INCOM E T A X A TI O N

E T A X E S F O R I N D I V I D U AL S
INCO M A 10 9 6 3
TRAIN LA W R
TAX 301
A L P R IN C IP L E S AND
FUNDAMENT N
T S O F TA X AT IO
CONCEP
INDIVIDUAL TAXPAYERS
•ARE THE NATURAL PERSONS WITH INCOME DERIVED FROM WITHIN THE TERRITORIAL
JURISDICTION OF A TAXING AUTHORITY.

•ACCORDING TO TAX CODE (NIRC), INDIVIDUAL TAXPAYERS ARE CLASSIFIED AS

1. RESIDENT CITIZENS (RC)
2. NONRESIDENT CITIZENS (NRC)
3. RESIDENT ALIENS (RA)
4. NONRESIDENT ALIENS (NRA)
CITIZEN OF THE PHILIPPINES
ARTICLE IV SEC. 1 – 1987 PHILIPPINE CONSTITUTION
•FILIPINO CITIZEN IS A NATURAL PERSON WHO IS/HAS
1. BORN (BY BIRTH) WITH FATHER OR MOTHER AS FILIPINO CITIZEN;

2. BORN BEFORE JANUARY 16, 1973 OF FILIPINO MOTHER WHO ELECTS PHILIPPINE
CITIZENSHIP UPON REACHING THE AGE OF MAJORITY

3. ACQUIRED PHILIPPINE CITIZENSHIP AFTER BIRTH (NATURALIZED) IN ACCORDANCE

WITH PHILIPPINE LAWS.
NONRESIDENT
• SEC 22 (E) OF THE NIRC DESCRIBESCITIZEN OF ASTHE
A NONRESIDENT CITIZEN PHILIPPINES
A CITIZEN WHO:

1. ESTABLISHES, TO THE SATISFACTION OF THE COMMISSIONER OF INTERNAL REVENUE, THE FACT OF HIS
PHYSICAL PRESENCE ABROAD WITH A DEFINITE INTENTION TO RESIDE THEREIN;

2. LEAVES THE PHILIPPINES DURING THE TAXABLE YEAR TO RESIDE ABROAD

• AS AN IMMIGRANT
• FOR EMPLOYMENT ON A PERMANENT BASIS OR
• FOR WORK AND DERIVES INCOME FROM ABROAD AND WHOSE EMPLOYMENT THEREAT REQUIRES HIM TO BE
PHYSICALLY ABROAD MOST OF THE TIME DURING THE TAXABLE YEAR.

3. A CITIZEN OF THE PHILIPPINES WHO SHALL STAYED OUTSIDE THE PHILIPPINES FOR ONE HUNDRED
EGHTY-THREE DAYS (183) OR MORE BY THE END OF THE YEAR.
RESIDENT CITIZEN OF THE PHILIPPINES

A FILIPINO CITIZEN TAXPAYER NOT CLASSIFIED AS

NONRESIDENT CITIZEN IS CONSIDERED A RESIDENT CITIZEN
FOR TAX PURPOSES.
ALIEN

•A FOREIGN-BORN PERSON WHO IS NOT QUALIFIED TO

ACQUIRE PHILIPPINE CITIZENSHIP BY BIRTH OR AFTER
BIRTH
RESIDENT ALIEN
•SECTION 22(F) OF THE TAX CODE DEFINES RESIDENT ALIEN AS AN
INDIVIDUAL WHOSE RESIDENCE IS WITHIN THE PHILIPPINES AND
WHO IS NOT A CITIZEN THEREOF.

•ALIEN WHO LIVES IN THE PHILIPPINES WITH NO DEFINITE

INTENTION AS TO HIS STAY
NON-RESIDENT ALIENS
•SECTION 22(G) OF THE TAX CODE DEFINES RESIDENT ALIEN
AS AN INDIVIDUAL WHOSE RESIDENCE IS IS NOT THE
PHILIPPINES AND WHO IS NOT A CITIZEN THEREOF.

