Professional Documents
Culture Documents
Taxation of Individuals
Taxation of Individuals
TAXATION OF
taxing authority. They are classified as:
1. Resident Citizens (RC)
NON-RESIDENT CITIZEN OF THE A non-resident citizen who arrives in the Philippines at any time during the
PHILIPPINES (Sec. 22(E) of the Tax Code) taxable year to reside permanently in the Philippines shall be considered a non-
resident citizen for the taxable year in which he arrives in the Philippines with
respect to income derived from sources abroad until the date of his arrival in the
1. Establishes to the satisfaction of the Commissioner of Internal Revenue, the fact Philippines.
of his physical presence abroad with a definite intention to reside therein
2. Leaves the Philippines during the taxable year to reside abroad:
ILLUSTRATION:
● As an immigrant
Pedro, an OFW, returned in the Philippines for good on May 2021. He shall
● For employment on a permanent basis be classified for 2021 taxable year as follows:
● For work and derives income that requires him to be physically abroad January to April 2021 – nonresident citizen
most of the time during the taxable year
From May 2021 onwards – resident citizen
3. A citizen of the Philippines who shall have stayed outside the Philippines for one
hundred eighty-three days (183) or more by the end of the year.
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The same rule shall apply to a resident citizen who leaves the Philippines OVERSEAS CONTRACT WORKER
anytime during the yea for the following reasons:
(OCW)/OVERSEAS FILIPINO WORKER (OFW)
• As an immigrant abroad or
• For employment abroad on a permanent basis • Revenue regulation 1-2011 defines OCWs as Filipino citizens employed in foreign
countries commonly referred to as OFWs, who are physically present in a foreign
country as a consequence of their employment. Their salaries and wages are paid
by an employer abroad and are not borne by entities or persons in the Philippines.
ILLUSTRATION: Hence, OFWs are classified as non-residents citizens for tax purposes.
Ana, a resident citizen, left for the Philippines on July 1, 2021 to reside • A seaman who is a citizen of the Philippines and who receives compensation for
permanently in US together with her family. She shall be classified for 2021 taxable
services rendered abroad as a member of the complement of a vessel engaged
year as follows:
exclusively in international trade shall be treated as an overseas contract worker.
January to June 2021 – resident citizen
From July 2021 onwards – nonresident citizen
RESIDENT ALIEN (Sec. 22(F) of the Tax NON-RESIDENT ALIEN (Sec. 22(G) of the
Code) Tax Code)
• An individual whose residence is within the Philippines and who is not a citizen • An individual whose residence is not within the Philippines and who is not a
thereof. He is one who is actually present in the Philippines and who is not a mere citizen thereof.
transient or sojourner.
• Aliens who come to the Philippines for a definite purpose, which in tis
• An alien who lives in the Philippines with no definite intention as to his stay is also nature may be promptly accomplished.
a resident alien.
• Alien who are mere transients or non-residents
• An alien who comes to the Philippines for the purpose that requires extended stay
for its accomplishment, so he makes his home temporarily in the Philippines, is a
resident, regardless of his intention to return to his residence abroad.
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ILLUSTRATION: Determine the correct classification of ILLUSTRATION: Determine the correct classification of
the taxpayer from the independent cases provided below: the taxpayer from the independent cases provided below:
Case 3: Greg Popovich, head coach of San Antonio Spurs in the NBA is in the Case 5: Mika “The Iceman” Immonen, a Finnish cue artist and former world billiard
Philippines for a month-long NBA promotional tour. He also expressed his intention champion is a resident of Finland. He won the world 9-ball championships in 2005 in
to regularly visit the Philippines. the Philippines. He is also the owner of one of the disco pubs in Malate since then.
Answer: Greg Popovich is classified as NRA-NETB. Answer: NRA-ETB. He is engaged in actual trade and business in the
Philippines but is non-resident.
Case 4: Using the same data in Case 3, assume that Greg Popovich invested in
shares of stock of various domestic corporations during his recent stay in the
Philippines.
Answer: Greg Popovich is NRA-NETB. Passive income such as dividend income
is not considered income derived from trade and business.
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• Case E: The taxpayer is a non-resident alien not engaged in trade or business. ⮚ Royalties
⮚ Prizes
⮚ Other winnings
• Capital gains subject to gains tax (CAPITAL GAIN TAX)
⮚ Capital gains from sale of shares of stocks of a domestic corporation
⮚ Capital gains from sale of real property in the Philippines
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ILLUSTRATION: ILLUSTRATION:
CASE A: Purely SEP whos gross sales/receipts and other non-operating income CASE B: Purely SEP whos gross sales/receipts and other non-operating income
does not exceed the VAT threshold of P3,000,000. exceed the VAT threshold of P3,000,000.
1. Determine the income tax due assuming the gross sales/receipts and other non-
operating income was P240,000.
2. Using the data below, determine the income tax due: Determine the income tax due assuming the following data:
1. Assuming the SEP in number 2 opted to avail the 8% tax under the TRAIN Law.
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NOTE: Gain on sale of ordinary assets are commonly known as ordinary or regular
income, subject to graduated tax rate.
• The term “statutory minimum wage earner (SMW)” or “minimum wage earner APPLICABLE TAXES OF MWEs
(MWE)” under RA 9504 shall refer to a worker in the private sector paid the
statutory minimum wage. The rate is fixed by the Regional Tripartite Wage and
Productivity Board as defined by the Bureau of Labor and Employment Statistics. Taxpayer Income Tax
MWE are exempt from income tax on:
1. Minimum wage 1. Purely MWE Exempt
2. Holiday pay
2. MWE with additional “benefits” Still treated as MWE, hence, exempt
3. Overtime pay from the employer exceeding tax-
4. Night shift differential exempt thresholds such as the
5. Hazard pay P90,000 limit
3. MWE with additional “business” Minimum wage – exempt
income Business income – subject to basic
tax
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