INCOME TAXATION

Marvin Jim C. Cabudsan, CPA

 OTHER AGENCIES • Bureau of Customs (BOC)
TASKED WITH TAX • Board of Investments (BOI)
• Philippine Economic Zone Authority (PEZA)
COLLECTIONS OR TAX
• Local Government Tax Collecting Unit
INCENTIVES RELATED • Fiscal Incentive Review Board (FIRB)
FUNCTIONS

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 GROSS INCOME PER NIRC
INTRODUCTION TO
Gross Income is defined as all income derived from whatever source,
INCOME TAXATION including, but not limited to, the following items:

1. Compensation for services (fees, salaries, wages, commissions and

Gross Income similar items)
2. Gross income derived from the conduct of trade or business or the
Income Taxpayers exercise of a profession
3. Gains derived from dealings in properties
General Rules in Income Taxation 4. Interest
5. Royalties
Situs of Income 6. Dividends
7. Annuities
8. Prizes and Winnings
9. Pensions
10. Partner ’s distributive share from the net income of the general
professional partnership

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 ELEMENTS OF GROSS INCOME
INTRODUCTION TO
1. It is a RETURN ON CAPITAL that increases net worth.
INCOME TAXATION 2. It is a realized benefit.
3. It is not exempted by law, contract, or treaty.

Gross Income RETURN ON CAPITAL

Selling Price 1,000.00

Income Taxpayers
Cost 500.00

General Rules in Income Taxation Gross Income 500.00

RETURN OF CAPITAL
Situs of Income
1. Life
2. Health
3. Human Reputation

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 ELEMENTS OF GROSS INCOME
INTRODUCTION TO
1. It is a RETURN ON CAPITAL that increases net worth.
INCOME TAXATION 2. It is a realized benefit.
3. It is not exempted by law, contract, or treaty.

Gross Income REQUISITES OF A REALIZED BENEFIT

1. There must be an exchange transaction.
Income Taxpayers 2. The transaction involves another entity.
3. It increases the net worth of the recipient.
General Rules in Income Taxation
TYPES OF TRANSFERS
Situs of Income 1. Onerous (subject to income and business taxes)
2. Gratuitous (subject to transfer taxes)
3. Complex (Partly onerous and partly gratuitous)

NOTE: Unrealized gains or holding gains are not taxable.

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 ELEMENTS OF GROSS INCOME
INTRODUCTION TO
1. It is a RETURN ON CAPITAL that increases net worth.
INCOME TAXATION 2. It is a realized benefit.
3. It is not exempted by law, contract, or treaty.

Gross Income NON-TAXABLE ITEMS

1. Income of qualified employee trust fund
Income Taxpayers 2. Revenues of non-profit, non-stock educational institutions
3. SSS, GSIS, Pag-IBIG or Philhealth benefits
General Rules in Income Taxation 4. Salaries and wages of minimum wage earners (MWEs) and qualified
senior citizen
Situs of Income 5. Regular income of Barangay Micro-business Enterprises (BMBEs)
6. Income of foreign governments and foreign government-owned and
controlled corporations
7. Income of international missions and organizations with income tax
immunity

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 TYPES OF INCOME TAXPAYERS
INTRODUCTION TO
1. Individuals
INCOME TAXATION 2. Non-Individuals

INDIVIDUALS
Gross Income 1. Citizen
2. Alien
Income Taxpayers 3. Taxable estates and trusts

CITIZENS
General Rules in Income Taxation
1. Citizens of the Philippines at the time of adoption of the Constitution on
February 2, 1987
Situs of Income
2. Those whose fathers or mothers are citizens of the Philippines
3. Those born before January 17, 1973 of Filipino mothers who elected
Filipino citizenship upon reaching the age of majority
4. Naturalized

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 TYPES OF INCOME TAXPAYERS
INTRODUCTION TO
1. Individuals
INCOME TAXATION 2. Non-Individuals

INDIVIDUALS
Gross Income 1. Citizen
2. Alien
Income Taxpayers 3. Taxable estates and trusts

