Inbound 3957617422269830470

TAXATION NOTES
GENERAL PRINCIPLES
Taxation:
Free education
(revenue / income)
Citizens / Sovereign / State / Infrastructure
taxes Public Purpose
Taxpayers PH / Government National Defense
Wealth
(Congress / Legislative)
 law-making body
Primary  to raise revenues

Purpose
Regulatory  for regulation / control (ex. sin tax)
Secondary
Compensatory / Sumptuary  reduction of social inequality (ex. progressive system)
Theory of Taxation
1. Necessity Theory  existence of the government is necessary

 existence of taxation is necessary
2. Lifeblood Theory  w/o taxes, the government cannot exist
3. Benefits-Protection Theory  reciprocal duties

Taxes (support)
Citizens Government Symbiotic Relationship
Protection / Benefit (basis of situs of income taxation)
Characteristics of Tax Nature of Taxation

1. Forced contribution 1. Inherent power of the state
2. Generally payable in money  no need for grant/permission to exist
3. Levied for public purpose 2. Legislative in character  Congress
4. Exclusively levied by legislature 3. Subject to inherent & constitutional limitation
5. Levied w/n territorial & legal jurisdiction of the state
6. Proportionate in character
Roles
Legislative (inherent)  imposition / enactment of tax laws
Branches of the Assessment (Audit)
Executive (delegated)  administrative function (BIR, BOC)
Government Collection
Judiciary Interpret tax laws
Resolve tax cases
Legislative Process: (bill  law)
Supreme Court (Highest Court)
Lower Courts (CTA, CA, RTC, 1. House of Representatives (House Version)
MTC) 2. Senate (Senate Version)
3. Bicameral (reconcile House & Senate)
4. President  signs and can veto
Local Government
 1987 Constitution Executive Legislative

Provinces Governors Sangguniang Panlalawigan
 Local Government Code
LGUs Cities/Municipalities Mayor Sangguniang Bayan
 Delegated Power Barangays Brgy. Captain/ Sangguniang Brgy. / Kabataan
Counselors/ SK
Aspects of Taxation Sound Tax System:

1. Levying or Imposition (Legislative) 1. Fiscal Adequacy
2. Assessment & Collection (executive/administrative)  Revenue > Expense (Surplus)
2. Equality (Theoretical Justice)
 ability to pay (progressive)
Inherent Powers of the State
3. Administrative Feasibility
1. Taxation  levying or imposition of tax (strongest power)  Taxes are not excessive, not too little
2. Eminent Domain  taking of private property  Assessment & collection is feasible
 Clear tax laws
3. Police Power  enactment of laws Promote public welfare
Ex.  License Safety, Protection
 Business Permits, passport renewal
 Confiscate smuggled goods
Reference: Sir Brad Lecture & G-Sheets Compiled by: CPM

Inherent Limitation
1. Public Purpose
2. International Comity – a state cannot tax another state
Administrative Function (BIR & BOC)
3. Non-delegability of taxing power, except LGUs
President  fix tariff rates
GSIS, SSS, PHIC, Local Water District (public purpose)
4. Exemption of the Government GOCCs (BSP, LBP, DBP, NHA, NAPOCOR)  subject to tax
PCSO  taxable
5. Situs of Taxation (Territoriality)
Situs of Taxation
Subject Matter Situs
1. Persons Residence of the taxpayer

2. Real property Location
3. Tangible personal property Location
4. Intangible personal property Domicile of the owner
5. Income Residence, citizenship, source of income
6. Business Place of business
Constitutional Limitation
1. Due process of law

2. Equal protection of law
 Person & properties w/ same condition and circumstances are taxed the same
3. Uniformity in taxation
 Territory & jurisdiction
 Same territory & jurisdiction is taxed the same
4. Progressive system
 Graduated income tax table
5. Non-imprisonment for non-payment of poll tax
 GR: Subject to imprisonment
6. Non-impairment of obligations and contracts
7. Free worship clause
8. Exemption of religious, charitable, non-profit cemeteries and churches and mosque from property taxes
9. Exemptions from taxes of the revenues and assets of non-profit, non-stock educational institutions
10. Non-appropriation of public funds or property for the benefit of any church, sect, religion
11. No money shall be paid out of Treasury except in pursuance of an appropriation
12. Concurrence of majority of all the members of the Congress for the passage of law granting tax exemption
13. Non-diversification of tax collections
14. Non-impairment of the jurisdiction of the Supreme Court to review tax cases
15. Appropriation, revenue, tariff bills must originate from House of Representatives but the Senate may propose or
concur with amendments
16. The President shall have the power to veto any particular item(s) in an appropriation, revenue or tariff
17. LGUs can create its own sources of revenues (delegation of taxing power to LGUs)
Other Charges & Fees
1. Toll
2. Penalty
3. Special assessment
 Levied on land
 Public improvement
4. License fee
5. Customs duty/tariff  importation / exportation
6. Debt  liabilities, bank loan, suppliers
7. Subsidy  government aid

Classification of Taxes
Personal  Individuals (Cedula)
1. Subject Matter Property  Real Property (RPT, CGT)
Excise  tax on exercise of rights & privileges (income tax, estate, donor’s, VAT)
Liable Pay
2. Burden Direct ✔ ✔  income tax, estate, donor’s
Indirect ✔ ✖  VAT, OPT
National Tax  income, estate, donor’s, VAT, OPT, excise, DST

3. Taxing Authority
Local Tax  RPT, professional tax
Specific  based on volume, weight / quantity

4. As to amount
Ad Valorem  based on value (%)  income tax, VAT, estate
Proportional  flat rate (VAT, OPT, Estate)

5. As to graduation rate Progressive  Tax Base ↑, Tax Rate ↑
Regressive  Tax Based ↓, Tax Rate ↑
Double Taxation
Same object
Same type of tax 1. Direct
Same taxpayer
Same purpose  all are present
is taxed twice
Same tax jurisdiction  violates constitutional limitation (equality)
Same tax period  not exactly prohibited, but highly discouraged
2. Indirect
 at least one is absent
 allowed
dividends
Corporation Shareholders
FT 10%
Income Tax
(RCIT 25%)
Escape from Taxation
1. Tax evasion / dodging – illegal

2. Tax minimization / Avoidance – legal
3. Shifting  transfer of burden (VAT, OPT); legal
4. Capitalization  taxes are shouldered by the buyer Seller  Buyer
5. Transformation  seller absorbs the tax; ↑ production, ↓ unit cost ↓ SP ↑ SP
6. Exemption  immunity; Senior Citizens & PWDs ↓ VAT ↑ VAT
Sources of Tax Laws
1. Constitution  Local Government Code

2. Tax Code  NIRC  Train Law  CREATE
3. Presidential Decrees/Statutes/Executive Orders (EOs)  issued by the President
4. Tax treaties (DTA)
5. Court decisions (Supreme Court)
6. BIR rulings
7. Revenue issuances (Interpretation, Guide)
a. Revenue regulations (RRs)
b. Revenue memorandum orders (RMOs)
c. Revenue memorandum circulars (RMCs)
8. Local tax ordinances

Powers of the Commissioner
1. To interpret the provisions of the NIRC, subject to review by the Secretary of Finance
2. To decide tax cases, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals
3. To obtain information and to summon, examine and take testimony of persons to effect tax collection (subpoena)
4. To make assessment and prescribe additional requirements for tax administration and enforcement
5. To examine tax returns and determine tax due thereon
6. To conduct inventory taking or surveillance
7. To prescribe presumptive gross sales and receipts for a taxpayer when:
a. The taxpayer failed to issue receipts
b. The CIR believes that the books or other records of the taxpayer do not correctly reflect the declaration
in the return
8. To terminate tax period when the taxpayer is
a. Retiring from business
b. Intending to leave the Philippines
c. Intending to remove, hide, or conceal his property
d. Intending to perform any act tending to obstruct the proceedings for the collection of the tax or render
the same ineffective
9. To prescribe real property values
10. To compromise tax liabilities of taxpayers
11. To inquire into bank deposits, only under the following instances:
a. Determination of the gross estate of a decedent
b. To substantiate the taxpayer's claim of financial incapacity to pay tax in an application for tax
compromise
12. To accredit and register tax agents
13. To refund or credit internal revenue taxes
14. To abate or cancel tax liabilities in certain cases
15. To prescribe additional procedures or documentary requirements
16. To delegate his powers to any subordinate officer with a rank equivalent to a division chief of an office
BIR Organizational Structure

CIR
4 Deputy Commissioner
Operations Legal Information Resource

Group Group System Management
Group Group
Revenue Regional
Offices (19)
Revenue District
Offices (RDO) (124)