•COMES IN THE PHILIPPINES FOR A DEFINITE PURPOSE

NON RESIDENT ALIENS – ENGAGED IN
BUSINESS OR TRADE (NRA-EBT)
•ALIENS WHO STAYED IN THE PHILIPPINES FOR AN
AGGREGATE PERIOD OF MORE THAN 180 DAYS DURING
THE TAXABLE YEAR AND/OR ALIENS WHO HAVE BUSINESS
INCOME TO THE PHILIPPINES.
NONRESIDENT ALIEN- NOT ENGAGED IN
BUSINESS OR TRADE (NRA-NEBT)

•ALIENS WHO STAYED IN THE PHILIPPINES FOR 180 DAYS

OR LESS, OR HE IS NOT DERIVING BUSINESS INCOME TO
THE PHILIPPINES.
EXAMPLE
•KRM, A NATURAL BORN FILIPINO CITIZEN. HIS FAMILY
MIGRATED TO CANADA 15 YEARS AGO. FOR PERSONAL
REASONS, HE DECIDED TO RETURN AND RESIDE
PERMANENTLY IN THE PHILIPPINES ON MARCH 1, 2020
 EXAMPLE
•G.I. JOE IS AN AMERICAN INFORMATION TECHNOLOGY EXPERT. HE
WAS SIGNED BY NOYPI TELECOM ( A LOCAL TELECOMMUNICATION
COMPANY ) FROM JANUARY TO MARCH OF 2020 TO IMPROVE ITS
INTERNET SERVICES. DUE TO THE ANTICIPATED ENTRY OF
COMPETITORS FROM OTHER COUNTRIES, NOYPI DECIDED TO EXTEND
INDEFINITELY THE SERVICES OF G.I. JOE.
EXAMPLE

•GREG POPOVICH, HEAD COACH OF THE SAN ANTONIO

SPURS IN THE NBA IS IN THE PHILIPPINES FOR A MONTH
LONG NBA PROMOTIONAL TOUR. HE ALSO EXPRESSED HIS
INTENTION TO REGULARLY VISIT THE PHILIPPINES.
EXAMPLE

•USING PREVIOUS STATEMENT, ASSUME THAT THE COACH

INVESTED IN SHARES OF STOCKS OF VARIOUS DOMESTIC
CORPORATIONS DURING HIS RECENT STAY IN
PHILIPPINES.
EXAMPLE
•MIKA, A FINNISH ARTIST AND WORLD BILLIARD
CHAMPION IS A RESIDENT OF FINLAND. HE WON THE
WORLD 9-BALL CHAMPIONSHIP IN 2005 IN TH
PHILIPPINES. HE IS ALSO THE OWNER OF ONE OF THE
DISCO PUBS IN MALATE SINCE THEN.
APPLICABLE TAXES AND TAX RATES
THE APPLICABLE FOR TAXES FOR INDIVIDUALS DEPEND ON SEVERAL
FACTORS SUCH AS BUT NOT LIMITED TO:

•CLASSIFICATION OF THE TAXPAYER

•SOURCE OF INCOME
•TYPE OF INCOME
CLASSIFICATION OF TAXPAYER AND SOURCE OF
INCOME
TAXPAYER TAX BASE SOURCE OF TAXABLE
INCOME
RC NET INCOME WITHIN AND WITHOUT
NRC, RA, NRA-EBT NET INCOME WITHIN ONLY

NRA-NEBT GROSS INCOME WITHIN ONLY

EXAMPLE
•AN INDIVIDUAL TAXPAYER PROVIDED THE FOLLOWING INFORMATION FOR
2020
GROSS BUSINESS AND COMPENSATION INCOME – PH 5,000,000
GROSS BUSINESS INCOME – CAN 2,000,000
GROSS COMPENSATION INCOME – SG 1,000,000
BUSINESS EXPENSES – PH 3,000,000
ITEMIZED DEDUCTIONS – CAN 1,000,000
BUSINESS EXPENSES – SG 500,000

ASSUMING THAT THE CITIZEN ONLY RESIDING IN THE PHILIPPINES FOR 2020
 DETERMINE THE TAXABLE INCOME ASSUMING THAT THE TAXPAYER IS

a. RC
b. NRC
c. RA
d. NRA – ETB
e. NRA – NEBT
THE INCOME AND EXPENSES OF A FILIPINO CITIZEN FOR 2020 WERE PROVIDED AS FOLLOWS:

JAN TO JUNE PH CANADA

GROSS INCOME 5,000,000 2,000,000
ITEMIZED DEDUCTION 2,000,000 1,000,000
JULY TO DECEMBER
GROSS INCOME 2,000,000 3,000,000
ITEMIZED DEDUCTION 1,000,000 1,200,000

a. ASSUME THAT THE TAXPAYER IS A NRC WHO LEFT THE COUNTRY IN JULY OF THE CURRENT
YEAR AND TO RESIDE PERMANENTLY IN CANADA. COMPUTE FOR 2019 TAXABLE INCOME

b. ASSUME THAT THE TAXPAYER IS A NRC WHO RETURNED AND RESIDE PERMANENTLY IN THE
COUNTRY IN JULY OF THE CURRENT YEAR.
TYPES OF INCOME
•ORDINARY OR REGULAR INCOME
•PASSIVE INCOME DERIVED FROM PHILIPPINE
SOURCES