CITIZENS
General Rules in Income Taxation 1. Resident Citizen – Filipino residing in the Philippines
2. Non-resident Citizen -
Situs of Income a. With definite intention of staying abroad
b. Who leaves the Philippines within the taxable year to reside abroad, either as an immigrant
or for an employment on a permanent basis
c. Who works and derives income abroad and whose employment requires him to be physically
present abroad most of the time (183 days or more) during the taxable year
d. Who has been previously considered ass non-resident citizen and who arrives in the
Philippines at anytime during the taxable year to reside permanently in the Philippines shall
likewise be treated as non-resident 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
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 TYPES OF INCOME TAXPAYERS
INTRODUCTION TO
1. Individuals
INCOME TAXATION 2. Non-Individuals

INDIVIDUALS
Gross Income 1. Citizen
2. Alien
Income Taxpayers 3. Taxable estates and trusts

General Rules in Income Taxation
Situs of Income
ALIEN
1. Resident Alien –
a. An alien actually present in the Philippines who is not a mere transient or sojourner.
b. A alien, who comes to the Philippines for a definite purpose, which by its, nature, would
require an extended stay making his home temporarily in the Philippines. (1 year)
c. An alien who shall come to the Philippines with no definite intention as to his stay.
2. Non-resident Alien -
a. Engaged in trade or business (NRA-ETB) – An alien actually engaged in trade or business in the
Philippines; An alien who stayed in the Philippines for an ag gregate period of more than 180
days during the year
b. Not engaged in trade or business (NRA-NETB) – not NRA-ETB
c. Alien individuals employed by an Offshore Gaming Licensee (OGL) and Service Providers

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 TYPES OF INCOME TAXPAYERS
INTRODUCTION TO
1. Individuals
INCOME TAXATION 2. Non-Individuals

INDIVIDUALS
Gross Income 1. Citizen
2. Alien
Income Taxpayers 3. Taxable estates and trusts

TAXABLE ESTATES AND TRUSTS

General Rules in Income Taxation
1. Estate – refers to the properties, rights and obligations of a deceased
person not extinguished by his death (Estate under judicial settlements
Situs of Income
only)
2. Trust – is an arrangement whereby one person (grantor or trustor)
transfers (i.e., donates) property to another person (beneficiary)m which
will be held under the management of a third party (trustee or fiduciary)
(Trusts with irrevocable designation only)

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 TYPES OF INCOME TAXPAYERS
INTRODUCTION TO
1. Individuals
INCOME TAXATION 2. Non-Individuals

NON-INDIVIDUALS
Gross Income 1. Domestic Corporation – organized in accordance with Philippine laws
2. Foreign Corporation – organized under a foreign law
Income Taxpayers a. Resident foreign corporation (RFC) – a foreign corporation which
operates and conducts business in the Philippines through a permanent
General Rules in Income Taxation establishment (i.e., branch)
b. Non-resident foreign corporation (NRFC) – a foreign corporation which
Situs of Income does not operate or conduct business in the Philippines

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 TYPES OF INCOME TAXPAYERS
INTRODUCTION TO
1. Individuals
INCOME TAXATION 2. Non-Individuals

OTHER CORPORATE TAXPAYERS

1. One-Person Corporation (OPC) – corporation with a single stockholder who may
Gross Income
be a natural person, trust or an estate; taxable as corporation
2. Partnership
Income Taxpayers a. General Professional Partnership (GPP) – formed by persons for the sole purpose
of exercising a common profession; exempt from income tax, but the partners are
General Rules in Income Taxation taxable in their individual capacity as partners
b. Business Partnership – for profit; taxable as corporation
Situs of Income 3. Joint Venture – business undertaking for a particular purpose
a. Exempt Joint Ventures – similar to GPP, not treated as corporation
b. Taxable Joint Ventures – taxable as corporations
4. Co-ownership – joint ownership of a property formed for the purpose of
preserving the same and/or dividing the income
a. Co-ownership limited to property preservation or income collection – exempt
b. Co-ownership that reinvests income of the co-owned property – considered as an
unregistered taxable partnership taxable as corporation

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 GENERAL RULES IN INCOME TAXATION
INTRODUCTION TO
INCOME TAXATION
Individual Within Without
Resident Citizen / /
Gross Income Non-resident Citizen /
Resident Alien /
Income Taxpayers Non-resident Alien /

