME?

a) Optional Standard Deduction

- an amount not exceeding 40% of the gross sales/receipts for individuals and gross income
for corporations; or

- Not allowed to non-resident alien individual

- A General Professional Partnership (GPP) may avail of the OSD only once, either by the
GPP or the partners comprising the partnership

b) Itemized Deductions which include the following :

 Expenses
 Interest
 Taxes
 Losses
 Bad Debts
 Depreciation
 Depletion of Oil and Gas Wells and Mines
 Charitable Contributions and Other Contributions- Research and Development
 Pension Trusts

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INCOME TAX RATES

I. For Individuals who are :

A. Citizens - Earning Purely Compensation Income

B. Resident Aliens - Earning Purely Compensation Income

C. Individuals Engaged in Business and Practice of Profession

Graduated Income Tax Rates (FAMILIARIZE)

Amount of Net Taxable Income Rate

Over But Not Over
- P250,000 0%
P250,000 P400,000 20% of the excess over P250,000
P400,000 P800,000 P30,000 + 25% of the excess over P400,000
P800,000 P2,000,000 P130,000 + 30% of the excess over P800,000
P2,000,000 P8,000,000 P490,000 + 32% of the excess over P2,000,000
P8,000,000 P2,410,000 + 35% of the excess over P8,000,000

For Purely Self-Employed Individuals and/or Professionals

Whose Gross Sales/Receipts and Other Non-Operating Income

Do Not Exceed the VAT Threshold of P3,000,000, the tax shall be, at the taxpayer’s option:

1. 8% Income Tax on Gross Sales or

Gross Receipts in Excess of P250,000 in Lieu of the Graduated Income Tax Rates and the
Percentage Tax; Or

2. Income Tax Based on the Graduated Income Tax Rates

For Individuals Earning Both Compensation Income and

Income from Business
and/or Practice of Profession, their income taxes shall be:

1. For Income from Compensation - Graduated Income Tax Rates; and

2. For Income from Business and/or Practice of Profession:
1. If the total Gross Sales/Receipts Do Not Exceed VAT Threshold of
P3,000,000, the Individual Taxpayer May Opt to Avail:
1. 8% Income Tax on Gross Sales/Receipts and Other Non-Operating
Income in Lieu of the Graduated Income Tax Rates and the
Percentage Tax; Or
2. Income Tax Based on Graduated Income Tax Rates

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2. If the total Gross Sales/Receipts Exceed VAT Threshold of P3,000,000

1. Income Tax Based on Graduated Income Tax Rates

On Certain Passive Income of Individual Citizens and Resident Aliens

Passive Income Tax Rate

1. Interest from currency deposits, trust funds and deposit substitutes 20%
2. Royalties (on books as well as literary & musical compositions) 10%
- In general 20%
3. Prizes (P10,000 or less ) Graduated
Income Tax
Rates
- Over P10,000 20%
4. Winnings (except from PCSO and Lotto amounting to P10,000 or less ) 20%
- From PCSO and Lotto amounting to P10,000 or less exempt
5. Interest Income from a Depository Bank under the Expanded Foreign 15%
Currency Deposit System
6. Cash and/or Property Dividends received by an individual from a domestic 10%
corporation/ joint stock company/ insurance or mutual fund companies/
Regional Operating Headquarter of multinational companies
7. Share of an individual in the distributable net income after tax of a 10%
partnership (except GPPs)/ association, a joint account, a joint venture or
consortium taxable as corporation of which he is a member or co-venture
8. Capital gains from sale, exchange or other disposition of real property 6%
located in the Philippines, classified as capital asset
9. Net Capital gains from sale of shares of stock not traded in the stock 15%
exchange
10. Interest Income from long-term deposit or investment in the form of savings, Exempt
common or individual trust funds, deposit substitutes, investment management
accounts and other investments evidenced by certificates in such form
prescribed by the Bangko Sentral ng Pilipinas (BSP)
Upon pre-termination before the fifth year, there should be imposed on the
entire income from the proceeds of the long-term deposit based on the remaining
maturity thereof:
Holding Period
- Four (4) years to less than five (5) years 5%
- Three (3) years to less than four (4) years 12%
- Less than three (3) years 20%

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I. For Non-Resident Aliens Not Engaged in Trade or Business (NRA NETB)

A. Tax Rate in General – on taxable income from all sources within the same manner as
Philippines individual
citizen and
resident alien
individual
B. Certain Passive Income Tax Rates
1. Interest from currency deposits, trust funds and deposit substitutes 20%
2. Royalties (on books as well as literary & musical compositions) 10%
- In general 20%
3. Prizes (P10,000 or less ) Graduated
Income Tax
Rates
- Over P10,000 20%
4. Winnings (except from PCSO and Lotto) 20%
- From PCSO and Lotto exempt
5. Cash and/or Property Dividends received from a domestic corporation/ joint 20%
stock company/ insurance/ mutual fund companies/ Regional Operating
Headquarter of multinational companies
6. Share of a non-resident alien individual in the distributable net income after 20%
tax of a partnership (except GPPs) of which he is a partner or from an
association, a joint account, a joint venture or consortium taxable as
corporation of which he is a member or co-venture
7. Interest Income from long-term deposit or investment in the form of savings, Exempt
common or individual trust funds, deposit substitutes, investment management
accounts and other investments evidenced by certificates in such form
prescribed by the Bangko Sentral ng Pilipinas (BSP)
Upon pre-termination before the fifth year, there should be imposed on the
entire income from the proceeds of the long-term deposit based on the
remaining maturity thereof:
Holding Period
- Four (4) years to less than five (5) years 5%
- Three (3) years to less than four (4) years 12%
- Less than three (3) years 20%
8. Capital from the sale, exchange or other disposition of real property located 6%
in the Philippines classified as capital asset
9. Net Capital gains from sale of shares of stock not traded in the Stock
Exchange
- Not over P100,000 5%
- Any amount in excess of P100,000 10%

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II. For Non-resident Aliens Not Engaged in Trade or Business

1. Gross amount of income derived from all sources within the Philippines 25%
2. Capital gains from the exchange or other disposition of real property located in the 6%
Philippines
3. Net Capital gains from the sale of shares of stock not traded in the Stock Exchange
- Not Over P100,000 5%
- Any amount in excess of P100,000 10%

III. For Alien Individuals Employed by Regional Headquarters (RHQ) or Area Headquarters and
Regional Operating Headquarters (ROH) of Multinational Companies, Offshore Banking Units
(OBUs), Petroleum Service Contractor and Subcontractor

