Types of Income and Corresponding Tax Rates

Name: Jessa Belle L. Eubion ID No.
: 07210182
Course&Year: BSMAC2
TYPES OF INCOME AND CORRESPONDING TAX RATES

I. RESIDENT CITIZENS
Types of Income and Its Corresponding Rates
Compensation Income
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
Passive Income
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 20%
less)
- 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 10%
domestic 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 Exempt
savings, 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%
Capital Gains
Current rate
Taxpayer type Tax rate Legal basis Effectivity date
Individual 15% R.A. No. 10963 January 1, 2018 to
Domestic or TRAIN Law present
Corporation
Foreign 15% R.A. No. 11534 April 11, 2021 to
Corporation or CREATE Law present
Old rate
Individual Not over R.A. No. 8424 January 1, 1998 to
Domestic ₱100,000.00 - 5% or NIRC of December 31, 2017
Corporation On any amount in 1997
Foreign excess of January 1, 1998 to
Corporation ₱100,000.00 - April 10, 2021
10%
II. NON RESIDENT CITIZENS

Under Sec. (22) A 'nonresident citizen' means;
(1) A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact
of his physical presence abroad with a definite intention to reside therein.
(2) A citizen of the Philippines who leaves the Philippines during the taxable year to reside
abroad, either as an immigrant or for employment on a permanent basis.
(3) A citizen of the Philippines who works and derives income from abroad and whose
employment thereat requires him to be physically present abroad most of the time during the
taxable year.
(4) A citizen who has been previously considered as nonresident citizen and who arrives in the
Philippines at any time during the taxable year to reside permanently in the Philippines shall
likewise be treated as a nonresident citizen for 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.
(5) The taxpayer shall submit proof to the Commissioner to show his intention of leaving the
Philippines to reside permanently abroad or to return to and reside in the Philippines as the case
may be for the purpose of this Section.
For Individual Citizens and Resident Aliens Earning Purely Compensation Income and
Individuals Engaged in Business and Practice of Profession
A. Graduated Income Tax Rates under Section 24(A)(2) of the Tax Code of 1997, as
amended by Republic Act No. 10963

Over But Not Over
- P250,000 0%
P8,000,000
B. 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
C. 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: Based on Graduated Income Tax Rates; and
2. For Income from Business and/or Practice of Profession:

A. If the total Gross Sales/Receipts Do Not Exceed VAT Threshold of
P3,000,000, the Individual Taxpayer May Opt to Avail:
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
A. Income Tax Based on Graduated Income Tax Rates
B. If the total Gross Sales/Receipts Exceed VAT Threshold of P3,000,000
A. Income Tax Based on Graduated Income Tax Rates
D. On Certain Passive Income of Individual Citizens and Resident Aliens

- In general 20%
3. Prizes (P10,000 or less ) Graduated
Income Tax
Rates
- Over P10,000 20%
less )
exchange
(BSP)
Holding Period
Capital Gains
Current rate

Individual 15% R.A. No. 10963 or TRAIN January 1, 2018 to
Domestic Law present
Corporation
Foreign 15% R.A. No. 11534 or CREATE April 11, 2021 to
Corporation Law present

Old rate
Individual Not over R.A. No. 8424 or NIRC of January 1, 1998 to
₱100,000.00 - 5% 1997 December 31, 2017
Domestic
On any amount in
Corporation
excess of
Foreign ₱100,000.00 - January 1, 1998 to
Corporation 10% April 10, 2021
Tax Treatment
To establish the fact of residency in a contracting state, the nonresident income recipient should
submit a Tax Residency Certificate (TRC) duly issued by the tax authority of the country of
residence.
The nonresident, or its authorized representative, should file a tax treaty relief application
(TTRA) with complete documentary requirements and a claim for refund at any time after the
payment of the withholding tax if the regular rate under the Tax Code was applied on the income
instead of the treaty rates.
III. RESIDENT ALIENS

What is a Resident Alien?
Under Section 22 (F) of the Tax Code, the term 'resident alien' means an individual whose
residence is within the Philippines and who is not a citizen thereof.
Types of Income and its Corresponding Tax Rates
Section 23 (D), An alien individual, whether a resident or not of the Philippines, is taxable only
on income derived from sources within the Philippines;
For Individual Citizens and Resident Aliens Earning Purely Compensation Income and
Individuals Engaged in Business and Practice of Profession
A. Graduated Income Tax Rates under Section 24(A)(2) of the Tax Code of 1997, as
amended by Republic Act No. 10963