General Rules in Income Taxation

Non-Individual Within Without
Situs of Income Domestic Corporation / /
RFC /
NRFC /

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 INCOME SITUS RULES
INTRODUCTION TO
INCOME TAXATION
Types of Income Situs
Interest Income Debtor’s residence

Gross Income Royalties Where the intangible is employed

Income Taxpayers
General Rules in Income Taxation
Rent Income Location of the Property
Service Income Place where the service is rendered
Gain on sale of Property:
-Domestic securities Presumed earned within the Philippines

Situs of Income -Other personal properties Earned in the place where the property is sold
-Real property Earned where the property is located

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 INCOME SITUS RULES
INTRODUCTION TO
INCOME TAXATION
Types of Income Situs

Dividend income from:

-Domestic Corporation Presumed earned within

Gross Income
-Resident Foreign Corporation Depends on pre-dominance test (3 years Gross Income,
PH/3 years Gross Income, World):
Income Taxpayers -At least 50%: the portion of the dividend corresponding
to the Philippine Gross Income ratio is earned within
-Less than 50%: entire dividends received is earned abroad
General Rules in Income Taxation
-Nonresident Foreign Corporation Earned abroad

Situs of Income Merchandising Income Earned where the property is sold

Manufacturing Income Earned where the goods are manufactured and sold

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 INCOME TAX SCHEMES,
ACCOUNTING PERIODS,
ACCOUNTING METHODS AND REPORTING

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 INCOME TAX SCHEMES

FINAL INCOME CAPITAL GAINS REGULAR INCOME

TAXATION TAXATION TAXATION

-Imposed on certain -Imposed on gains -Covers all other

passive income only realized on the sale, income not subjected
-Final taxes exchange and to final tax and CGT
-Under a Final disposition of certain -Regular Income Tax,
Withholding Tax capital assets or just Income Tax
System -Capital Gains Tax
(CGT)
-Under a Final
Withholding Tax
System

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 ACCOUNTING PERIODS

REGULAR
ACCOUNTING SHORT ACCOUNTING
PERIOD PERIOD
(12 MONTHS) 1. Newly commenced business
1. Calendar – January Deadline for filing of 2. Dissolution of business
1 to December 31 Annual Income Tax 3. Change of accounting period
(corporate and Return: by corporate taxpayers
individual) On the fifteenth 4. Death of the taxpayer
(15th) day of the 5. Termination of the accounting
2. Fiscal – not
fourth month
calendar following the close
period by the taxpayer by the
(corporate only) of the taxable year Commissioner of Internal
of the taxpayer Revenue

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 ACCOUNTING METHODS

TYPES
Installment method is available to:
1. Accrual basis 1. Dealers of personal property on the
2. Cash basis sale of properties they regularly sell
1. Advanced income is taxable upon 2. Dealers of real properties, only if
3. Installment and
receipt (for sale of services) their initial payment does not exceed
deferred payment 2. Prepaid expense is non-deductible. 25% of the selling price
method 3. Special tax accounting requirements 3. Casual sale of non-dealers in
4. Percentage of must be followed. property, real or personal, when their
completion selling price exceeds PhP 1,000 and
method their initial payment does not exceed
5. Outright and 25% of the selling price
spread-out method
6. Crop year basis

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 TAX REPORTING

PENALTIES FOR LATE FILING

TYPES OF RETURNS MODE OF FILING OR PAYMENT OF TAX
1. Income Tax 1. Manual Filing 1. Surcharge – 25% or 50% of basic tax
Returns System 2. Interest – Double of the legal interest rate for
2. Withholding Tax 2. e-BIR Forms loans or forbearance of any money in the absence
Returns 3. Electronic Filing of any express stipulation (currently at 12%)
3. Information and Payment 3. Compromise penalty – amount paid in lieu of
Returns System criminal prosecution over a tax violation (RMO No.
7-2015)

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 EFPS

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 EBIRFORMS

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 THANK YOU

Marvin Jim C. Cabudsan, CPA

marvinjimcabudsan.uep@gmail.co
m

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