On the gross income consisting of salaries, wages, annuities, compensation, Graduated

remuneration and other emoluments, such as honoraria and emoluments Income Tax
derived from the Philippines Rates

IV. For General Professional Partnerships

Net Income of the Partnerships 0%

V. For Domestic Corporations

Rates of Tax on Certain Passive Income of Corporations Tax Rate

1. Interest from currency deposits, trust funds, deposit substitutes and similar 20%
arrangements received by domestic corporations
2. Royalties from sources within the Philippines 20%
3. Interest Income from a Depository Bank under Expanded Foreign Currency 15%
Deposit System
4. Cash and Property Dividends received by a domestic corporation from 0%
another domestic corporation
5. Capital gains from the sale, exchange or other disposition of lands and/or 6%
building
6. Net Capital gains from sale of shares of stock not traded in the stock 15%
exchange

VI. *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.

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VII. For Resident Foreign Corporation

1) a. In General – on taxable income derived from sources within the 30%

Philippines
b. Minimum Corporate Income Tax – on gross income 2%
c. Improperly Accumulated Earnings – on improperly accumulated taxable 10%
income
2) International Carriers – on gross Philippine billings 2½%
3) Regional Operating Headquarters of Multinational Companies– on taxable 10%
income
4.) Regional or Area Headquarters of Multinational Companies exempt
5) Corporation Covered by Special Laws Rate specified
under the
respective
special laws
6) Offshore Banking Units (OBUs) 10%
In general – Income derived by OBUs from foreign currency transactions with Exempt
non-residents, other OBUs, local commercial banks and branches of foreign
banks authorized by BSP
On interest income derived from foreign currency loans granted to residents 10%
other than offshore banking units or local commercial banks, local branches of
foreign banks authorized by BSP to transact business with OBUs
7) Income derived under the Expanded Foreign Currency Deposit System
Interest income derived by a depository bank under the expanded foreign 7½%
currency deposit system.
On Income derived by depository banks under the expanded foreign exempt
currency deposit systems from foreign currency transactions with non-
residents, OBUs in the Philippines, local commercial banks including branches
of foreign banks that may be authorized by BSP
On interest income derived from foreign currency loans granted by 10%
depository banks under the expanded foreign currency deposit systems to
residents other than offshore banking units in the Philippines or other
depository banks under the expanded system
8.) Branch Profit Remittances – on total profits applied or earmarked for 15%
remittance without any deduction for the tax component thereof (except those
activities which are registered with the Philippines Economic Zone Authority)
9.) Interest from currency deposits, trust funds, deposit substitutes and similar 20%
arrangements
10. Royalties derived from sources within the Philippines 20%

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MINIMUM CORPORATE INCOME TAX

Is the MINIMUM CORPORATE INCOME TAX (MCIT) an addition to the regular or normal income tax?

 No, the MCIT is not an additional tax.

 An MCIT of 2% of the gross income as of the end of taxable year (whether calendar or fiscal year,
depending on the accounting period employed) is imposed on a corporation taxable under Title II
of the Tax Code, as amended, beginning on the 4th taxable year immediately following the taxable
year in which such corporation commenced its business operations when the MCIT is greater than
the regular income tax.

 The MCIT is compared with the regular income tax, which is due from a corporation.

 If the regular income is higher than the MCIT, then the corporation does not pay the MCIT but the
amount of the regular income tax.

Who are covered by MCIT?

 The MCIT covers domestic and resident foreign corporations which are subject to the regular
income tax.
o The term “regular income tax” refers to the regular income tax rates under the Tax Code.
o Thus, corporations which are subject to a special corporate tax or to preferential rates
under special laws do not fall within the coverage of the MCIT.

 For corporations whose operations or activities are partly covered by the regular income tax and
partly covered by the preferential rate under special law, the MCIT shall apply the regular income
tax rate on its operations not covered by the tax incentives.
o Newly established corporations or firms which are on their first 3 years of operations are
not covered by the MCIT.

When does a corporation start to be covered by the MCIT?

 A corporation starts to be covered by the MCIT on the 4th year following the year of the
commencement of its business operations.
 The period of reckoning which is the start of its business operations is the year when the corporation
was registered with the BIR. This rule will apply regardless of whether the corporation is using the
calendar year or fiscal year as its taxable year.

When is the MCIT reported and paid? Is it quarterly?

 The MCIT is paid on an annual basis and quarterly basis. The rules are governed by Revenue
Regulations No. 12-2007.

How is MCIT computed?

 The MCIT is 2% of the gross income of the corporation at the end of the taxable year.

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 The computation and the payment of MCIT, shall likewise apply at the time of filing the quarterly
corporate income tax as prescribed under Section 75 and Section 77 of the Tax Code, as
amended.

o Thus, in the computation of the tax due for the taxable quarter, if the computed quarterly
MCIT is higher than the quarterly normal income tax, the tax due to be paid for such taxable
quarter at the time of filing the quarterly income tax return shall be the MCIT which is two
percent (2%) of the gross income as of the end of the taxable quarter.

 “Gross income” means gross sales less sales returns, discounts and cost of goods sold.
o Passive income, which have been subject to a final tax at source do not form part of gross
income for purposes of computing the MCIT.
o Cost of goods sold includes all business expenses directly incurred to produce the
merchandise to bring them to their present location and use.

 For trading or merchandising concern, cost of goods sold means the invoice cost of goods sold,
plus import duties, freight in transporting the goods to the place where the goods are actually sold,
including insurance while the goods are in transit.

 For a manufacturing concern, cost of goods manufactured and sold means all costs of production
of finished goods such as raw materials used, direct labor and manufacturing overhead, freight
cost, insurance premiums and other costs incurred to bring the raw materials to the factory or
warehouse.
 “Gross Receipts” means amounts actually or constructively received during the taxable year.
However, for taxpayers employing the accrual basis of accounting, it means amounts earned as
gross income.

What is the CARRY FORWARD PROVISION under the MCIT?

 Any excess of the MCIT over the normal income tax may be carried forward and credited against
the normal income tax for the three (3) immediately succeeding taxable years.

How would the MCIT be recorded for accounting purposes?

 Any amount paid as excess minimum corporate income tax should be recorded in the corporation’s
books as an asset under account title “Deferred charges-MCIT”

How long can we amend our income tax return?

 There is no prescription period for amending the return. When the taxpayer has been issued a
Letter of Authority, he can no longer amend the return.