Over But Not Over
- P250,000 0%
P8,000,000
B. On Certain Passive Income of Individual Citizens and Resident Aliens

- In general 20%
Income Tax
Rates
- Over P10,000 20%
less )
exchange
(BSP)
Holding Period
Capital Gains
Current rate

Corporation
Old rate
₱100,000.00 - 5% 1997 December 31, 2017
Domestic
On any amount in
Corporation
Foreign January 1, 1998 to
Corporation excess of April 10, 2021
Tax rates for income subject to final tax

For resident and non-resident aliens engaged in trade or business in the Philippines, the
maximum rate on income subject to final tax (usually passive investment income) is 20%.
Tax rates for business income
An individual, whether citizen or resident alien, who is self-employed or practices a profession,
is also subject to the graduated income tax rates above.
However, an individual who has gross sales/receipts and other non-operating income not
exceeding the VAT threshold (which is currently pegged at PHP 3 million) may opt to be taxed
either at:
- 8% tax on gross sales/receipts and other non-operating income in excess of PHP 250,000
in lieu of the graduated income tax rates and percentage tax (business tax), or the
graduated tax rates.
- Business income subjected to graduated tax rates shall also be subject to business tax (i.e.
12% VAT or 1%* percentage tax, as applicable).
IV. NON RESIDENT ALIENS

Under Sec. 22 of the Tax Code, (G) The term 'nonresident alien' means an individual whose
residence is not within the Philippines and who is not a citizen thereof.
I. For Non Resident Aliens Not Engaged on Trade or Business
A. Tax Rate in General – on taxable income from all sources within same manner
the Philippines as individual
citizen and
resident alien
individual
B. Certain Passive Income Tax Rates
- In general 20%
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 20%
corporation/ joint stock company/ insurance/ mutual fund companies/
Regional Operating Headquarter of multinational companies
6. Share of a non-resident alien individual in the distributable net 20%
income after 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
(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
8. Capital from the 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
Exchange
- Not over P100,000 5%
- Any amount in excess of P100,000 10%
II. For Non Resident Aliens Engaged on 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 6%
the 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%
V. DOMESTIC CORPORATION
A domestic corporation is subject to tax on its worldwide income. The following corporate
income tax (CIT) rates apply to domestic corporations:

Corporate Income
INCOME CORPORATE
INCOME TAX
RATES
In general, on net income from all sources. 25%
On net income from all sources of domestic corporations with total 20%
assets not exceeding 100 million Philippine pesos (PHP) and total net
taxable income not exceeding PHP 5 million.
Minimum corporate income tax (MCIT) on gross income, beginning 2%

in the fourth taxable year following the year of commencement of (1% from 1 July 2020
business operations. MCIT is imposed where the CIT at 25% is less to 30 June 2023)
than 2% MCIT on gross income.
Proprietary educational institutions and hospitals that are non-profit, 10%

on net income if gross income from unrelated trade, business, and (1% from 1 July 2020
other activities does not exceed 50% of the total gross income from all to 30 June 2023)
sources.
Non-stock, non-profit educational institutions (all assets and revenues Exempt

used actually, directly, and exclusively for educational purposes) and
other non-profit organizations.
Passive Income
Certain passive income from domestic sources is subject to final tax rather than ordinary income
tax.
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 another 0%

domestic corporation
5. Capital gains from the sale, exchange or other disposition of lands and/or building 6%
6. Net Capital gains from sale of shares of stock not traded in the stock exchange 15%
*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.
VI. FOREIGN CORPORATION

Resident Citizens Foreign Corporation
Under Sec. (22) (H)
The term 'resident foreign corporation' applies to a foreign corporation engaged in trade or
business within the Philippines.
Types of Income and its Corresponding Rates
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 10%
taxable income
2) International Carriers – on gross Philippine billings 2½%
3) Regional Operating Headquarters of Multinational Companies– on 10%
taxable 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 Exempt
transactions with 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 10%
residents 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 7½%
foreign 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 20%
similar arrangements
10. Royalties derived from sources within the Philippines 20%
Capital Gains
Corporation
Old rate
₱100,000.00 - 5% 1997 December 31, 2017
Domestic
On any amount in
Corporation
excess of
Foreign ₱100,000.00 - January 1, 1998 to
Corporation 10% April 10, 2021
Non Resident Foreign Corporations
Under Sec. (24). "(b) Tax on foreign corporations.

