Holiday pay

Hazard pay
Overtime pay

Minimum wage earner- are exempt from tax

Senior citizens- not exempt from taxes unless they are minimum wage earner, if they have income
below 250,000 annual 20% discount

1. Individual tax payer- employed

Treatment: graduated sales under sec 24,

2. Self employed- income earned from self employment or practice of profession, Professional
practicing your profession, etc lawyer, doctor, cpa,

Note: CPA- governed by a professional body the board of accountancy, refers to a person who
engages in some art or sport as a money as a means for livelihood rather than a means of hobby.

Treatment: not exceeding 3million (VAT threshold) are given 2 choices

A. Graduated rates
B. 8% income tax rate outright, in excess of the 250,000
Other Percentage tax under Sec 116(not all establishment)example: if you are a
businessman, gross income is 2million- 250,000= 1750,000 x 8%
gross receipts and gross sale deduct 250000 x 8%

Jeepney operator 2m per year - 250,000, 8% cannot be used

When 8% is not available
A. Purely income earners- graduated
B. Vat registered- not be able to avail(establishments
C. Non vat tax payers-
D. Tax payers subjected to other except those subjected to other
E. Partners of gpp(separate juridical personality)
F. Individuals enjoying

3. Mixed income earners- sum up the income, when you use the 8% rate,will not deduct 250000 in
computing
A. Graduated rate= add everything x tax rate

Income tax types

1. Ordinary income
2. Passive income- earning on no active participation(example deposits in bank)
A. Interest income, Generally 20% final withholding tax unless exempt(no. 8 page 10 in supplement)

B. Deposit substitute- instead of deposit liabilities(depositee),

C. Dividend income on property- returns on dividends

D. Royalties, winning- 10%

E. Prices and winnings- if exceeding 10k 20% final tax, if not exceeding subject to ordinary tax
Exempt: if PCSO, if less than 10,000, if it exceeds, exceed shall be subject to 20%

3. Capital gains tax

a) Capital gains tax only applies to the sale or disposition of the following:
i. Shares of stock of a domestic corp not traded through the local stock exchange(15% of
the net capital gains)
ii. Sale of real property in the Philippines which is held as a capital asset(6% of the gross
selling price, or the current market value at the time of sale, whichever is higher)
 iii. Shares of stock are listed and traded through local stock exchange(6/10 or 1% of the
gross selling price or gross value in money of the shares of stock
If sale was made to the government or GOCC(either 6% of the gross selling
price or under normal income tax rate.
iv. Share not traded through local stock exchange( 15% of the net capital gains)

Creditable withholding tax on real properties(ordinary assets)

Creditable withholding tax on sales, exchanges or transfers of real properties classified as ordinary
assets
1. If the seller is habitually engaged in the real
estate business
 Selling price is less than 500,000 1.5%
 Selling price more than 500k - 2m 3%
 Selling price above 2m 5% of gross price
2. If the seller is not habitually engage in the real 6% of the selling price
estate business
3. If the seller is exempt from CWT exempt

Conditions to be exempt on 6% on the sale of a principal residence

 Proof of residence within 18 months
 Can be availed once every 10 years
 Historical cost shall be carried over to the new residence

Tax on non-resident aliens

Tax rate on certain passive income on NRAET Final tax
1. Interest under the expanded foreign currency exempt
deposit system
2. Royalties books, literary and musical 10%
3. Royalties other than above 20%
4. Interest on any current bank deposit, yield 20%
5. Prize exceeding 10, 000 20%
6. Other winnings, except PCSL 20%
7. Dividend from domestic corp., 20%
8. Gross income from cinematographic films and 25%
similar works
9. Interest in long-term deposit exempt

Tax rate on capital gains NRANET

1. On sale of share of stocks 15% of the net capital gains
2. On sale of real property 6% of the gross selling price

Non-resident alien not engage in business are taxed of the entire income within the
philippines 25%

Special aliens subject to 15%

Tips on answering problems regarding taxable income of individuals

Questions to ask yourself in answering problems:
1. Is this income? If not, then it's not really an income tax problem.
2. Who's the taxpayer? And what's the source of income? Refer to Sections 23 and 42.
3. What's the specific rate? See Sections 24 to 25.
Partnership is subject to corporation tax rates
Nontaxable partnership Taxable partnership
With regards to distributive share
Will form part of partners ITR subject to Distributive share in the net income is subject to a
graduated income taxes rates final tax of 10%(resident, Nonresident citizens)
20%(NRAETB)
With regards to partner’s share in net loss of partnership
May be claimed as a deductible expense in his Not deductible since subject to final tax
personal income tax return

With regards to how the partnership is taxed

Still required to file an annual information return Deemed and treated as corp[orations subject to
on their incomes and expenses for the purpose of the corporate income tax rate
ascertaining the partners’ taxable shares

Corporations- shall include partnerships, joint stock companies, joint accounts, associations and
insurance companies