Can a benefactor of a senior citizen claim him/her as additional dependent in addition to his/her 3
qualified dependent children at Php25,000 each?

 No, additional exemptions of individual taxpayers are removed under RA 10963 (TRAIN Law)

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IMPROPERLY ACCUMULATED EARNINGS TAX

Improperly Accumulated Earnings Tax shall be imposed on every corporation formed or availed
for the purpose of avoiding the income tax with respect to its shareholders for the purpose of avoiding the
income tax with respect to its shareholders or the shareholders of any other corporation, by permitting
earnings and profits to accumulate instead of being divided or distributed.

IAET DOES NOT APPLY to :

 Banks and other non-bank financial intermediaries

 Insurance companies
 Publicly-held corporations
 Taxable partnerships
 General professional partnership
 Non-taxable joint ventures
 Enterprises duly registered with the Philippine Economic Zone (PEZA) under RA 7916 and
enterprises registered pursuant to the Bases Conversion and Development Act of 1992 under
RA 7227

CAPITAL GAINS TAX ON REAL PROPERTY

Capital Gains Tax is a tax imposed on the gains presumed to have been realized by the seller from the sale,
exchange, or other disposition of capital assets located in the Philippines, including pacto de retro sales and other
forms of conditional sale.

Who shall file

 The Capital Gains Tax Return (BIR Form No. 1706) shall be filed in triplicate copies by the
Seller/Transferor who are natural or juridical whether resident or non-resident, including Estates
and Trusts, who sell, exchange, or dispose of a real property located in the Philippines classified
as capital asset as defined under Sec. 39 (A) (1) of RA No. 8424. The term “sale” includes pacto
de retro sale and other forms of conditional sales. The transaction may be taxable or exempt.

When and Where to File and Pay

 The Capital Gains Tax Return (BIR Form No. 1706) shall be filed and paid within thirty (30) days
following the sale, exchange or disposition of real property, with any Authorized Agent Bank (AAB)
or Revenue Collection Officer (RCO) of the Revenue District Office (RDO) having jurisdiction over
the place where the property being transferred is located.

Tax Rate For real property - 6%

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CAPITAL GAINS TAX FOR ONEROUS TRANSFER OF

SHARES OF STOCKS NOT TRADED THROUGH THE LOCAL STOCK EXCHANGE

When and Where to File and Pay

 The Capital Gains Tax Return (BIR Form No. 1707) shall be filed and paid within thirty (30) days
after each sale, barter, exchange or other disposition of shares of stock not traded through the local
stock exchange with any Authorized Agent Bank (AAB) under the jurisdiction of the Revenue
District Office (RDO) where the seller/transferor is required to register.

Tax Rates ONEROUS TRANSFER OF SHARES OF STOCKS NOT TRADED THROUGH THE LOCAL
STOCK EXCHANGE

A. For Individual - 15 %

B. For Corporation:

1. Domestic - 15 %

2. Foreign:

2.1. Not Over P100,000 - 5.0 %

2.2. On any amount excess of P100,000 - 10 %

What is meant by capital asset?

 Capital assets shall refer to all real properties held by a taxpayer, whether or not connected with
his trade or business, and which are not included among the real properties considered as ordinary
assets under Sec. 39(A)(1) of the Code.

What is meant by ordinary asset?

 Ordinary assets shall refer to all real properties specifically excluded from the definition of capital
assets under Sec. 39(A)(1) of the Code, namely:
 Stock in trade of a taxpayer or other real property of a kind which would properly be
included in the inventory of the taxpayer if on hand at the close of the taxable year; or
 Real property held by the taxpayer primarily for sale to customers in the ordinary course of
his trade or business; or
 Real property used in trade or business (i.e., buildings and/or improvements) of a character
which is subject to the allowance for depreciation provided for under Sec. 34(F) of the
Code; or
 Real property used in trade or business of the taxpayer.
 Real properties acquired by banks through foreclosure sales are considered as ordinary assets.

What is the basis in the valuation of real property?

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 The value of the real property will be based on the selling price, fair market value or zonal value as
determined by the Commissioner of Internal Revenue or the fair market value as shown in the
schedule of values of the Provincial or City Assessor, whichever is higher.
 If there is no zonal value, the taxable base shall be the gross selling price per sales documents or
the fair market value that appears in the latest tax declaration, whichever is higher.
 If there is an improvement, the FMV, based on the latest tax declaration at the time of the sale or
disposition, duly certified by the City/Municipal Assessor shall be used. No adjustments shall be
added on the said value, provided that the tax declaration bears the upgraded fair market value of
the said property pursuant to Section 219 of Republic Act No. 7160, otherwise known as the Local
Government Code of 1991 and the last paragraph of the Local Assessment Regulations No. 1-92
dated October 6, 1992.
 However, in case the tax declaration presented was issued three (3) or more years prior to the date
of sale or disposition of the real property, the seller/transferor shall be required to submit a
certification from the City/Municipal Assessor whether or not the same is still the latest tax
declaration covering the said real property. Otherwise, the taxpayer shall secure its latest tax
declaration and shall submit a copy thereof duly certified by the said Assessor.

Who/what are considered exempt from the payment of Final Capital Gains Tax?

 Dealer in securities, regularly engaged in the buying and selling of securities

 An entity exempts from the payment of income tax under existing investment incentives and
other special laws
 An individual or non-individual exchanging real property solely for shares of stocks resulting in
corporate control
 A government entity or government-owned or controlled corporation selling real property
 If the disposition of the real property is gratuitous in nature
 Where the disposition is pursuant to the CARP law

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WITHHOLDING TAX

MINIMUM WAGE EARNERS

 No withholding tax shall be required on the Statutory Minimum Wage (SMW) of the Minimum Wage
earner in the private/public sectors as defined in RR 2-98, as amended by RR 11-2018, including:
o Holiday pay
o Overtime pay
o Night shift differential
o Hazard pay

of Minimum Wage earners in the private/public sectors as defined by these Regulations.

FRINGE BENEFITS GRANTED TO EMPLOYEES (EXCEPT RANK AND FILE EMPLOYEES)

Fringe Benefit means any good, service or other benefits furnished or granted in cash or in kind by
an employer to an individual employee (except rank and file) such as but not limited to the following:

 Housing
 Expense account
 Vehicle of any kind
 Household personnel (maid, driver and others)
 Interest on loan at less than market rate to the extent of the difference between the market
rate and actual rate granted
 membership fees, dues and other expenses borne by the employer for the employee in social
and athletic clubs or other similar organizations
 Expenses for foreign travel
 Holiday and vacation expenses
 Educational assistance to employee or his dependents; and
 Life or health insurance and other non-life insurance premiums or similar amounts in excess
of what the law allows.