(1) Non-resident corporations. A foreign corporation not engaged in trade or business in the
Philippines including a foreign life insurance company not engaged in the life insurance business
in the Philippines shall pay a tax equal to thirty-five per cent of the gross income received during
each taxable year from all sources within the Philippines, as interests, dividends, rents, royalties,
salaries, wages, premiums, annuities, compensations, remunerations for technical services or
otherwise, emoluments or other fixed or determinable annual, periodical or casual gains, profits,
and income, and capital gains: Provided, However, That premiums shall not include reinsurance
premiums.
The following corporate tax rates apply to non-resident foreign corporations with respect to gross
income derived from sources within the Philippines:
Tax type Tax rate

(%)
Income tax (in general) 25
Reinsurance premiums Exempt
Interest on foreign loans 20
Dividends from domestic corporations if the country in which the foreign 15

corporation is domiciled does not impose income tax on such dividends, or
allows a tax deemed paid credit of 15%or the difference (i.e. 10% beginning 1
July 2020) between the CITand 15% tax on dividends
Rentals and charter fees payable to non-resident owners of vessels chartered by 4.5
Philippine nationals
Rentals, charters, and other fees derived by non-resident lessors of aircraft, 7.5
machinery, and other equipment
Lower rates or exemption on the above income may be available under an applicable tax treaty.
Capital Gains
A 6% final tax is imposed on the higher of the gross selling price or fair market value upon the
sale, exchange, or disposition of land or buildings not actually used in the business of a
corporation. The tax is withheld by the buyer at the time of sale.
Net capital gains derived by domestic corporations from the sale, exchange, transfer, or similar
transactions of shares of stock not traded through a local stock exchange are now taxed at a flat
15% rate.
Foreign corporations are now also taxed at the flat rate of 15% under the CREATE Law.

Types of Income and Corresponding Tax Rates

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Types of Income and Corresponding Tax Rates

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Name: Jessa Belle L. Eubion ID No.

TYPES OF INCOME AND CORRESPONDING TAX RATES

Amount of Net Taxable Income Rate

Passive Income Tax Rate

II. NON RESIDENT CITIZENS

Types of Income and Its Corresponding Rates

Amount of Net Taxable Income Rate

B. For Purely Self-Employed Individuals and/or Professionals Whose Gross Sales/Receipts

2. For Income from Business and/or Practice of Profession:

8% Income Tax on Gross Sales/Receipts and Other Non-Operating

A. Income Tax Based on Graduated Income Tax Rates

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

A. Income Tax Based on Graduated Income Tax Rates

D. On Certain Passive Income of Individual Citizens and Resident Aliens

Passive Income Tax Rate

Taxpayer type Tax rate Legal basis Effectivity date

III. RESIDENT ALIENS

Amount of Net Taxable Income Rate

B. On Certain Passive Income of Individual Citizens and Resident Aliens

Passive Income Tax Rate

Taxpayer type Tax rate Legal basis Effectivity date

Tax rates for income subject to final tax

IV. NON RESIDENT ALIENS

II. For Non Resident Aliens Engaged on Trade or Business

Types of Income and Its Corresponding Rates

In general, on net income from all sources. 25%

Minimum corporate income tax (MCIT) on gross income, beginning 2%

Proprietary educational institutions and hospitals that are non-profit, 10%

Non-stock, non-profit educational institutions (all assets and revenues Exempt

Rates of Tax on Certain Passive Income of Corporations Tax

2. Royalties from sources within the Philippines 20%

4. Cash and Property Dividends received by a domestic corporation from another 0%

VI. FOREIGN CORPORATION

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

Non Resident Foreign Corporations

Under Sec. (24). "(b) Tax on foreign corporations.

Tax type Tax rate

Income tax (in general) 25

Reinsurance premiums Exempt

Interest on foreign loans 20

Dividends from domestic corporations if the country in which the foreign 15

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