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UNIT 2 (INCOME TAX ON INDIVIDUALS) ■ An alien who has acquired residence in the Philippines and retains his
• Income Tax – a tax on a person's income, emoluments, profits arising from status as such until he abandons the same and actually departs from the
property, practice of profession, conduct of trade or business or on the Philippines.
pertinent items of gross income specified in the Tax Code of 1997 (Tax
Code), as amended, less the deductions and/or personal and additional • Non-resident alien (NRA)
exemptions, if any, authorized for such types of income, by the Tax Code, as
■ An alien who comes to the Philippines for a definite purpose which in its
amended, or other special laws.
nature may be promptly accomplished.
■ Stay for an aggregate of more than 180 days and has a business in the
▲ Requisites of Income Philippines shall be deemed a NRAETB
• There must be gain or profit
• The gain must be realized or received
• The gain must not be excluded by law or treaty from taxation

Kat, a citizen, stayed in japan for 180 days Resident citizen

▲ Types of Persons
Pat, citizen, maintained her residence in Australia Non-resident citizen
• Natural Persons (Human beings)
Jay-R, Filipino singer, visited Canada for three days to Resident citizen
Type Earned within the Earned outside the sing for her cousin’s wedding
Philippines Philippines
Jay, a Filipino, departed from PH to work as therapist in Non-resident citizen
Resident citizen Taxable Taxable the US

Non-resident citizen Taxable Non-taxable Rihanna, American Citizen, engaged in 1 week concert in NRANETB
the Philippines
Resident alien Taxable Non-taxable
Gelo, British computer expert was hired by San Miguel to Resident alien
Non-resident alien assist in their computer installation which will take 7
months
engaged in trade or Taxable Non-taxable
business
Non-resident alien not • Artificial Persons (Entities)
engaged in trade or Taxable Non-taxable
business Earned within the Earned outside the
Type
Philippines Philippines
Domestic corporations Taxable Taxable
• Resident Citizens – a citizen of the Philippines residing therein.
Resident foreign
■ Citizen of the Philippines Under Sec. 1, Art. IV of the 1987 Taxable Non-taxable
corporations
Constitution
◊ Those who are citizens of the Philippines at the time of the adoption of this Non-resident foreign
Taxable Non-taxable
Constitution corporations
◊ Those whose fathers or mothers are citizens of the Philippines
◊ Those born before January 17, 1973, of Filipino Mothers, who elect ▲ Sources of Income
Philippine citizenship upon reaching the age of majority; and (4) Those who • Compensation Income – remuneration received for services performed by
are naturalized in accordance with law. an employee for his employer under an employee-employer relationship.
- Includes salaries, wages, emoluments and honoraria, allowances,
• Non-resident citizen commissions, fees including director's fees, taxable bonuses and fringe
■ A citizen of the Philippines whose physical presence abroad is with a benefits, taxable pensions and retirement pay, and other income of a similar
definite intention to reside therein nature.
■ 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 • Business or Professional Income – income earned by an individual from
permanent basis. his sole proprietorship business, from the practice of profession, or share in
■ A citizen of the Philippines who works and derives income from abroad the income of a general professional partnership
and whose employment thereat requires him to be physically present abroad
most of the time (183 days) during the taxable year. • Passive Income – income generated without any active conduct.
■ A citizen who has been previously considered as non-resident citizen and - These are income generated by assets which can be in the form of real
who arrives in the Philippines at any time during the taxable year to reside properties that return rental income, shares of stock in a corporation that earn
permanently in the Philippines dividends or interest income received from savings.

• Resident Alien
■ An alien who lives in the Philippines with no definite intention as to his
stay (floating intention)
■ One who comes to the Philippines for a definite purpose which in its nature
would require an extended stay and to that end makes his home temporarily
in the Philippines
• Capital Gains – those arising from the sale of capital assets which may be
subject to Capital Gains Tax, for sale of real property and shares of stock not
traded in a local stock exchange, or as part of gross income subject to income
tax for all other types of capital assets.

Pagatpat, Aischelle Mhae R.

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▲ Rules On Situs ▲ Basic Format of Computations
Income Situs • Pure Compensation

Interest Residence of the debtor

Dividends
Services
Rentals and Royalties
Sale of real property
Sale of personal property
Income partly within and partly
without
Within if coming from:
a. Domestic corporation
b. Foreign corporation (50% of
gross income earned within PH)
Where performed
Where the property is located/place
of use intangible
- Non-taxable compensation income includes those benefits provided by the
Where the property is located employer which are considered de minimis or otherwise exempted from
Purchase: Where the property sold income tax such as mandatory government and other contributions.
Produced: Partly within/without
• Pure Business or Professional Income
Pro rata
■ Graduated Rates

▲ Allowable Deductions For Individual Taxpayers

• Itemized Deductions
- Expenses incurred in conducting the business or in the practice of
profession are allowed as deductions for income tax purposes provided that
they meet all the requirements for deductibility.

• Optional Standard Deduction (OSD) ■ 8% Income Tax

- The OSD is 40% of Gross Sales or Receipts.

- If the individual has mixed income (from business and compensation) the
basis for the 40% will not include compensation income.
- Non-resident aliens: The OSD cannot be claimed by Non-Resident Aliens.
- The use of OSD or Itemized Expenses shall be made on the first quarter of
the taxable year, upon filing of the first quarter return and shall be
irrevocable for the said year.

• Special Allowable Itemized Deductions • Mixed Income Earners

- Deductions allowed by regular and special laws such as Rooming-in and ■ Compensation Income
Breast-feeding Practices under RA 7600, Adopt a School Program under RA - Always subject to the graduated rights.
8525, Senior Citizen Discount under RA 9257, etc.

■ Income from Business/Practice Of Profession

▲ Graduated Income Tax Rate for Individuals
◊ If the taxpayer's gross sales/receipts, together with other non-operating
income, do not exceed P3,000,000
 8% income tax rate without the first P250,000 exempt
 Graduated rates
◊ If the taxpayer's gross sales/receipts, together with other non-operating
income, exceeds P3,000,000 - graduated rates.

Pagatpat, Aischelle Mhae R.

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Pagatpat, Aischelle Mhae R.