EXEMPTIONS AND EXCLUSIONS FROM GROSS INCOME

 Remuneration received as an incident of employment (RA 7641; those with approved reasonable
private retirement plan; Social Security Act of 1954, as amended; GSIS Act of 1937, as amended;
and etc.
 Remuneration paid for agricultural labor;
 Remuneration for domestic services;
 Remuneration for casual labor not in the course of an employer's trade or business;
 Compensation for services by a citizen or a resident of the Philippines for a foreign government or
international organization;
 Damages (Actual, moral, exemplary and nominal);
 Life insurance;
 Amounts received by the insured as a return of premium;
 Compensation for injuries or sickness;
 Income exempt under treaty

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TAXATION INCOME TAX

 13th Month pay and other benefits

 GSIS, SSS, Medicare and other contributions (employee's share only)
 Compensation income of minimum wage earners (MWEs) who work in the private sector and
being paid the Statutory Minimum Wage (SMW), as fixed by the Regional Tripartite Wage and
Productivity Board (RTWPB)/National Wages Productivity Commission (NWPC), applicable to the
place where he/she is assigned;
 Compensation income of employees in the public sector with compensation income of not more
the the SMW in the non-agricultural sector as fixed by the RTWPB?NWPC applicable to the place
where he/she is assigned.
 De Minimis benefits
 Fringe benefits given to employees other than rank and file and subjected to Fringe Benefit Tax
(FBT);
 Personnel Economic Relief Allowance (PERA) given to government employees; and
Representation and transportation allowance (RATA granted to public officers and employees
under the General Appropriations Act.

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TAXATION VAT

VALUE-ADDED TAX

Value-Added Tax (VAT) is a form of sales tax. It is a tax on consumption levied on the sale, barter,
exchange or lease of goods or properties and services in the Philippines and on importation of goods into
the Philippines. It is an indirect tax, which may be shifted or passed on to the buyer, transferee or lessee
of goods, properties or services.

Who are Required to File VAT Returns?

 Any person or entity who, in the course of his trade or business, sells, barters, exchanges, leases
goods or properties and renders services subject to VAT, if the aggregate amount of actual gross
sales or receipts exceed Three Million Pesos (Php3,000,000.00)
 A person required to register as VAT taxpayer but failed to register
 Any person, whether or not made in the course of his trade or business, who imports goods

Value-Added Tax Rates

 On sale of goods and properties

- twelve percent (12%) of the gross selling price or gross value in money of the goods or
properties sold, bartered or exchanged
 On sale of services and use or lease of properties
- twelve percent (12%) of gross receipts derived from the sale or exchange of services,
including the use or lease of properties
 On importation of goods

- twelve percent (12%) based on the total value used by the Bureau of Customs in
determining tariff and customs duties, plus customs duties, excise taxes, if any, and other
charges, such as tax to be paid by the importer prior to the release of such goods from
customs custody; provided, that where the customs duties are determined on the basis
of quantity or volume of the goods, the VAT shall be based on the landed cost plus excise
taxes, if any.

 On export sales and other zero-rated sales

- 0%

Who are liable to register as VAT taxpayers?

 Any person who, in the course of trade or business, sells, barters or exchanges goods or properties
or engages in the sale or exchange of services shall be liable to register if:
 His gross sales or receipts for the past twelve (12) months, other than those that are exempt under
Section 109 (A) to (U), have exceeded Three Million Pesos (P3,000,000.00): or
 There are reasonable grounds to believe that his gross sales or receipts for the next twelve (12)
months, other than those that are exempt under Section 109 (A) to (U), will exceed Three Million
Pesos (P3,000,000.00).

What is the liability of a taxpayer becoming liable to VAT and did not register as such?

 Any person who becomes liable to VAT and fails to register as such shall be liable to pay the output
tax as if he is a VAT-registered person, but without the benefit of input tax credits for the period
in which he was not properly registered.

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TAXATION VAT

Who may opt to register as VAT and what will be his liability?

 Any person who is VAT-exempt under Sec. 109 of the Tax Code, as amended, may, in relation to
Sec. 109 (2) of the same Code, elect to be VAT-registered by registering with the RDO that has
jurisdiction over the head office of that person, and pay the annual registration fee of P500.00 for
every separate and distinct establishment.
 Any person who is VAT-registered but enters into transactions which are exempt from VAT (mixed
transactions) may opt that the VAT apply to his transactions which would have been exempt under
Section 109 of the Tax Code, as amended.
 Franchise grantees of radio and/or television broadcasting whose annual gross receipts of the
preceding year do not exceed ten million pesos (P10,000,000.00) derived from the business
covered by the law granting the franchise may opt for VAT registration. This option, once
exercised, shall be irrevocable. (Sec. 119, Tax Code).
 Any person who elects to register under optional registration shall not be allowed to cancel his
registration for the next three (3) years.

What is the liability of a VAT-registered person in the issuance of a VAT invoice/ receipt for VAT-exempt
transactions?

 If a VAT-registered person issues a VAT invoice or VAT official receipt for a VAT-exempt transaction
but fails to display prominently on the invoice or receipt the words "VAT-EXEMPT SALE", the
transaction shall become taxable and the issuer shall be liable to pay the VAT thereon. The
purchaser shall be entitled to claim an input tax credit on his purchase.

What is "output tax"?

 Output tax means the VAT due on the sale, lease or exchange of taxable goods or properties or
services by any person registered or required to register under Section 236 of the Tax Code.

What is "input tax"?

 Input tax means the VAT due on or paid by a VAT-registered on importation of goods or local
purchase of goods, properties or services, including lease or use of property in the course of his
trade or business. It shall also include the transitional input tax determined in accordance with
Section 111 of the Tax Code, presumptive input tax and deferred input tax from previous period.

What comprises "goods or properties"?

The term "goods or properties" shall mean all tangible and intangible objects, which are capable of
pecuniary estimation and shall include, among others:

 Real properties held primarily for sale to customers or held for lease in the ordinary course of
trade or business;
 The right or the privilege to use patent, copyright, design or model, plan, secret formula or
process, goodwill, trademark, trade brand or other like property or right;
 The right or privilege to use in the Philippines of any industrial, commercial or scientific
equipment;
 The right or the privilege to use motion picture films, films, tapes and discs; and
 Radio, television, satellite transmission and cable television time.