INDIVIDUALS Employed
Employment
OFWs
Business Physical
Business Income
INDIVIDUALS Online
Profession  professional income
Basic Final Capital
Investments  Stocks, crypto  Passive Income
Income w/holding Gain
Tax Tax Tax PH (w/n) Abroad (w/out)
RC ✔ ✔
4. Classification of taxpayer NRC ✔ ✖
Considerations RA ✔ ✖
5. Type of Income
ETB ✔ ✖
6. Amount of Income (3M) NRA
NETB ✔ ✖
Classifications
a. Resident Citizen (RC)

1. Filipino Citizen residing in the Philippines
2. Natural Born / Naturalized
b. Nonresident Citizen (NRC)

1. Physical presence abroad with a definite intention to reside
2. An immigrant or for employment on a permanent basis. (OFW, Seaman)
3. Employment; most of the time during the taxable year. (≥ 183 days)
1/1 4/1 12/31
4.
NRC RC
c. Resident Alien (RA) (exchange student)

1. Not a mere transient or sojourner
2. Definite purpose; extended stay; temporarily
3. No definite intention as to his stay.
4. Stay for more than 2 years = residence status
d. Non-Resident Alien (NRA) (< 2 years)

 Engaged in trade or business (ETB)
o actually engaged in trade or business in the Philippines.
o > 180 days
 Not engaged in trade or business (NETB) (25% FWT, gross)

o ≤ 180 days
o Transient (definite purpose; promptly accomplished)
Framework:
Compensation always tax table (Sec. 24A)
 employed
a) ≤ 3M  Tax table or
Self-Employed/Professional Gross Sales/Receipt 8% IT option (in excess of 250k)
Source/Type b)
 Business + non-operating income
of Income (div inc, int inc) > 3M  Tax table
 ✖ FWT
Compensation Tax table

Mixed
Business/Professional Gross Sales/Receipt ≤ 3M  Tax table or 8% Option c)
Notes: + NO income > 3M  Tax table
a) Gross sales are

net of SR, A, D (GS in Tax = NS in Accounting)
CREATE
b) In lieu of the graduated tax rate & 1% OPT (Sec 116) 7/1/20 – 6/30/23
3% OPT (Sec 116) 7/1/23 onwards
Income Tax ≤ 3M Sales; &

Businesses 1% OPT
Business Tax Non-VAT Registered
or
> 3M Sales; or
12% VAT
Non-VAT Registered

Qualifications (8% Option)  signified in 1st Q Notes:
1. Subject to pay 3% OPT (Sec 116)  In computing quarterly ITR, use cumulative
2. Business must be non-VAT registered computation
 Tax Due  Total Payable;
3. Not engaged in VAT exempt transactions
Tax Payable  Remaining
4. Not subject to Sec 117 onwards
 Best option is 8% Option
c) Not in excess of 250,000 – mixed income earner
FINAL WITHHOLDING TAX
 Applies to passive income

 Withheld at source
 Paid by payor/withholding agent
 Income subject to FWT is no longer part of taxable income
FWT April 15
Withholding
Taxes WT on compensation  Est. tax payments ITR
CWT
EWT
3. Income subject to CWT is part of taxable income  Annual tax due
4. Can be deducted from basic income tax (WT on comp)
IT Payable
EWT:
1. Professional (15%) SGV 150

Client BIR
fees
1M -150k = 850k
1k
2. Rentals (5%) Landlord Tenant BIR
20k/month
(1k)
19k
o If unlisted share is foreign  Basic IT
o If real property not located in the Philippines  Basic IT
CGT: Rate Tax Base
1. Sale of unlisted shares of stock 15% Gain (SP – Cost)

(Domestic)
2. Sale of real property 6% Highest (Zonal, Assessed, SP)

 Classified as capital asset
 Located in the Philippines
Income Tax Paid Abroad (Tax Credits)
Actual Income Tax Paid Abroad

VS Whichever is LOWER, can be
deducted from income tax due
𝑇𝑎𝑥𝑎𝑏𝑙𝑒 𝐼𝑛𝑐𝑜𝑚𝑒 𝐴𝑏𝑟𝑜𝑎𝑑
Limit  x Income Tax Due
𝑇𝑜𝑡𝑎𝑙 𝑇𝑎𝑥𝑎𝑏𝑙𝑒 𝐼𝑛𝑐𝑜𝑚𝑒

MWEs:
- Earnings not more than the statutory minimum wage Private Sector  paid the Statutory MW
 Set by the National Wages & Productivity Public Sector  Compensation < SMW in
Commission (NWPC) the non-agricultural sector
Minimum Wage
Holiday Pay
- Exempt from income tax Night-Shift Differential Ø
Hazard Pay
Overtime Pay
Additional Notes on MWEs:
1. Additional compensation such as commissions, honoraria, fringe benefits, benefits in excess of the mandatory non-
taxable amount of Php90,000, taxable allowances, and other taxable income earned by a minimum wage earner
shall, however, be subject to withholding tax using the revised withholding tax table under the TRAIN Law.
2. In other words, the income tax exemption of minimum wage earners covers only their basic pay (statutory
minimum wage), overtime pay, holiday pay, night shift differential, pay, hazard pay, and the non-taxable benefits up
to a maximum amount of Php90,000.
3. Any additional compensation and benefits are not covered by the exemption and shall therefore be subject to
tax.
I. FINAL WITHHOLDING TAXES
DIVIDEND INCOME
TO
FROM RC NRC RA NRA-ETB NRA-NETB
DC 10% 10% 10% 20% 25%
RFC Tax Table Tax Table* 25%*
NRFC Tax Table N/A** N/A**
DC RFC NRFC
DC Exempt Exempt 15% or 25%****
RFC Exempt (or Ordinary Income)*** Ordinary Income* 25%
NRFC Exempt (or Ordinary Income)*** N/A** N/A**

*Assuming it passed the predominance test (earned inside the Philippines)
If the ratio of Philippine gross income over the world gross income in the 3-year period preceding the year of
declaration is:
a. At least 50%, the entire dividend corresponding to the Philippine gross income ratio is earned INSIDE the
Philippines; hence, taxable in the Philippines
b. Less than 50%, the entire dividend received is earned OUTSIDE the Philippines; hence not taxable in the
Philippines
**Assuming it did not pass the predominance test (earned outside the Philippines)
*** Requisites for exemption:

1. Funds from such dividends actually received or remitted into the Philippines are reinvested in the business
operations of the domestic corporation in the Philippines.
2. Reinvestment should be made within the next taxable year from the time foreign-sourced dividends where
received.
3. Reinvestment is limited to funding the working capital requirements, capital expenditures, dividend payments,
investment in domestic subsidiaries and infrastructure project.
4. The DC holds directly at least 20% of the outstanding shares of the foreign corporation.
5. It has held the shareholdings for a minimum of 2 years at the time of dividend distribution.
****15% if with tax sparing; 25% if without tax sparing
II. EXPANDED WITHHOLDING TAX (EWT)
1. Withholding tax on professional fees, talent fees, etc for services rendered
a. Individuals
i. Annual income not exceeding Php3M 5%
ii. Annual income exceeding Php3M 10%
b. Corporations
i. Annual income not exceeding P720k 10%
ii. Annual income exceeding P720k 15%
2. Withholding tax on rentals of real and personal properties: 5% of gross rentals
3. Withholding tax on income payments to certain contractors: 2% of gross payments

a. General engineering constructions, general building contractors, specialty contractors, other contractors|
4. Withholding tax on income payments to beneficiaries of estates: 15% of income distribution
5. Withholding tax on income payments to partners of general professional partnership (GPP)

a. Annual income not exceeding P720k 10%
b. Annual income exceeding P720k 15%
6. Income distribution to the beneficiaries of estate and trusts: 15% on the income distributed

CORPORATIONS
CLASSIFICATION:
PH (w/n) Abroad (w/out) RCIT Tax Base
1. Domestic Corp. (DC) ✔ ✔ 25% Net TI

 Organized under Philippine Law NTI ≤ 5M
 Ex. BDO, PLDT, Globe, SMC, ETC. Except & 20%
(MSMEs) Total Asset ≤ 100M
2. Resident Foreign Corp. (RFC) ✔ ✖ 25% Net TI

 Organized under Foreign Law
 w/ operations in PH
 w/ branches
 Ex. McDo, Unilever, Nestle
3. Nonresident Foreign Corp. (NRFC) ✔ ✖ 25% FWT Gross Income

 Foreign Laws; No operations
 Passive Income (RIP WD)
 No branches in the PH
Types of Income Taxes
1. Basic Income Tax RCIT (25% │ 20%) Higher; paid to the BIR
2. FWT MCIT (1%)  7/1/20 – 6/30/23
3. CGT (2%)  7/1/23 onwards
Format: Sale of Goods Gross Sales

Gross Income (a) - Sales Returns, Allowances & Discounts
Sale of Services
- Allowable Deduction (b) - Cost of Sale
Net Taxable Income Excludes income Gross Income
x Tax Rate subject to FWT & CGT
Tax Due Gross Receipts
- Allowances & Discounts
- Cost of Services
Gross Income
Itemized Deduction (default)

 actual expenses
(b)  substantiated by receipts, invoices
Signify in Q1
Optional Standard Deduction (OSD)  irrevocable
 estimated
 40% of Gross Income
RC ✔
Individuals NRC ✔
Gross Sales/Receipt x 40%
RA ✔ Gross Sales/Receipts
NRA ✔ - Cost of Sale/Services
Gross Income
DC ✔
Corporations RFC ✔ Gross Income x 40%
NRFC ✖
Minimum Corporate Income Tax (MCIT)
1. 1% or 2% of Gross Income
2. Only applies to DC & RFC
3. Effective beginning on the 4th taxable year, following year of commencement
a. Example: 2021 + 4 = 2025
4. Excess MCIT (MCIT > RCIT) can be carried over for 3 years and can be credited to RCIT.
5. Computed quarterly and annually.

