INCOME TAX ON INDIVIDUALS

Income Tax is a tax on a person's income, emoluments, profits arising from property, practice of
profession, conduct of trade or business, or on the pertinent items of gross income specified in the Tax
Code of 1997 (Tax Code), as amended, less the deductions and/or personal and additional exemptions,
if any, authorized for such types of income, by the Tax Code, as amended, or other special laws. A
person means an individual, a trust, an estate, or a corporation. (Sec. 22[A] of the Tax Code)
GENERAL PRINCIPLES OF TAXATION
SEC. 23. General Principles of Income Taxation in the Philippines. - Except when otherwise provided
in this Code:
(A) A citizen of the Philippines residing therein is taxable on all income derived from sources within
and without the Philippines;
(B) A nonresident citizen is taxable only on income derived from sources within the Philippines;
(C) An individual citizen of the Philippines who is working and deriving income from abroad as an
overseas contract worker is taxable only on income derived from sources within the Philippines:
Provided, that a seaman who is a citizen of the Philippines and who receives compensation for
services rendered abroad as a member of the complement of a vessel engaged exclusively in
international trade shall be treated as an overseas contract worker;
(D) An alien individual, whether a resident or not of the Philippines, is taxable only on income
derived from sources within the Philippines;
(E) A domestic corporation is taxable on all income derived from sources within and without the
Philippines; and
(F) A foreign corporation, whether engaged or not in trade or business in the Philippines, is taxable
only on income derived from sources within the Philippines.
RULES ON SITUS (whether earned within or outside the Philippines):
1. Interest – the situs of interest income is the residence of the debtor. Thus, if the debtor is a resident
of the Philippines, it is considered earned within the Philippines.
2. Dividends – the following are considered earned WITHIN the Philippines; dividends received
from:
a. A domestic corporation;
b. A foreign corporation, unless less than 50% of the gross income of such foreign corporation for the
3-year period ending with the close of its taxable year preceding the declaration of such dividends (or
for such part of such period as the corporation has been in existence) was derived from sources within
the Philippines; but only in an amount which bears the same ratio to such dividends as the gross
income of the corporation for such period derived from sources within the Philippines bear to its gross
income from all sources.
3. Services – where performed. Thus, if performed within the Philippines, it is considered earned
herein. 4. Rentals and Royalties – where the property is located or the place of use of the intangible.
As such, if the property or any interest in such is located in the Philippines, rentals and royalties
therefrom are considered earned within the Philippines.
5. Sale of real property – where the real property is located. As such, gains, profits, and income from
the sale of real property located in the Philippines are considered earned herein.
6. Sale of Personal Property Purchase: where the property is sold. If the personal property was
purchased outside the Philippines, but sold herein, the gains, profits, and income derived therefrom
are considered earned within the Philippines. On the other hand, even if it was purchased in the
Philippines and sold outside, gains therefrom shall be treated as earned from outside the Philippines.
7. Income partly within and partly without the Philippines: aside from the sale of personal
property produced in the Philippines, income from transportation and other services rendered partly
within and partly without, is covered by this number.

Requisites of Income:
1. There must be gain or profit.
2. The gain must be realized or received
3. The gain must not be excluded by law or treaty from taxation.

A. CLASSIFICATION OF INDIVIDUALS
1. Resident Citizens – A citizen of the Philippines residing therein. Under Sec. 1, Art. IV of the 1987
Constitution, the following are citizens of the Philippines.

(1) Those who are citizens of the Philippines at the time of the adoption of this Constitution;
(2) Those whose fathers or mothers are citizens of the Philippines;
(3) Those born before January 17, 1973, of Filipino Mothers, who elect Philippine citizenship upon
reaching the age of majority; and
(4) Those who are naturalized in accordance with the law.

2. Non-resident citizen
a. A citizen of the Philippines whose physical presence abroad is with a definite intention to reside
therein – to the satisfaction of the Commissioner of Internal Revenue.
b. 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.
c. 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.
“Most of the time” meaning at least 183 days. (Sec. 2 of RR No. 1-79)
d. A citizen who has been previously considered as non-resident 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 non-resident citizen for the taxable year with respect to his income derived from
sources abroad until the date of his arrival in the Philippines.

3. Resident Alien
a. An alien who lives in the Philippines with no definite intention as to his stay (floating intention);
b. 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;
c. An alien who has acquired residence in the Philippines and retains his status as such until he
abandons the same and actually departs from the Philippines.

4. Non-resident alien (NRA)

a. An alien who comes to the Philippines for a definite purpose which in its nature may be promptly
accomplished.