What comprises "sale or exchange of services"?

 The term "sale or exchange of services" means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration, whether in kind or in cash,
including those performed or rendered by the following:
o Construction and service contractors;
o Stock, real estate, commercial, customs and immigration brokers;
o Lessors of property, whether personal or real;
o Persons engaged in warehousing services;
o Lessors or distributors of cinematographic films;

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TAXATION VAT

o Persons engaged in milling, processing, manufacturing or repacking goods for others;

o Proprietors, operators or keepers of hotels, motels, rest houses, pension houses, inns,
resorts, theatres, and movie houses;
o Proprietors or operators of restaurants, refreshment parlors, cafes, and other eating
places, including clubs and caterers;
o Dealers in securities;
o Lending investors;
o Transportation contractors on their transport of goods or cargoes, including persons who
transport goods or cargoes for hire and other domestic common carriers by land relative
to their transport of goods or cargoes;
o Common carriers by air and sea relative to their transport of passengers, goods or cargoes
from one place in the Philippines to another place in the Philippines;
o Sale of electricity by generating, transmission by any entity including the National Grid
Corporation of the Philippines (NGCP), and distribution companies including electric
cooperatives shall be subject to twelve percent (12%) VAT on their gross receipts.;
o Franchise grantees of electric utilities, telephone and telegraph, radio and/or television
broadcasting and all other franchise grantees, except franchise grantees of radio and/or
television broadcasting whose annual gross receipts of the preceding year do not exceed
Ten Million Pesos (P10,000,000.00), and franchise grantees of gas and water utilities;
o Non-life insurance companies (except their crop insurances), including surety, fidelity,
indemnity and bonding companies; and
o Similar services regardless of whether or not the performance thereof calls for the
exercise of use of the physical or mental faculties.

 The phrase "sale or exchange of services" shall likewise include:

o The lease of use of or the right or privilege to use any copyright, patent, design or model,
plan, secret formula or process, goodwill, trademark, trade brand or other like property
or right;
o The lease or the use of, or the right to use of any industrial, commercial or scientific
equipment;
o The supply of scientific, technical, industrial or commercial knowledge or information;
o The supply of any assistance that is ancillary and subsidiary to and is furnished as a means
of enabling the application or enjoyment of any such property, or right or any such
knowledge or information;
o The supply of services by a nonresident person or his employee in connection with the
use of property or rights belonging to, or the installation or operation of any brand,
machinery or other apparatus purchased from such non-resident person;
o The supply of technical advice, assistance or services rendered in connection with
technical management or administration of any scientific, industrial or commercial
undertaking, venture, project or scheme;
o The lease of motion picture films, films, tapes and discs; and
o The lease or the use of or the right to use radio, television, satellite transmission and cable
television time.

What is a zero-rated sale?

 It is a sale, barter or exchange of goods, properties and/or services subject to 0% VAT pursuant to
Sections 106 (A) (2) and 108 (B) of the Tax Code. It is a taxable transaction for VAT purposes, but
shall not result in any output tax. However, the input tax on purchases of goods, properties or
services, related to such zero-rated sales, shall be available as tax credit or refund in accordance
with existing regulations.

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TAXATION VAT

What transactions are considered as zero-rated sales?

The following services performed in the Philippines by VAT-registered person shall be subject to zero
percent (0%) rate:

a. Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported where the services are paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP);
b. Services other than processing, manufacturing or repacking rendered to a person engaged in
business conducted outside the Philippines or to a non-resident person engaged in business who
is outside the Philippines when the services are performed, the consideration for which is paid for
in acceptable foreign currency and accounted for in accordance with the rules and regulations of
the Bangko Sentral ng Pilipinas (BSP);
c. Services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such services
to zero percent (0%) rate;
d. Services rendered to persons engaged in international shipping or air transport operations,
including leases of property for use thereof; Provided, that these services shall be exclusively for
international shipping or air transport operations. (Thus, the services referred to herein shall not
pertain to those made to common carriers by air and sea relative to their transport of passengers,
goods or cargoes from one place in the Philippines to another place in the Philippines, the same
being subject to twelve percent (12%) VAT under Sec. 108 of the Tax Code, as amended);
e. Services performed by subcontractors and/or contractors in processing, converting, or
manufacturing goods for an enterprise whose export sales exceeds seventy percent (70%) of total
annual production;
f. Transport of passengers and cargo by domestic air or sea carriers from the Philippines to a foreign
country. (Gross receipts of international air carriers and international sea carriers doing business
in the Philippines derived from transport of passengers and cargo from the Philippines to another
country shall be exempt from VAT; however they are still liable to a percentage tax of three
percent (3%) based on their gross receipts derived from transport of cargo from the Philippines
to another country as provided for in Sec. 118 of the Tax Code, as amended); and
g. Sale of power or fuel generated through renewable sources of energy such as, but not limited to,
biomass, solar, wind, hydropower, geothermal and steam, ocean energy, and other shipping
sources using technologies such as fuel cells and hydrogen fuels; Provided, however that zero-
rating shall apply strictly to the sale of power or fuel generated through renewable sources of
energy, and shall not extend to the sale of services related to the maintenance or operation of
plants generating said power.

The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:

a. Export sales
1. The sale and actual shipment of goods from the Philippines to a foreign country,
irrespective of any shipping arrangement that may be agreed upon which may influence
or determine the transfer of ownership of the goods so exported, paid in acceptable
foreign currency or its equivalent in goods or services, and accounted for in accordance
with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
2. The sale of raw materials or packaging materials to a non-resident buyer for delivery to
as a resident local export-oriented enterprise to be used in manufacturing, processing,
packing or repacking in the Philippines of the said buyer's goods, paid for in acceptable
foreign currency, and accounted for in accordance with the rules and regulations of the
BSP;
3. The sale of raw materials or packaging materials to an export-oriented enterprise whose
export sales exceed seventy percent (70%) of total annual production;
4. Transactions considered export sales under Executive Order No. 226, otherwise known as
the Omnibus Investments Code of 1987, and other special laws; and
5. The sale of goods, supplies, equipment and fuel to persons engaged in international
shipping or international air transport operations; Provided, That the goods, supplies,

4
TAXATION VAT

equipment, and fuel shall be used exclusively for international shipping or air transport
operations; Provided, that the same is limited to goods, supplies, equipment and fuel that
shall be used in the transport of goods and passengers from a port in the Philippines
directly to a foreign port, or vice-versa without docking or stopping at any other port in
the Philippines unless the docking or stopping at any other Philippine port is for the
purpose of unloading passengers and/or cargoes that originated from abroad, or to load
passengers and/or cargoes bound for abroad;Provided, further, that if any portion of such
fuel, goods or supplies is used for purposes other than the mentioned in this paragraph,
such portion of fuel, goods and supplies shall be subject to twelve percent (12%) output
VAT.
b. Sales to Persons or Entities Deemed Tax-exempt under Special Law or International Agreement

Sale of goods or property to persons or entities who are tax-exempt under special laws or international
agreements to which the Philippines is a signatory, such as, Asian Development Bank (ADB), International
Rice Research Institute (IRRI), subject such sales to zero rate.