Special Corporations
 subject to preferential tax rate
1% from 7/1/20 – 6/30/23
a. Proprietary educational institution
10% starting 7/1/23
 Private schools
DepEd – primary & secondary
CHED – tertiary & post-graduate
GI from related > unrelated  1% or 10%

 Subject to Predominance Test RCIT (25% │ 20%)
GI from related < unrelated  taxed as regular corp.
MCIT (1% │ 2%)
Tuition fees & miscellaneous
Canteen & Library
Hospital Fees (Med School)
Other school related activities
 Classification:
1. Private  1% or 10%
Still subject to
2. Government / Public  exempt
FWT & CGT
3. Non-stock, Non-profit  exempt
Non-profit Hospital (1% or 10%)

 same rule as (a)
Classification
1. Private (for profit)  regular corp (RCIT or MCIT)
2. Government / Public  Exempt
3. Non-profit hospital  1% or 10%
b. Non-stock, Non-profit Educational Institutions &

Other NPOs
 Charitable – GK, Bantay Bata, World Vision, etc. Exempt from income tax & RPT,
 Religious still subject to FWT & CGT
c. International Carriers
 Ex. Cathy Pacific, SG Airlines, EVA Air
 Air or Shipping Passenger Originating from Philippines in a
 2.5% on Gross Philippine Billings  gross rev derived from Cargo continuous and uninterrupted
Mail flight
Types of Nonstop  Ex: PH  JPN

Flight Connecting  Ex: PH  HK  US
same carrier  part of GPB ✔
different carrier  not part of GBP ✖
d. Nonresident Cinematographic Film Owner, Lessor or Distributor

 25% on GI\
 Related to film business
Equity  Marvel Studios
 Example: Avengers ($300M)
Borrowings  Amazon Studios, Black Label Media, CJ Entertainment
e. Nonresident Lessor of Aircraft, Machinery and Other Equipment

 7.5%
 Example: PAL lease from SMVC Aviation Capital (Japanese)
AVALON (Ireland)
f. Nonresident Lessor of Vessels Chartered by PH Nationals

 4.5%
 Example: Maersk (Denmark)
10%
g. ROHQ
starting 1/1/22  25% taxable as RFC
 BPOs  Accenture, JP Morgan, Converge ES, Teleperformance

h. Regional or Area HQ
 Exempt from Income Tax
 No operation / Income in the Philippines
 Example: PWC SDC  supports PWC offices
 payroll, hiring, client assignment
i. OBUs & FCDS  division of a local bank (BDO)

 Division of a foreign bank (Citibank)
RCIT (25% / 20%)
 Treated as regular Corporation
MCIT (1% / 2%)
j. Branch Profit Remittance

 15%, based on the total profits applied/earmarked for remittance
 Example: Accenture PH Accenture Ireland
remits
EXEMPT GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS (GOCCs)
a. Government Service and Insurance System (GSIS)

b. Social Security System (SSS)
c. Home Development Mutual Fund (HDMF) / PAG-IBIG
d. Philippine Health Insurance Corporation (Philhealth)
e. Local water districts
EXEMPT CORPORATIONS - Sec. 30
a. Labor, agricultural or horticultural organization not organized principally for profit
b. Mutual savings bank not having a capital stock represented by shares, and cooperative bank without capital stock
organized and operated for mutual purposes and without profit
c. A beneficiary society, order or association, operating for the exclusive benefit of the members such as a fraternal
organization operating under the lodge system, or a mutual aid association or a nonstock corporation organized by
employees providing for the payment of life, sickness, accident, or other benefits exclusively to the members of
such society, order, association, or nonstock corporation or their dependents
d. Cemetery company owned and operated exclusively for the benefit of its members
e. Nonstock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic,
or cultural purposes, or for the rehabilitation of veterans, no part of its net income or asset shall belong to or inure
to the benefit of any member, organizer, officer or any specific person
f. Business league, chamber of commerce, or board of trade, not organized for profit and no part of the net income
of which inures to the benefit of any private stockholder or individual
g. Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare
h. A nonstock and nonprofit educational institutions
i. Government educational institution
j. Farmers' or other mutual typhoon or fire insurance company, mutual ditch or irrigation company, mutual or
cooperative telephone company, or like organization of a purely local character, the income of which consists solely
of assessments, dues, and fees collected from the members for the sole purpose of meeting its expenses
k. Farmers', fruit growers', or like association organized and operated as a sales agent for the purpose of marketing
the products of its members and turning back to them the proceeds of sales, less the necessary selling
expenses on the basis of the quantity of produce finished by them

PARTNERSHIP RCIT / MCIT FWT CGT
Ordinary Partnership (OP) ✔ ✔ ✔
- general / commercial / business / partnership in trade
Types - taxed like a regular corporation
General Professional Partnership (GPP) ✖ ✔ ✔

- exempt from Income Tax
- Requisites:
a. have common profession
b. for exercise of profession
c. no part of its income is derive from engaging in
any trade or business
Illustration  Includes income subject

to FWT & CGT
Includes income
subject to FWT &  Actually or constructively
CGT RCIT (25% / 20%) received Exempt NOTES:
OP MCIT (1% / 2%) GPP Ø
4. GPP & Partners may claim ID/OSD
5. 8% Option is not allowed
Dividends
share
share 6. Actual distribution is subject to CWT
10% FWT
a. ≤ 720k  10% CWT
A B C A B C
b. > 720k  15% CWT
ITR ITR ITR ITR ITR ITR
 Excludes distributive share /  Excludes income subject to
dividends, since it is already FWT or CGT
subjected to 10% FWT
CO-OWNERSHIP
A&B Inheritance
received a  Estate Tax
Subject:
property
Gift income from farmland
(farm land)
 Donor’s Tax
200 mango
GR: Exempt from Income Tax Preservation of property (watering, fertilizers, pest control)
trees
Collection of the income (harvest)
 co-owners
EXC: Taxable Action is beyond mere preservation  income was reinvested
Property remained undivided for more than 10 years
RCIT (25% / 20%)

Taxable Exempt 0%
MCIT (1% / 2%)
Share (dividends) share share

10% FWT
A B shareholders A B (Co-owner)
ITR ITR ITR ITR

 will not form part of the ITR  will form part of the ITR

JOINT VENTURE
GR: All JVs are Taxable as a Regular Corporation
EXC: Exempt if:

1. JVs undertaking construction projects
2. JVs engage in energy operations… agreement w/ the government
Shell (45%)
Example: Malampaya Project
Chevron (45%)
Philippine National Oil Company (10%)
RCIT (25% / 20%) 0%

Taxable JV MCIT (1% / 2%)
Exempt
Individuals  10% FWT

Share (dividends) share JV
share Corporations  exempt
A B shareholders A B
ITR ITR ITR ITR
 will not form part of the ITR  will form part of the ITR
Construction Project
Requirements
1. The joint venture was formed for the purpose of undertaking a construction project
2. Should involve joining or pooling of resources by licensed local contracts; that is, licensed as general contractor
by the Philippine Contractors Accreditation Board (PCAB) of the DTI
3. The local contractors are engaged in construction business
4. The JV itself must likewise be duly licensed as such by the PCAB
Foreign Contractors
1. The member foreign contractor is covered by a special license as contractor by the PCAB.
2. The construction project is certified by the appropriate Tendering Agency (government office) that the project
is a foreign financed/internationally-funded project and that international bidding is allowed under the Bilateral
Agreement entered into by and between the Philippine government and the foreign/international financing
institution.
3. Engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating or consortium
agreement under a service contract with the government.
ESTATE AND TRUST