•CAPITAL GAINS SUBJECT TO CAPITAL GAIN TAX

GRADUATED TAX RATE
SELF-EMPLOYED AND PROFESSIONAL (SEP)
GS &/or GR Income Tax Business Tax

3% PERCENTAGE TAX UNDER SEC. 116

GRADUATED TAX RATE
NIRC

OR
Not More than 3M AT THE OPTION OF SEP 8% OF GROSS SALES/RECEIPTS
AND OTHER NON-OPERATING INCOME
IN EXCESS OF 250,000 IN LIEU OF THE GRADUATED INCOME TAX RATE AND
SECTION 116

VALUE ADDED TAX

GRADUATED TAX RATE (UNLESS ENGAGED IN VAT EXEMPT
More than 3M SALES AND TRANSACTIONS UNDER
SEC 109 OF THE TAX CODE
 https://www.bir.gov.ph/index.php/tax-code.html#title5
TITLE V
OTHER PERCENTAGE TAXES
(AS LAST AMENDED BY RA NOS. 8761, 9010, 9238, 9337 & 10001)

• SEC. 116. TAX ON PERSONS EXEMPT FROM VALUE-ADDED TAX (VAT). - ANY PERSON WHOSE SALES OR RECEIPTS
ARE EXEMPT UNDER SECTION 109(BB) OF THIS CODE FROM THE PAYMENT OF VALUE-ADDED TAX AND WHO IS NOT A
VAT-REGISTERED PERSON SHALL PAY A TAX EQUIVALENT TO THREE PERCENT (3%) OF HIS GROSS QUARTERLY SALES
OR RECEIPTS: PROVIDED, THAT COOPERATIVES, AND BEGINNING JANUARY 1, 2019, SELF-EMPLOYED AND
PROFESSIONALS WITH TOTAL ANNUAL GROSS SALES AND/OR GROSS RECEIPTS NOT EXCEEDING FIVE HUNDRED
THOUSAND PESOS (P500,000) SHALL BE EXEMPT FROM THE THREE PERCENT (3%) GROSS RECEIPTS TAX HEREIN
IMPOSED. [4]
(NOTE: THE AMENDMENT INTRODUCED BY THE TRAIN LAW WAS VETOED BY THE PRESIDENT. THE VETO MESSAGE
READS:
C. EXEMPTIONS FROM PERCENTAGE TAX OF GROSS SALES/RECEIPTS NOT EXCEEDING FIVE HUNDRED THOUSAND
PESOS (P500,000)
I AM CONSTRAINED TO VETO THE PROVISION WHICH PROVIDES FOR THE ABOVE UNDER LINE 12 OF SEC. 38 IN THE
ENROLLED BILL, TO WIT:
“AND BEGINNING JANUARY 1, 2019, SELF-EMPLOYED AND PROFESSIONALS WITH TOTAL ANNUAL GROSS SALES AND /
OR GROSS RECEIPTS NOT EXCEEDING FIVE HUNDRED THOUSAND PESOS (P500,000)
THE PROPOSED EXEMPTION FROM PERCENTAGE TAX WILL RESULT IN UNNECESSARY EROSION OF REVENUES AND
WOULD LEAD TO ABUSE AND LEAKAGES. THE SUBJECT TAXPAYERS UNDER THIS PROVISION ARE ALREADY EXEMPTED
FROM THE VAT, THUS, THE LOWER THREE PERCENT PERCENTAGE TAX ON GROSS SALES OR GROSS RECEIPTS IS
CONSIDERED AS THEIR FAIR SHARE IN CONTRIBUTING TO THE REVENUE BASE OF THE COUNTRY.)
FINAL TAX RATE
CAPITAL GAINS TAX
RC, NRC, NRA-EBT NRA-NEBT
RA
Capital gains from sale of shares of stock of a 15% 15% 15%
domestic corp. Not traded in the local stock
exchange

Beginning Jan. 1, 2018

Basis: Capital Gain
2. Sale of Real Property located in the 6% 6% 6%
Philippines.