What are the transactions which are no longer subject to zero-percent (0%)?

1. Sale of gold to BSP

2. Foreign-currency denominated sales

Upon the successful establishment and implementation of an enhanced VAT refund system by the
Department of Finance (DOF), what are the transactions that will now be subject to twelve percent (12%)
and no longer be subject to zero percent (0%)?

1. The sale of raw materials or packaging materials to a non-resident buyer for delivery to a resident
local export-oriented enterprise to be used in manufacturing, processing, packing or repacking in
the Philippines of the said buyer's goods, paid for in acceptable foreign currency, and accounted
for in accordance with the rules and regulations of the BSP;
2. The sale of raw materials or packaging materials to an export-oriented enterprise whose export
sales exceed seventy percent (70%) of total annual production;
3. Transactions considered export sales under Executive Order No. 226, otherwise known as the
Omnibus Investments Code of 1987, and other special laws
4. Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported where the services are paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP); and
5. Services performed by subcontractors and/or contractors in processing, converting, or
manufacturing goods for an enterprise whose export sales exceeds seventy percent (70%) of total
annual production.

What transactions are considered deemed sales? (VERY IMPORTANT)

The following transactions are considered as deemed sales:

Transfer, use or consumption, not in the course of business, of goods or properties originally intended for
sale or for use in the course of business. Transfer of goods or properties not in the course of business can
take place when VAT-registered person withdraws goods from his business for his personal use;

a. Distribution or transfer to:

o Shareholders or investors as share in the profits of the VAT-registered person; or
o Creditors in payment of debt or obligation
b. Consignment of goods if actual sale is not made within sixty (60) days following the date such
goods were consigned. Consigned goods returned by the consignee within the 60-day period are
not deemed sold;
c. Retirement from or cessation of business, with respect to all goods on hand, whether capital
goods, stock-in-trade, supplies or materials as of the date of such retirement or cessation,

5
TAXATION VAT

whether or not the business is continued by the new owner or successor. The following
circumstances shall, among others, give rise to transactions "deemed sale";
o Change of ownership of the business. There is a change in the ownership of the business
when a single proprietorship incorporated; or the proprietor of a single proprietorship
sells his entire business
o Dissolution of a partnership and creation of a new partnership which takes over the
business.

What is VAT-exempt sale?

It is a sale of goods, properties or service and the use or lease of properties which is not subject to output
tax and whereby the buyer is not allowed any tax credit or input tax related to such exempt sale.

What are the VAT-exempt transactions?

a. Sale or importation of agricultural and marine food products in their original state, livestock and
poultry of a kind generally used as, or yielding or producing foods for human consumption; and
breeding stock and genetic materials therefore;
b. Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and
poultry feeds, including ingredients, whether locally produced or imported, used in the
manufacture of finished feeds (except specialty feeds for race horses, fighting cocks, aquarium
fish, zoo animals and other animals considered as pets);
c. Importation of personal and household effects belonging to residents of the Philippines returning
from abroad and non-resident citizens coming to resettle in the Philippines; Provided, that such
goods are exempt from custom duties under the Tariff and Customs Code of the Philippines;
d. Importation of professional instruments and implements, tools of trade, occupation or
employment, wearing apparel, domestic animals, and personal and household effects ( except
vehicles, vessels, aircrafts machineries and other similar goods for use in manufacture which are
subject to duties, taxes and other charges) belonging to persons coming to settle in the Philippines
or Filipinos or their families and descendants who are now residents or citizens of other countries,
such parties hereinafter referred to as overseas Filipinos, in quantities and of the class suitable to
the profession, rank or position of the persons importing said items, for their own use and not
barter or sale, accompanying such persons, or arriving within a reasonable time; Provided, That
the Bureau of Customs may, upon the production of satisfactorily evidence that such persons are
actually coming to settle in the Philippines and that the goods are brought from their place of
residence, exempt such goods from payment of duties and taxes.
e. Services subject to percentage tax under Title V of the Tax Code, as amended;
f. Services by agricultural contract growers and milling for others of palay into rice, corn into grits,
and sugar cane into raw sugar;
g. Medical, dental, hospital and veterinary services except those rendered by professionals;
h. Educational services rendered by private educational institutions duly accredited by the
Department of Education (DepED), the Commission on Higher Education (CHED) and the Technical
Education and Skills Development Authority (TESDA) and those rendered by the government
educational institutions;
i. Services rendered by individuals pursuant to an employer-employee relationship;
j. Services rendered by regional or area headquarters established in the Philippines by multinational
corporations which act as supervisory, communications and coordinating centers for their
affiliates, subsidiaries or branches in the Asia-Pacific Region and do not earn or derive income
from the Philippines;
k. Transactions which are exempt under international agreements to which the Philippines is a
signatory or under special laws except those granted under P.D. No. 529 - Petroleum Exploration
Concessionaires under the Petroleum Act of 1949;
l. Sales by agricultural cooperatives duly registered and in good standing with the Cooperative
Development Authority (CDA) to their members, as well as of their produce, whether in its original
state or processed form, to non-members, their importation of direct farm inputs, machineries
and equipment, including spare parts thereof, to be used directly and exclusively in the production
and/or processing of their produce;