Estate Estate (properties, rights & obligations)
Mr. X (Father) House, land, apartment A

units, investments, Sons Heirs/Beneficiaries
- died; decedent B
receivable, liabilities  10 years old
 earns income
 Trustee / Fiduciary
Mr. X Died
Jan. 1 July 1 Dec. 31
Mr. X ?
Estate is taxable as a separate entity (individual)
Under judicial settlement/
Trustee/Fiduciary files & pays tax in behalf of estate
w/ administration
Rules (last will & testament)
Estate is not taxable as a separate entity
Under extra-judicial settlement Rules of co-ownership apply
Heirs are liable in their separate capacity
Judicial Extra-Judicial
Tax table exempt
Settlement Settlement
ITR of Estate  Special Deduction Share

Share Share
15% CWT ITR of Heirs  Ordinary Income (distribution)
(distribution)
Out of current year
A B income A B
ITR ITR ITR ITR
 will form part of the ITR  will form part of the ITR

Trust
Trust Fund
Ex. KA
Cash J
 Grantor / Trustor Properties Beneficiaries
B
 still living
 managed by BPI AM
(trustee/fiduciary)
Irrevocable  trust is taxable as a separate entity (individuals)

 not part of gross estate
Rules
 not subject to estate tax
Revocable  grantor is the taxpayer

 part of gross estate
 subject to estate tax
Irrevocable Individual Revocable Exempt

 Grantor (taxpayer)
Trust  Special Deduction Distribution

Distribution Distribution Distribution
15% CWT Beneficiaries  Ordinary Income
Out of the trust

A B A B
ITR ITR ITR ITR
 will form part of the ITR  will form part of the ITR

GROSS INCOME
Format:
Gross Income
(Allowable Deduction)
Individual  tax table / 8%
Net Taxable Income
Corporation  RCIT / MCIT
Gross Income Inclusions  Return ON Capital

Exclusions  Return OF Capital
- Any gain derived from labor, capital & sale of asset
- Excludes items that are exempt & items subject to FWT & CGT
- Ordinary income / returnable income  ITR
INCLUSIONS
1. Compensation Income (employer-employee relationship)
Salaries
+ OT Pay
+ Allowances
+ 13th month pay
+ Other Benefits
Total
- Payroll Deductions (Mandatory Contributions)
SSS, Philhealth, Pag-ibig, Union Dues
Taxable Compensation Income
2. Business Income
Trading / Merchandising Manufacturing
RMU
+ DL, OH
Sales BI Sales
TMC
- COGS + Purchases - COGS
+ WIP, Beg
GP - EI GP
- WIP, End
COGS COGM
+ FG, Beg
- FG, End
COGS
3. Service / Professional Income
Gross Revenues / Receipt
- Cost of Services
Gross Income
4. Gains derived from Dealings in Property

Capital Assets  CGT (not used in business) ✖
Gains
Ordinary Assets  used in business ✔
5. Rent Income Monthly ✔

Advanced ✔
Rentals
Refund ✖
Composition Deposits
Applied to the last month ✔
Insurance
Any obligation of the lessor to any 3rd party assumed & paid by the lessee
RPT
Leasehold Improvements  Lessor
Outright Method  100% FMV
(lump-sum)
Spread-out Method  straight line method over lease term
6. Interest Income
 Bank Deposit (w/n)  FWT ✖
 Bank Deposit (abroad)  Ordinary Income ✔
 Notes Receivable  Ordinary Income ✔

7. Royalties
 w/n  10% or 20% FWT ✖
 w/out  ordinary income ✔
8. Dividend Income
 FWT ✖
 Exempt ✖
 Tax Table (ordinary income) ✔
9. Annuities
 Series of payments; retirement
 Excess of annuity payments over premiums
Premiums ₱1M
Mr X Philam Life 1M ✖
(Policy Holder) Period/series of ₱1.5M
₱1.5M 500K ✔
payments
10. Prizes & Winnings Within Without
Prizes
w/n prizes ≤ 10k ✔
RC ✔ P10,000 and below tax table tax table
w/o
DC ✔ More than P10,000 20% tax table
Winnings
PCSO and lotto not exceeding P10,000 exempt N/A

PCSO and lotto exceeding P10,000 20% N/A
Other winnings 20% tax table
11. Dividends
 Cash ✔
 Property  FMV ✔
 Liquidating  nontaxable up to the cost of investment ✔
GR: Non-taxable
 Stocks
EXC: if the payment results in a change in the proportionate
interest
Scenario 1: Non-taxable Scenario 2
SH Old Shares % New Shares % New Shares %
A 10 25% 11 25% 10 24%
B 10 25% 11 25% 10 24%
C 10 25% 11 25% 11 26%
taxable
D 10 25% 11 25% 11 26%
40 100%
12. Pension
 If it failed to meet the exclusion criteria
13. Partner’s distributive share from the NI OF GPP
14. Bad Debt Recovery

 Only direct write-off method is allowed
BDE XX
AR XX
 Tax benefit rule:

• If in the year of write-off, there was a reduction of the taxable income, the bad debt recovery will be a
taxable income
Example: Scenario 1 Scenario 2 Scenario 3
TI before w-off (Yr. 1) 100,000 (100,000) 100,000
- Write-off (20,000) (20,000) (120,000)
TI after w-off 80,000 (120,000) (20,000)
Recovery 20,000 20,000 60,000
Actual 80,000 Ø Ø
Should be 10,000 Ø 40,000
Benefit 20,000 Ø 40,000
15. Tax Refunds
 Non-taxable:
1. Income tax
2. Estate tax
3. Donor’s tax
Credit
4. Income tax paid to foreign country if claimed as credit  RC
Deduction
5. Stock transaction tax (6/10 of 1%)
6. VAT
16. Cancellation of Debt

Services
Scenario 1 D C ✔ Compensation Income
Cancel debt

Scenario 2 D C ✖ Gift (Donor’s Tax)
Cancel debt
FWT ✖
SH  Corp
Dividend Exempt ✖
Scenario 3
Cancel debt Income
Ordinary Income ✔
17. Damage Recovery

 Compensatory Damages ✖
- Hospital fees, moral damages
 Recovered Damages ✔
- Lost profit
18. Gross Income from LTCC

 Acceptable Method: Percentage of Completion Method
 Cost to Cost Method
EXCLUSIONS
 Not part of Gross Income; no need to report to the ITR

Premiums (OI) Mr. X ✔
1. Proceeds from Life Insurance
Mr. X (Wife, Kids) Proceeds ✖
premiums proceeds Premiums  deduction
ABC Corp Sunlife Beneficiary
(ABC Corp) ✖
Mr. X
- Life Insurance Premiums (Mr. X) ✖
ABC Corp. Proceeds ✔
Premiums ✖ no deduction
2. Amounts received by the insurer as a return of premium (outlived)
Premiums ₱1M Philam Life

Mr X
Proceeds ₱1.4M
(est. maturity)
1M ✖
400K ✔
3. Gifts, bequest, devises
Donor’s Inheritance  Estate Tax

Tax
4. Compensation for injuries or sickness

 Compensatory / Indemnification
o Libel, breach of contract
o Moral damages, hospital
5. Income exempt under treaty

6. Retirement benefits, pensions, gratuities (RA 7641)
a. Requirements:
1. Reasonable private benefit plan, maintained by the employer  approved by the BIR
2. In the service of the SAME employer for at least 10 years
3. Not less than 50 years of age
4. First time availment
b. Separation pay
- beyond the control
c. Social security benefit

d. Payments of benefit (US Veterans Administration)
- WWII Veterans
e. SSS
f. GSIS
7. Miscellaneuos Items
a. Income derived by foreign government
b. Income derived by local government or its political subdivisions (except GOCCs)
c. Prizes and awards
a. Requirements
i. Selected w/o any action
ii. Not required to render substantial future services
d. Prizes and awards in sports competition
a. all prizes and awards granted to athletes in local and international sports competitions and
tournaments
b. whether held in the Philippines or abroad and sanctioned by their national sports assocations
e. 13th month pay and other benefits
a. the total exclusion shall not exceed P90,000
f. GSIS, SSS, Medicare and other contributions
g. Gains from the sale of bonds,debentures or other certificate of indebtedness with a maturity of more than 5
years
h. Gains from redemption of shares in mutual fund
i. Income derived from the sale of gold pursuant to RA 7076 (People's Small-Scale Mining Act of 1991)
8. Tax exempt under RA 11494 (Bayanihan Act II)

a. Retirement benefits received by officials and employees of private firms, whether individual or corporate,
from June 5, 2020 to December 31, 2020
b. COVID-19 Special Risk Allowance given to public and private health workers
c. Actual Hazard Duty Pay given to Human Resources for Health (serving in the front line)
d. Compensation paid to private and public health workers who have contracted COVID-19 in the line of duty
or dies while fighting COVID-19:
 P1million in case of death
 P100,000 in case of severe or critical sickness
 P15,000 in case of mild or moderate sickness
9. Benefits received by government officials and employees are also not subject to income tax and
withholding tax on compensation
a. Fringe benefits
b. Representation and Transportation Allowance or RATA
c. Personnel Economic Relief Allowance or PERA
d. The monetized value of leave credits
e. Mandatory/compulsory GSIS, Medicare and Pag-IBIG contributions
f. Union of individual employees
g. Statutory Minimum Wage in the non-agricultural sector applicable to the place where he/she is assigned
h. Minimum Wage Earners
i. Benefits received from GSIS Act of 1937