Does not include: general professional partnerships, joint ventures or consortium

Rates for corporation

Tax rate of domestic corps 30% of taxable income from all sources within
and outside the Philippines or
2% of gross income if MCIT applies
15% of gross income if the following conditions
are met:
1. Tax effort of 20% of GNP
2. Ratio of 40% of income tax collection to total
tax revenues
3. VAT tax effort of 4% of GNP, &
4. 0.9% ratio of the consolidated public sector
financial position to GNP(this last one has yet to
be implemented)

Proprietary educational institution: any private school maintained and administered by private
individuals or groups permitted by the DECS or CHED or TESDA

"Non-profit" means no net income or asset accrues to or benefits any member

or specific person, with all the net income or asset devoted to the institution's
purposes and all its activities conducted not for profit.( failure shall be subject
to regular corporate tax)

Tax rate of proprietary educational institutions and
hospitals which are non-profit
10% on their taxable income(except passive income)
30% on their entire taxable income if the gross income
from unrelated trade, business or other activity exceeds
50% of the total gross income of the institution
 In computing this 30% on the entire taxable
income scenario, include:
 Income subject to tax
 Income which are exempt

GOCCs, Agencies or Instrumentalities: shall pay the same rate upon their taxable income upon
corporations or associations except: GSIS, SSS, PHIC, PCSO
Passive income of domestic corporations
Tax rate on Passive income of domestic corps Final tax
1. Interest under the expanded foreign currency 15%
deposit system
2. Royalty of all types within the Philippines 20%
Royalty from abroad 30%
3. Interest on any current bank deposit, yield or 20%
other monetary benefits from deposit substitute,
trust fund and similar arrangement
4. Dividend from domestic corps(inter-corporate) exempt

Tax rate of banks on income derived under the Final tax

expanded FCD system
1. Income derived by a depository bank from exempt
foreign currency transactions with nonresidents,
OBUs etc
2. Interest income from foreign currency loans 10%
granted by a bank tp residents

Minimum corporate income tax (MCIT)

Beginning of 4th year a corporate is tax by whichever is higher normal tax of 30% or minimu
corporate income tax of 2%

MCIT is 2% of gross income(compare with the 30% NORMAL TAX)

Tax on resident foreign corporations

Tax rate of foreign resident corporation
30% of taxable income from all sources within
the Philippines
2% of gross income if MCIT applies
15% of gross income(again, the GIT has yet to be
implemented)

Passive Income of Foreign Resident Corporations

Tax rate on passive income of foreign resident Final tax
corps
1. Interest under he expanded foreign currency 7.5%
deposit system
2. Royalty of all types within the Philippines 20%
Royalty from abroad? Exempt we only tax within
3. Interest on any current bank deposit 20%
4. Dividend from domestic corp exempt

Capital gains
Tax rate on capital gains
1. On sale of shares of stock of a domestic
corporation Not traded stock exchange held as a
capital asset
 Capital gains not over 100k 5% of the net capital gain
 Capital gains over 100k 10% of the net capital gains
2. On sale of real property in the real property in No provision for capital gains for sale of realty.
the Philippines Hence, it will be subject to regular corporate
income tax rate

Special rule on international carriers

 Tax rate in international carriers is 2.5% of gross philippine billings
Gross Philippine Billings refers to
Gross revenue derived from carriage of persons, baggage, cargo and mail
originating from the Philippines uninterrupted flight
Irrespective of the place of sale or issue and the place of payment of the ticket or
passage document

Offline banking units shall be taxed 10%

Branch profit remittances- 15%, except if registered under PEZA

` It Is the total profits applied for remittance or earmarked for remittance
without any deduction for the tax component, not the profit actually remitted
abroad.

Regional or area headquarters, branch established in the philippines by multi-

nationals and which headquarters do not earn income from philippines are
exempted from taxes

Income tax on Nonresident Foreign Corps

Non resident foreign Corporations are subject to 30% income tax on
the gross income derives from sources within

Special non resident foreign corps

 Cinematographic film owner- 25%
 Lessor of vessels chartered by Philippine nationals- 4/12% of gross
rentals
 Owner of aircraft- 7 1/2%
 Certain incomes received
A. Interest in foreign loans- 20%
B. Intercorporate dividends- 15%
C. Exchange, not over 100k- 5%, over 100k- 10%

Tax rate on passive income of Final tax

foreign non resident corp
1. Interest on foreign loans 20%
Dividends from domestic corps 15%

Tax rate on capital gains

1. On sale of shares of domestic corp
not traded through a local stock
exchange held as a capital asset,
5% of the net capital gains\
 Capital; gains not over 100k
10% of the net capital ggains
 Capital gains over 100k
2. On sale of real property in the No law, therefore subject to 30%
philippines
On inter-corporate dividends
- the ordinary 30% tax rate applicable to dividend remittqances to nonresident
corps