6
TAXATION VAT

m. Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered and
in good standing with the Cooperative Development Authority;
n. Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with and in
good standing with CDA; Provided, that the share capital contribution of each member does not
exceed Fifteen Thousand Pesos (P15,000.00) and regardless of the aggregate capital and net
surplus ratably distributed among the members;
o. Export sales by persons who are not VAT-registered;
p. The following sales of real properties:
i. Sale of real properties not primarily held for sale to customers or held for lease in the
ordinary course of trade or business.
ii. Sale of real properties utilized for low-cost housing as defined by RA No. 7279, otherwise
known as the "Urban Development and Housing Act of 1992" and other related laws, such
as RA No. 7835 and RA No. 8763;
iii. Sale of real properties utilized for specialized housing as defined under RA No. 7279, and
other related laws, such as RA No. 7835 and RA No. 8763, wherein price ceiling per unit is
Php 450,000.00 or as may from time to time be determined by the HUDCC and the NEDA
and other related laws;
iv. Sale of residential lot valued at One Million Five Hundred Thousand Pesos (P1,500,000.00)
and below, or house and lot and other residential dwellings valued at Two Million Five
Hundred Thousand Pesos (P2,500,000.00) and below, as adjusted using latest Consumer
Price Index values. (If two or more adjacent lots are sold or disposed in favor of one
buyer, for the purpose of utilizing the lots as one residential lot, the sale shall be exempt
from VAT only if the aggregate value of the lots do not exceed One Million Five Hundred
Thousand Pesos (P1,500,000.00). Adjacent residential lots, although covered by separate
titles and/or separate tax declarations, when sold or disposed to one and the same buyer,
whether covered by one or separate Deed of Conveyance, shall be presumed as a sale of
one residential lot.)
q. Lease of residential units with a monthly rental per unit not exceeding Fifteen Thousand Pesos
(P15,000.00), regardless of the amount of aggregate rentals received by the lessor during the
year; Provided, that not later than January 31, 2009 and every three (3) years thereafter, the
amount of P10,000.00 shall be adjusted to its present value using the Consumer Price Index, as
published by the Philippine Statistics Authority (Formerly known as NSO);
r. Sale, importation, printing or publication of books and any newspaper, magazine, review or
bulletin which appears at regular intervals with fixed prices for subscription and sale and which is
not devoted principally to the publication of paid advertisements;
s. Transport of passengers by international carriers;
t. Sale, importation or lease of passenger or cargo vessels and aircraft, including engine equipment
and spare parts thereof for domestic or international transport perations; Provided, that the
exemption from VAT on the importation and local purchase of passenger and/or cargo vessels
shall be subject to the requirements on restriction on vessel importation and mandatory vessel
retirement program of Maritime Industry Authority (MARINA);
u. Importation of fuel, goods and supplies by persons engaged in international shipping or air
transport operations; Provided, that the said fuel, goods and supplies shall be used exclusively or
shall pertain to the transport of goods and/or passenger from a port in the Philippines directly to
a foreign port, or vice-versa, without docking or stopping at any other port in the Philippines
unless the docking or stopping at any other Philippine port is for the purpose of unloading
passengers and/or cargoes that originated form abroad, or to load passengers and/or cargoes
bound for abroad; Provided, further, that if any portion of such fuel, goods or supplies is used for
purposes other that the mentioned in the paragraph, such portion of fuel, goods and supplies
shall be subject to 12% VAT;
v. Services of banks, non-bank financial intermediaries performing quasi-banking functions, and
other non-bank financial intermediaries, such as money changers and pawnshops, subject to
percentage tax under Sections 121 and 122, respectively of the Tax Code; and
w. Sale or lease of goods and services to senior citizens and persons with disabilities, as provided
under Republic Act Nos. 9994 (Expanded Senior Citizens Act of 2010) and 10754 (An Act Expanding
the Benefits and Privileges of Persons with Disability), respectively;
x. Transfer of property in merger or consolidation (pursuant to Section 40(C)(2) of the Tax Code, as
amended);

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TAXATION VAT

y. Association dues, membership fees, and other assessments and charges collected on a purely
reimbursement basis by homeowners’ associations and condominium established under Republic
Act No. 9904 (Magna Carta for Homeowners and Homeowner’s Association) and Republic Act No.
4726 (The Condominium Act), respectively;
z. Sale of gold to the Banko Sentral ng Pilipinasn (BSP) (previously zero-rated transaction);
aa. Sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension
(beginning on January 1, 2019 as determined by the Department of Health); and
bb. Sale or lease of goods or properties or the performance of services other than the transactions
mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the
amount of Three Million Pesos (Php 3,000,000.00). Note: Self-employed individuals and
professionals availing of the 8% on gross sales and/or receipts and other non-operating income,
under Sections 24 (A)(2)(b) and 24 (A)(2)(c)(2) of the NIRC shall also be exempt from the payment
of twelve (12%) VAT.

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TAXATION PERCENTAGE TAX

PERCENTAGE TAX

Percentage tax is a business tax imposed on persons, entities, or transactions specified under
Sections 116 to 127 of the National Internal Revenue Code of 1997 (also known as Tax Code), as amended,
and as required under special laws.

Who are required to file?

 Persons refer to individuals and non-individuals, which include, but are not limited to, estates,
trusts, partnerships, and corporations.
 Persons, who are not VAT-registered, who sell goods, properties or services, whose annual gross
sales and/or receipts do not exceed three million pesos (Php3,000,000.00) and are exempt from
value-added tax (VAT) under Section 109 (BB) of the National Internal Revenue Code, as amended
by Republic Act (RA) No. 10963.
 Persons who lease residential units where the monthly rental per unit exceeds fifteen thousand
pesos (Php15,000.00) but the aggregate of such rentals of the lessor during the year does not
exceed three million pesos (Php3,000,000.00)
 Persons engaged in the following industries/transactions:
o Cars for rent or hire driven by the lessee, transportation contractors, including persons
who transport passengers for hire, and other domestic carriers by land for the transport
of passengers (except owners of bancas and owners of animal-drawn two-wheeled
vehicle) and keepers of garages
o International air/shipping carriers doing business in the Philippines on their gross receipts
derived from transport of cargo from the Philippines to another country
o Franchise grantees of –
 radio and/or television broadcasting companies whose annual gross receipts for
the preceding year do not exceed Php 10,000,000.00 and did not opt to register
as VAT taxpayers, and
 gas and water utilities.
o Overseas dispatch, message or conversation transmitted from the Philippines by
telephone, telegraph, tele-writer exchange, wireless and other communication
equipment services, except those transmitted by:
 The Philippine Government or any of its political subdivisions or instrumentalities;
 Diplomatic services;
 Public international organizations or any of their agencies based in the Philippines
enjoying privileges, exemptions and immunities which the Philippine
Government is committed to recognize pursuant to international agreement; and
 News services for messages which deal exclusively with the collection of news
items for, or the dissemination of news item through, public press, radio or
television broadcasting or a newsticker service furnishing a general news service
similar to that of the public press.
o Banks, non-bank financial intermediaries performing quasi-banking functions
o Other non-bank financial intermediaries (including pawnshops as clarified under Revenue
Regulations [RR] No. 10 – 2004)
o Person, company or corporation (except purely cooperative companies or associations)
doing life insurance business in the Philippines
o Fire, marine or miscellaneous agents of foreign insurance companies
o Proprietor, lessee or operator of cockpits, cabarets, night or day clubs, boxing exhibitions,
professional basketball games, Jai-Alai and racetracks, including videoke bars, karaoke
bars, karaoke televisions, karaoke boxes and music lounges as clarified under Revenue
Memorandum Circular (RMC) No. 18 – 2010
o Winnings or 'dividends' in horse races