DEDUCTIONS
Format:
Gross Income
- Allowable Deductions Itemized
Net Taxable Income OSD
General Principles:
1. Must be ordinary & necessary

2. Expense must be paid or incurred during the taxable year
3. Must be connected w/ trade or business or exercise of profession
4. Must be supported by sufficient evidence
5. The expense must not be against the law, morals, public policy or public order
6. If subject to withholding tax, such tax must have been withheld & paid to the BIR
OPTIONAL STANDARD DEDUCTIONS (OSD)
RC, NRC, RA
Applies to DC, RFC, GPP N/A to NRA, NRFC
Other entities on which rules for DC apply
COGS
Trading / manufacturing  40% of Gross Sales
Individual Not Deducted
Services  40% of Gross Revenues / Receipt
OSD
Corporation  40% of Gross Income Deducted
Illustration:
Scenario 1: Trading / Manufacturing Scenario 2: Services
Corporation: Gross Sales 10M Gross Revenues / Receipts 5M

COGS (4M) Cost of Services (2M)
GP / GI 6M GI 3M
OSD (40%) (2.4M) OSD (40%) (1.2M)
NTI 3.6M NTI 1.8M
Individuals: Gross Sales 10M Gross Revenues / Receipts 5M

OSD (40%) (4M) OSD (40%) (2M)
NTI 6M NTI 3M
ITEMIZED DEDUCTIONS
1. Losses
a. Casualty
 Arises from casualty such as fire, storm, eartquackes, theft, embezzelment
 Reduced by insurance recovery
Scene 1: Total Loss Scene 2: Total Loss Scene 3: Partial Loss
Cost 4M BV 3M Cost to restore 2.5M 2.5M
Acc Dep’n (1M) Insurance Recovery (2M) BV 3M (1M)
BV 3M  Loss Deductible Loss 1M Insurance 1M 1.5M  Loss
b. NOLCO
 Net Operating Loss Carry-Over GR: can be carried over for 3 years following the year of NOL
 AD > GI EXC: Bayanihan Act II
 Not equal to NL in accounting  NOLCO incurred or sustained in 2020-2021  5 years
Yr. 1 Yr.2 Yr.3 Yr.4 Yr.5

NI / L (2M) 1M (500k) 900k 5M
NOLCO (Yr.1) (1M) (900k)
NOLCO (Yr.3) (500k)
NTI Ø Ø Ø Ø 4.5M

Requisites:
a. At the time of incurring net loss, the taxpayer must not be exempt from income tax
b. There is no substantial change in the ownership of the business or enterprise in that:
i. Not less than 75% in nominal value of outstanding issued shares, if the business is in the
name of a corporation, is held by or on behalf of the same persons
ii. Not less than 75% of the paid-up capital of the corporation, if the business is in the name
of the corporation, is held by or on behalf of the same persons
Applies to:
a. Individuals (including estates and trusts) engaged in trade, business, or exercise of profession
b. Domestic corporations
c. Resident foreign corporations
d. Corporations subject to preferential tax rates (proprietary educational institutions, hospitals,etc)
c. Others
 Losses from ordinary assets
 Wagering losses  deductible only upto the extent of gains / winnings
 Losses on wash sales of stocks
 Artificial losses
 Not deductible, except if dealer
2. Charitable and Other Contributions

Priority Activities  Determined by NEDA
Deductible in Full (100%) International Organizations (agreements, treaties)
Accredited NGOs
Types Special Laws
Individuals  10% Non priority activities

Subject to Limitations
Corporation  5% Non-accredited NGO
Basis  NTI before deducting contributions

Requisites:
a. The contribution or gift must be actually paid
b. It must be given to the organizations specified in the Code
c. The net income of the institution must not inure to the benefit of any private stockholder or individual
d. The donee must be a domestic institution
e. The donee must issue a Certificate of Donation (BIR Form 2322)
Priority Activities:
a. Education
b. Health
c. Youth and sports development
d. Human settlements
e. Science and culture
f. Economic development
Accredited NGOs Requisites:
a. The NGO must be an accredited donee institution with certifications issued by the following accrediting
agencies
i. Department of Social Welfare and Development (DSWD) - for charitable or social welfare
organizations, foundations and associations
ii. Department of Science and Technology (DOST) - for research and other scientific activities
iii. Philippine Sports Commission (PSC) - for sports development
iv. National Council for Culture and Arts (NCCA) - for cultural activities
v. Commission on Higher Education (CHED) - for educational activities
b. The NGO must be organized and operated exclusively for the above purposes, and no income
inures to the benefit of any private individuals
c. The NGO makes utilization of the contribution not later than the 15th day of the third month after the
close of its taxable year
d. The administrative expenses of the NGO do not exceed 30% of its actual expenses
The members of the Board of Trustees must not receive remunerations
e. In the event of liquidation, the asset of the NGO will be distributed to another nonprofit domestic
corporation orgnanized for similar purpose

Special Laws (deductible in full):
a. Integrated Bar of the Philippines

b. International Rice Research Institute
c. Development Academy of the Philippines
d. University of the Philippines and other state colleges
e. Cultural Center of the Philippines
f. Artesian Well Fund
g. Ramon Magsaysay Award Foundation
h. Task Force on Human Settlement
i. Donations to the National Museum, Library and Archives
j. National Commission on Culture
k. Humanitarian Science Foundation
l. National Social Action Council
3. Pension Deductible
Not Funded Actual amount paid upon retirement
 out of pocket
Types  no third party
Funded Current Service Cost  deductible in full (100%)

 pension trust Past Service Cost  divided by 10
(insurance companies)
1 2 3 4 5 6 7 8 9 10 CSC 800,000
PSC (200,000  10) 20,000
PSC CSC 820,000
200,000 800,000/yr
Requisites:
a. The employer must have established a pension or retirement plan to provide for the payment of
reasonable pensions to his employees
b. The actuarial assumptions used by the fund must be sound and reasonable
c. It must be funded by the employer
d. The fund assets must be independent from and not subject to the control or disposal of the
employer
e. Contribution for current service cost is deductible in full
f. Contribution for past service cost is amortized over a period of 10 years
4. Research & Development Cost

Discovery of Application of
new knowledge research
Capitalizable  Capitalize and Depreciate

Types (equipment, building)
Outright Depreciation (100%)
Others (supplies)  Option
Amortized over a period of not less than 60 months
(higher of 60 months or # of years to benefit)
Requisites:
a. Paid or incurred during the taxable year
b. Ordinary and necesary expenses in connection with trade and business or exercise of profession
5. Taxes
GR: Tax paid or incurred w/n the taxable year are deductible.
Nondeductible: Deductible:
a. Philippine income tax a. Foreign income tax claimed as deduction
b. Income tax paid to a foreign country if claimed as credit (not claimed as credit)
c. Estate tax b. Percentage tax
d. Donor's tax c. Excise tax
e. Special assessment d. Documentary stamp tax
f. VAT e. Fringe benefits tax
g. Stock transaction tax f. Local taxes
h. Interest, surcharges, penalties on delinquent taxes g. Community tax
i. Final taxes h. Municipal tax

6. Interest
TRAIN: 33%
CREATE: Limit is 20% of Interest Income (non-deductible interest expense)
Exception: MSME  Deductible Interest Expense = Actual Interest Expense
Requisites:
a. There must be indebtedness
b. The interest expense must have been paid or incurred during the taxable year
c. The indebtedness must be that of the taxpayer
d. The indebtedness must be connected with the taxpayer's trade, business or exercise of profession
e. There must be legal liability to pay interest
7. Bad Debt Expense