When to File/Pay : Within twenty-five (25) days after the end of each taxable quarter

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TAXATION PERCENTAGE TAX

Quarterly Percentage Tax Rates Table

Coverage Taxable Base Tax Rate

Non-VAT registered persons under Section 109 Gross sales or receipts 3%
(BB)
Domestic carriers and keepers of garages Gross receipts 3%
International air/shipping carriers doing business Gross receipts on transport of cargo 3%
in the Philippines from the Philippines to a foreign
country
Franchise grantees: 2%
Gas and water utilities
Radio and television broadcasting companies 3%
whose annual gross receipts of the preceding year Gross receipts
do not exceed Php10,000,000 and did not opt to
register as VAT taxpayer
Gross receipts

Overseas dispatch, message or conversation Amount paid for the service 10%
originating from the Philippines
Banks and non-bank financial intermediaries Interest, commissions and discounts from lending
performing quasi-banking functions activities as well as income from financial leasing,
on the basis of remaining maturities of instruments
from which receipts are derived:
• If maturity period is five years or less 5%
• If maturity period is more than five 1%
years
Dividends and equity shares and net 0%
income of subsidiaries
Royalties, rentals of property, real or 7%
personal, profits from exchange and all
other items treated as gross income
under Sec. 32 of the Tax Code, as
amended
Net trading gains within the taxable 7%
year of foreign currency, debt
securities, derivatives and other similar
financial instruments
Other non-bank financial intermediaries Interest, commissions, discounts and 5%
all other items treated as gross income
under the Tax Code, as amended
Interest, commissions, discounts from lending
activities, as well as income from financial leasing
on the basis of remaining maturities of instruments
from which such receipts are derived:
• If maturity period is five years or less 5%
• If maturity period is more than five 1%
years
Life Insurance Company/Agent/Corporation Total premiums collected 2%
(except purely cooperative companies or
associations)
Agents of foreign insurance companies (except reinsurance premium):
Insurance agents authorized under the Insurance Total premiums collected 4%
Code to procure policies of insurance for
companies not authorized to transact business in
the Philippines
Owners of property obtaining insurance directly Total premiums paid 5%
with foreign insurance companies
Proprietor, lessee or operator of the following:
Cockpits Gross receipts 18%
Cabarets, Night or Day Clubs, videoke bars, Gross receipts 18%
karaoke bars, karaoke televisions, karaoke boxes
and music lounges
Boxing exhibitions (except when the World or Gross receipts 10%
Oriental Championship is at stake in any division,
provided further that at least one of the contenders

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TAXATION PERCENTAGE TAX

for World Championship is a citizen of the

Philippines and said exhibitions are promoted by a
citizen/s of the Philippines or by a corporation/
association at least 60% of the capital of which is
owned by said citizen/s)
Professional basketball games (in lieu of all other Gross receipts 15%
percentage taxes of whatever nature and
description)
Jai-alai and race track Gross receipts 30%
Winnings on horse races  Winnings or 'dividends' 10%
 Winnings from double 4%
forecast/quinella and trifecta bets
 Prizes of owners of winning race 10%
horses

Percentage Tax for Transactions Involving Shares Rates Table

Coverage Basis Tax Rate

Sale, barter, exchange or other disposition of shares of Gross selling price or gross 6/10 of 1%
stock listed and traded through the Local Stock value in money
Exchange other than the sale by a dealer of securities
Sale, barter or exchange or other disposition through: Gross selling price or gross value in money
 Initial Public Offering (IPO) – the issuing
corporation shall pay the imposed tax Proportion of disposed shares to total
 Secondary Public Offering – the seller shall outstanding shares after the listing in the local
pay the imposed tax stock exchange:
 Up to 25% 4%
 Over 25% but not 2%
over 33 1/3%
 Over 33 1/3% 1%

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TAXATION DOCUMENTARY STAMP TAX

DOCUMENTARY STAMP TAX

Documentary Stamp Tax is a tax on documents, instruments, loan agreements and papers
evidencing the acceptance, assignment, sale or transfer of an obligation, right or property incident
thereto.

Who Shall File

The return shall be filed in triplicate by the following:

1. In the case of constructive affixture of documentary stamps, by the person making, signing, issuing,
accepting, or transferring documents, instruments, loan agreements and papers, acceptances,
assignments, sales and conveyances of the obligation, right or property incident thereto wherever the
document is made, signed, issued, accepted or transferred when the obligation or right arises from
Philippine sources or the property is situated in the Philippines at the same time such act is done or
transaction had;

2. In the case of Electronic Documentary Stamp Tax (eDST) System user, by the taxpayers belonging to the
industries mandated to use the web-based eDST System in the payment/remittance of DST liabilities and
the affixture of the prescribed documentary stamp on taxable documents and taxpayers who, at their
option, choose to pay the DST liabilities thru the eDST System pursuant to Revenue Regulations (RR) No.
7-2009; and

3. By a revenue collection agent for remittance of sold loose documentary stamps.

Whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other
party thereto who is not exempt shall be the one directly liable for the tax.

When and Where to File

 Within five (5) days after the close of the month when the taxable document was made, signed,
issued, accepted or transferred or upon remittance by revenue collection agents of collection
from the sale of loose documentary stamps.

 The return shall be filed with the Authorized Agent Bank (AAB) within the territorial jurisdiction
of the Revenue District Office where the residence or place of business of the taxpayer is located
or where the collection agent is assigned. In places where there are no AABs, the return shall be
filed directly with the Revenue Collection Officer (RCO) within the Revenue District Office which
has jurisdiction over the residence or place of business of the taxpayer or where the collection
agent is assigned.