Deductible only if actual write-off
Requisites:
a. Existing indebtedness due to the taxpayer which must be valid and legally demandable
b. Connected with the taxpayer's trade, business or practice of profession
c. Must not be sustained in a transaction entered into between related parties
d. Actually ascertained to be worthless and uncollectible as of the end of the taxable year
e. Actually charged off in the books of accounts of hte taxpayer as of the end of the taxable year
8. Depreciation / Amortization / Depletion

Straight Line
Allowed Method Declining Balance (DD, 150%)
SYD
Other methods prescribed by the Secretary of Finance recommended by the CIR
Special Cases:
 Properties used in Petroleum Operation
SL 10 years
• Used in Production UL is shorter between
DD Actual UL
• Not used in Production  SL (UL is always 5 years)
 Mining
≤ 10 years  Actual UL
UL
> 10 years  between 5 years & UL
 Depletion
• If incurred for non-producing wells/mines  outright expense (100%)
Outright Expense (100%)
• If incurred for producing wells/mines
Capitalized & Depreciate
Requisites:
a. The allowance for depreciation/amortization must be reasonable
b. The property subject to depreciation is used in the trade, business or practice of profession
c. The allowance must be charged off within the taxable year
d. Schedule on the allowance must be attached to the return
9. Entertainment, Amusement and Recreation Expense (EAR)

 Representation expenses
Limit Sale of Goods  ½% of Net Sales

Sale of Services  1% of Net Revenues/Receipts
Requisites:
a. It must be paid or incurred during the taxable year
b. It must be directly connected to the development, management and operation of the trade, business or
profession
c. It must not be contrary to law, morals, good customs, public policy or public order
d. It must have been duly substantiated with adequate proof

10. Discount to Senior Citizen and PWDs
 Exempt from VAT
 Entitled to 20% Discount
Example:
SP 1,120
VAT (12%) (120)  1,120 x 12/112
SP (Exc. VAT) 1,000
Discount (20%) (200)  Seller POV: Allowable Deduction
800
11. Labor Training Expenses (CREATE)

 Internships, OJT
 Additional ½ of labor training expenses
 Limit: 10% of DL
Maximum of 6 months
 Apprenticeship Agreement
not less than 75% of MW
Requisites:
a. The labor training expenses shall not be more than ten percent (10%) of the Direct Labor Wage
b. The labor training expenses are incurred for skills development of enterprise-based trainees
c. The enterprise-based trainees are enrolled in public senior high school, public higher education
institutions, or public technical and vocational institutions for the taxable year in which the labor
training expenses are claimed
d. The training is covered by an apprenticeship agreement under Presidential Decree (PD) No. 442
or the Labor Code of the Philippines
e. The company claiming the additional deduction is granted an authority to offer a training program
for skills development as certified by the Department of Education (DepED), Technical Education
and Skills Development Authority (TESDA), or the Commission on Higher Education (CHED), as
applicable.
12. Other Expenses

 No specific provisions of the law
1. Advertising Expense Related Taxpayers:

2. Utilities Expense 1. Family Members
3. Rent Expense 2. Control or > 50%
4. Salaries Expense 3. Trust  Fiduciary, grantor, beneficiary
5. Insurance Expense
6. Repairs & Maintenance
7. Supplies Expense
8. Miscellaneous Expense
NONDEDUCTIBLE EXPENSE
1. Personal, living or family expenses

2. Any amount paid out for new buildings or for permanent improvements, or betterments made to increase the
value of any property or estate
3. Any amount expended in restoring property or in making good the exhaustion thereof for which an allowance is
or has been made
4. Premiums paid on any life insurance policy covering the life of any officer or employee, or of any person
financially interested in any trade or business carried on by the taxpayer, individual or corporate, when the
taxpayer is directly or indirectly a beneficiary under such policy
5. Interest, losses and bad debts between related taxpayers
a. Between members of the family
b. Except in the case of distributions in liquidation:
i. Between an individual and a corporation more than 50% in value of the outstanding stock of which
is owned, directly or indirectly, by or for such individual
ii. Between two corporations more than 50% in value of the outstanding stock of each of which is
owned, directly or indirectly, by or for the same individual
iii. Between the grantor and a fiduciary of any trust
c. Between the fiduciary of a trust and the fiduciary of another trust if the same person is a grantor with
respect to each trust
d. Between a fiduciary of a trust and a beneficiary of such trust
6. Bribes, kickbacks and other similar payments

CAPITAL ASSETS
 assets other than ordinary assets
Sec. 39: Ordinary Assets:
a. Stock in trade of the taxpayer (inventory)

b. Property held by the taxpayer primarily for sale (Condo Units)
c. Property used in trade or business subject to depreciation (Equipment and Machinery)
d. Real Property used in trade or business (land, building)
Ordinary
Assets Sale of real property  6% CGT
Capital Sale of unlisted shares  15% CGT
Others  GI (not subject to CGT)
Ordinary Assets:
SP > Cost Ordinary Gain  GI
SP < Cost Ordinary Loss  AD
SP Higher
6% CGT
FMV
Must be located in the Philippines
Sale of Real Property Taxed whether gain or loss (presumed gains)
Withheld at source by the buyer (Payment = SP – CGT)
Computed on a per transaction basis
Not part of GI
The capital asset sold was a principal residence

The taxpayer is a citizen of the Philippines or resident alien (RC, RA)
The proceeds of the sale was invested in acquiring a new principal residence
EXC: Principal Residence Notice to make such utilization was given to the BIR within 30 days from the date of
(If Silent: all criteria are met) sale
The reacquisition of the new residence must be within 18 months from date of sale
A cash deposit is made with an accredited bank under an Escrow Agreement for an
amount equal to the capital gains tax, and answerable for the capital gains
tax if the conditions for the exemption be not satisfied
The exemption must be availed of once only every 10 years
Must not be traded or listed

15% CGT based on Net Capital Gains
Sale of Unlisted Shares Sales must result in a gain
Not part of GI
With year-end consolidation
Other Capital Asset:

SP > Cost Capital Gain Net CG  GI
SP < Cost Capital Loss Net CL  Not an item of AD
RULES ON CAPITAL GAINS

Corporation Individual
Holding period always at 100% 100% if held for not more than 12 months (ST capital gain/loss)
50% if more than 12 months (LT capital gain/loss)
Deductible capital losses only to the extent of capital gains only to the extent of capital gains
Net capital loss carry-over not available available Limit 1: Net income (taxable income) on Year 1
Limit 2: Net capital gains on Year 2
NOLCO Limit 1. NTI (Yr. 1)  Tax benefit Rule

2. Net CG (Yr. 2)

BASIS FOR DETERMINING GAIN OR LOSS OF PROPERTY
Manner of Acquisition Basis
1. Purchase Cost
2. Inheritance FMV at the time of inheritance
3. Donation Same as it would be in the hands of the donor or the last preceding
owner by whom it was not acquired by gift
Exception: FMV at the time of donation if lower than the amount above,
for the purpose of determining the loss
4. If acquired by less than full or
adequate consideration Amount paid by the transferee
TRANSACTIONS DEEMED EXCHANGE
1. Retirement of bonds, debentures, notes or certificates and other evidence of indebtedness

2. Short sale of properties
3. Failure to exercise a privilege or option to buy or sell property that is a capital asset
4. Security becoming worthless
5. Receipt of a liquidating dividends
6. Redemption of shares for cancellation or retirement
7. Voluntary buy-back of shares
Short Selling:
Mr. X 1. Borrow a stock Borrow & Sell

₱10 •
(Investor) 2. Sells the Stock for ₱10 ₱3 gain
3. Buys back the stock for ₱7 ₱7 •
4. Return the stock to the lender
Sec. 40
Tax-free exchanges  exempt in Income Tax

CGT, DST, VAT
GR: Upon sale/exchange of property, the entire amount of G/L shall be recognized
EXC:
Transfer to a controlled corporation
Property (land)
Mr. X ABC Corp.
Shares
Reorganization (> 50%)
 exempt (No G/L)
Merger/Consolidation
Property
XYZ ABC
Shares

INSTALLMENT REPORTING
Methods: If not Qualified:
Deferred Payment Method
1. Cash
 100% recognition at its cash equivalent
2. Accrual
3. Hybrid
4. % of Completion (LTCC) Proceeds from harvest
5. Crop year method (Expenses from harvest)
(farming business) Farming Income
6. Installment  gradual / piecemeal reporting of income & CGT
Regular  Abensons, Western, Anson’s

Who are (dealer of properties)
SP > ₱1,000
Qualified? Personal Property Initial Payments ≤ 25% of SP
Casual
Real Property  Initial Payments ≤ 25% of SP
Illustration:
land land
A B C
6M 10M
x 6%
6M 6M 600k CGT
Loan
Proceeds
Bank
(MB)
Scenario 1 Scenario 2 Scenario 3 𝐼𝑛𝑖𝑡𝑖𝑎𝑙 𝑃𝑎𝑦𝑚𝑒𝑛𝑡

SP 10M 10M 10M = 20%
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒
Cost 6M 6M 6M
Excess of mortgage over cost
Mortgage Ø 1M 6.5M
Terms:
Yr.1 DP 1M 1M 1M GUIDELINES:
1st 1M 1M 500k Without Mortgage
Yr.2 2nd 4M 3.5M 1M
3rd 4M 3.5M 1M IP= DP + Payments received this year
1. IP DP 1M 1M 1M DP IP ÷ SP = 25% or less (allowed for Installment Reporting)

1st 1M 1M 500k 1st GP ÷ CP x total collections = Income Realized
2M 2M 500k Excess
2M IP= Initial payments, payments of the buyer to seller,
20% 20% 20% whatever form (cash, properties, cancellation of
indebtedness, etc.) which is received during the year. It is
2. CP 10M 10M SP 10M
not similar to down payment.
(received/receivable) (1M) Mortgage (6.5M)
9M Excess 500k With Mortgage in excess over the Cost
CP 4M
In this case, the selling price is the contract price.
𝐼𝑃 2𝑀 2𝑀 2𝑀
Yr.1 (𝐶𝑃 𝑋 𝐶𝐺𝑇) 10𝑀
𝑥 600𝑘 9𝑀
𝑥 600𝑘 4𝑀
𝑥 600𝑘 IP= DP + Payments received this year
= 120k = 133,333 = 300k
plus Excess of Mortgage over the Cost
8𝑀 7𝑀 2𝑀 IP ÷ SP = 25% or less (allowed for IR)

Yr. 2 10𝑀
𝑥 600𝑘 9𝑀
𝑥 600𝑘 4𝑀
𝑥 600𝑘
GP ÷ CP x total collections = Income Realized
= 480k = 466,667 = 300k
In this case, the contract price is equal to the selling price
minus mortgage assumed by the buyer plus excess of
mortgage over cost.
Installment Payment (IP)
With Mortgage but no Excess over the Cost
 all payments received in the year of sale
IP= DP + Payments received this year
CP = Contract Price
DP = Downpayment IP ÷ SP = 25% or less (allowed for Installment Reporting)
SP = Selling Price GP ÷ CP x total collections = Income Realized
GP = Gross Profit
In this case, the contract price is equal to selling price
minus mortgage assumed by the buyer.

FRINGE BENEFITS
 Special form of benefits given to employees

 Top management / executives
 For the convenience and advantage of the employees
Examples:
1. Housing 7. Expenses for foreign travel

2. Expense account (gas, mobile) 8. Holiday and vacation expenses
3. Vehicle of any kind (car plan) 9. Educational assistance to the employee or
4. Housing personnel (maid, driver and others) his dependents
5. Interest on loan 10. Life or health insurance and other non-life
6. Membership fees insurance
35% based on grossed-up monetary value of the FB  Except: NRA-NETB (25%)

Managers Withheld by the employer
FBT
Given to Supervisors Excluded from compensation income
Rank & File  FBT  part of compensation income (90k limit)
Computation:
Fringe Benefit 65,000 (MV)

 65%
100,000 (GUMV)
x 35%
35,000 FBT
General Rules
w/ transfer of ownership  100%

Housing & Vehicles
Monetary Value w/o transfer of ownership  50%
Others  100%
Real Property (Housing)  20 years (5%)

Useful Life Depreciation Value
Moveable Property (Vehicle)  5 years (20%)
Convenience & Advantage of the Employer: (Exempt from FBT)
1. Mobile Allowance for Secretaries

2. Housing Allowance for Field Engineers
3. Car Incentives for medical representatives
Exempt (not subject to FBT):
a. Housing privilege 1) Housing privilege of military officials of AFP consisting of officials of Philippine
Army, Philippine Navy and Philippine Air Force
2) Housing unit which is situated inside or adjacent to the premises of a
business or factory (within the maximum of 50 meters from the perimeter of
the business premises);
3) Temporary housing for an employee who stays in a housing unit for 3
months or less.
b. Vehicle of any kind Use of aircraft and helicopters owned and maintained by the employer
(treated as business expense)
c. Expense account When receipted in the name of the employer and do not partake the nature
of personal expense attributable to employee:
a) Expenses incurred by employees but paid by employer
b) Expenses by employees reimbursed by employer

d. Expenses for foreign travel 1) Expenses in connection with attending business meeting or convention
(except lodging cost in a hotel) at an average of $300 per day are considered
reasonable expenses and shall not be subject to fringe benefit tax (with
documentary evidence)
2) The cost of economy and business class airplane ticket shall not be subject
to fringe benefit tax
3) 70% of the cost of first-class airplane ticket shall not be subject to fringe
benefit tax
e. Educational assistance When the study is directly connected with the employer’s trade, business or
profession and there is a written contract between the employee and employer
that the former is under obligation to remain in the employer for a period of
time;
When given to employee’s dependents through a competitive scheme under

scholarship program of the company.
f. Life or health insurance and other Contributions under SSS law

non-life insurance premiums Contributions under GSIS law
or similar amounts in excess of Similar contributions under existing laws
what the law allows Premiums for group insurance of employees
g. Benefits given to rank and file employees

h. De minimis benefits within the limits
i. Fringe benefits which are authorized and exempted from tax under the Tax Code or special laws
j. Benefits required by the nature of, or necessary to the trade, business or profession of the employer
k. Benefits given for the convenience or advantage of the employer
l. Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization
benefit plans
De Minimis Benefits
 benefits of relatively small value
1. De Minimis Benefits Ceiling (Per Item)

Christmas Bonus
Incentive Bonus
2. 90,000 Ceiling  13th Month Pay & Other Benefits
Loyalty Award
Gifts or other Benefits
3. Tax Table (250,000 exempt)
1. Monetized unused vacation leave credits of private employees not exceeding ten (10) days during the year
2. Monetized value of vacation and sick leave credits paid to government official and employees
3. Medical cash allowance to dependents of employees, not exceeding P1,500 per employee per semester or
P250 per month
4. Rice subsidy of P2,000 or one (1) sack of 50-kg rice per month amounting to not more than P2,000
5. Uniform and clothing allowance not exceeding P6,000 per annum
6. Actual yearly medical benefits not exceeding P10,000 per annum
7. Laundry allowance not exceeding P300 per month
8. Employee’s achievement awards with an annual monetary value not exceeding P10,000
9. Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per employee per
annum
10. Daily meal allowance for overtime work and night/graveyard shifts not exceeding 25% of the basic minimum
wage
11. Benefits received by an employee by virtue of a collective bargaining agreement (CBA) and productivity
incentive schemes, provided that the total annual monetary value received from the two (2) items combined, do
not exceed P10,000 per employee per taxable year

DONOR’S TAX
Donation = Gift Gratuitous Transfer (Free)
Made between living person (inter vivos)
Land (Gift)
A B
6%
(Donor) (Donee) Subject to Donor’s Tax
Based on total gifts in excess of 250,000
 Excise Tax – privilege tax
Requisites:
1. Capacity of the donor

2. Donative Intent
Actual
3. Delivery  real contract
Constructive
4. Acceptance by the donee
- Perfected when the donor knows the acceptance of the donee
Forms:
≤ 5k  oral / written
Moveable
Property > 5k  written
(Personal)
Immovable  any amount  public instrument/document

(real) (Deed of Donation)
Classification of Taxpayer
w/n w/out
Resident / Citizen ✔ ✔
(RC, NRC, RA) Intangible Properties
Non-resident Alien ✔ ✖  Financial Assets (AR, Bank Deposits, Stocks, Bonds)

(ETB, NETB)  Accounting (Patents, Franchise, Copyright, Trademark)
EXC: w/ reciprocity
 Intangible Properties ✖ ✖
(Exempt)
Taxable Donation:
Land
1. Direct donation A B
Condo Units
2. Donation through creation of irrevocable trust A Trust B
Loan ₱100k
3. Condonation of Debt A B
FMV 3M
Car 1M  Donor’s Tax
4. Transfer for insufficient consideration (SP < FMV) A B SP 2M
Cost 1.5M 500k  Income Tax
a. Personal properties
b. Real properties (except those subject to 6% CGT)
5. Specific Renunciation of Inheritance Mr. X (deceased)

Specific General
a. Unless there are only 2 heirs (exempt)
A 1M + 1M = 2M 1M + 500k = 1.5M
Estate: 3M B 1M 1M + 500k = 1.5M
C 1M – 1M = 0 1M – 1M = 0
(taxable) (exempt)
6. Renunciation by the surviving spouse on their share Mr. X (deceased)

in the conjugal or community property Separate / Exclusive Conjugal/Community
a. Whether specific of general  taxable A 1M + 1M = 2M 500k
Estate: 3M B 1M 500k
Mrs. X 1M – 1M = 0 0
A 500k
(taxable) (exempt)
Mr. X 1.5M B 500k
3M Mrs. X 500k
Mrs. X 1.5M + 500k = 2M

Exemptions
Under Tax Code:
a. Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not
conducted for profit, or to any political subdivision of the said Government.
b. Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution,
accredited nongovernment organization, trust or philanthropic organization or research institution or organization:
Provided, however, that no more than 30% of said gifts shall be used by such donee for administration
purposes.
Under Special Laws:
a. Archives of the National Historical Institute

b. Development Academy of the Philippines
c. Integrated Bar of the Philippines
d. International Rice Research Institute
e. Intramuros Administration
f. Museum of Philippine Costumes
g. National Library
h. National Museum
i. National Commission for Culture and the Arts
j. Philippine Red Cross
k. Philippine Normal University
l. Ramon Magsaysay Foundation
m. University of the Philippines
Political Contributions (Omnibus Election Code (OEC) and Republic Act No. 7166):
As a rule, any contributions given to candidates, political parties or coalition of parties are not subject to donor’s tax as
long as the following conditions are met:
1. The contribution is for campaign purposes; and

2. The donation is duly reported to the Commission on Election (COMELEC)
The campaign contribution is subject to donor’s tax on the part of the donor, if such contributions are not reported to the
COMELEC.
Void Donations:
a. Donations between spouses, except minor gifts

b. Donations between persons who were guilty of adultery or concubinage at the time of donation
c. Donations between persons found guilty of the same criminal offense, in consideration thereof
d. Donations to a public officer or his wife, descendants or ascendants by reason of his office
e. Donations to incapacitated persons
f. Donations of future property
Valuation Methods
a. Real properties are valued at the assessed, appraised or zonal value, whichever is higher
b. Personal properties are valued at current market price or fair market value
c. Shares of stocks are valued at:
i. If traded – average of high and low price
ii. If not traded – using the BV method under RR No. 20-2020 (previously adjusted net asset method)
Rules to observe:
a. As a rule, the value of the property/right donated shall be the fair market value existing when the gift was made
(as of the time of donation).
b. The time to value is the moment when the donation has been completed and perfected (delivered and
accepted).
c. When the donation is subject to a suspensive condition, the value of the gift is to be determined only at the time
when the stipulated condition is fulfilled, subject to the time of delivery and acceptance of the gift.

Computation of Donor’s Tax

ESTATE TAX Compulsory
 entitled to legitime
Mr. X died Properties, rights, obligation
A, B, C  legitimate children, illegitimate children, surviving spouse
(decedent)  estate / inheritance (Heirs, Voluntary
Successors)
 mortis causa  entitled to free portion
 last will & testament
 subject to estate tax (taxpayer  estate)
Free
Legitime
Administrator / Executor Portion
Managed by  settlement Personally liable to file & pay

Heirs
Testamentary  w/ last will & testament

Succession Intestate / Legal  w/o last will & testament
 by operation of law
Mixed
Intestate Succession
B3 (great grandparents)
2nd priority
C4 B2 (grandparents) (ascendants)
secondary heirs
C5 C3 (uncle/aunt) B1 (parents)
C4 (cousin) C2 (siblings) Mr. X Mrs. X (A1)
C5 C3 (niece/nephew) A1 (children)
1st priority
(descendants)
C4 A2 (grandchildren) primary heirs Counting:
LC 1 share
C5 A3 (great grandchildren) IC ½ share
SS 1 share
3rd priority
Example: Case 1: ₱1M, 4LC, 2 IC Case 2: SS, 3LC Case 2: SS, 2LC, 2IC
Count: 4 + 1 = 5 Count: 1 + 3 = 4 Count: 1+2+1 = 4
1. Mr. X died 1M  4 = 250k 1M  4 = 250k
Wife A1 200k
Only one of them can inherit
2 Children B1 200k SS 250k SS 250k
LC C 1 200k A 250k
A 250k
LC
2. Mr. X died single D1 200k LC B 250k B 250k
IC E .5 100k C 250k C 125k
w/o children  parents can inherit IC
D 125k
F .5 100k 1M
5 1M 1M
Free
Portion
250K
Case 4: Estate ₱1M, SS, 2LC, 2IC
Legitimate w/ last will & testament
Children
A, B, C, D 125,000 each
SS 125K
E, F 62,500 each
125K
Surviving Spouse 125,000
F E
62.5K 62.5K
Format:
Inclusions
Gross Estate Exclusions
- Allowable Deduction
Net Taxable Estate
x 6%
Estate Tax Due

INCLUSIONS:
a. Real Property – immovables, house & land

b. Personal Property- movables Tangible – car, furniture, equipment
Intangible – Intangible Assets, FAs
Situs: w/n w/out

Resident / Citizen ✔ ✔
(RC, NRC, RA)
Non-resident Alien ✔ ✖
(ETB, NETB)
EXC: Intangible Properties

w/ reciprocity ✖ ✖
c. Transfer in contemplation of death Car

Mr. X (80 years old) A
 Motivated by thoughts of death
d. Revocable Transfer Condo Units

Mr. X A
 Revocable ✔
(included) Jan. 1 ✔ July 1 ✖ Dec. 31
 Irrevocable ✖
(excluded)
(w/ transfer of ownership)
e. Transfer under General Power of Appointment (GPA)

 GPA ✔ included
Mr. Y
Car
Mr. X General (to anyone) ✔
 SPA ✖ excluded Specific (only to B) ✖
(w/ a right to
(special power of appointment) (intermediary / trustee)
designate the person)
f. Transfer for insufficient consideration

 Applicable to C, D, E
FMV 1M 300K  Estate Tax

SP 700K
500K  Income Tax
Cost 200K
g. Proceeds of Life Insurance

 Revocable (Silent); Irrevocable
Beneficiary R I
Premiums Estate,
Mr. X Sunlife
Administrator, ✔ ✔
Executor
Others ✔ ✖
h. Claims against insolvent person

 Receivable
Gross Estate 1M 100%

Deductions (600k) Uncollectible
Net 400k
EXCLUSIONS:
a. Merger of usufruct in the owner of the naked title
Land w/ coconut trees A legal title (naked)

Mr. X
B right to the fruits (usufructuary)
 not subject to estate tax

 if B dies, A becomes the absolute owner

b. Transmission or delivery of inheritance / legacy by the fiduciary heir / legatee to the fideicommissary
Fiduciary Heir Fideicommissary

Land Land
Mr. X died A B (14 years old)
 preserve the land for 4 years (grandson)  After 4 years (great grandson)
 subject to estate tax  not subject to estate tax
c. Transmission from the first heir, legatee or done in favor of another beneficiary in accordance w/ the will
if the predecessor
Land Land
Mr. X died A B
 if B passes the CPALE, st
(1 heir)  exempt (2nd Heir)
A will give the land to B
 subject to estate tax

d. All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions no part of
the net income of which inures to the benefit of any individual: Provided, that no more than thirty percent (30%)
of which will be used by such institutions for administrative purposes
DEDUCTIONS
a. Losses – casualty
Jan. 1 (Yr. 1) ✔ Dec. 31 (Yr. 1) ✖ Dec. 31 (Yr. 2)
deductible Not deductible 2 years

died
settlement
1 year after death
(last day of payment)
Requisites:
a. Arising from fire, storm, shipwreck or other casualty, robbery, theft or embezzlement
b. Not compensated by insurance
c. Not claimed as deductions from income tax of the estate
d. Occurred during the settlement of the estate
e. Occurred not later than the last day for the payment of estate tax
b. Claims against the estate

 Obligations / liabilities
c. Claims against insolvent person

 Uncollectible portion
 Requisites:
i. Included as part of Gross Estate (100%)
ii. Incapacity of the debtor is proven
d. Unpaid mortgages or indebtedness

 Mortgage property (car) is included in the GE (100%)
 Except: Accommodation Loan
e. Unpaid taxes
 Accrued prior to the death of the decedent
 Except
i. Any income tax upon income received after death
ii. Property taxes not accrued before death
iii. Estate tax from the transmission of his estate
f. Transfer for Public Purpose (TPP)

 Donation to the Government (national, local)
 Included in the Gross Estate
 Must be contracted in the will

g. Vanishing Deductions (VD)
 Property may change hands w/n a short period of time
 Transfer tax is imposed on each transfer (donor’s & estate)
 Relief to the taxpayer  minimize the effect of double tax
Land Land Land Land Land
Mr. X died B C D E F
3 years 4 years 2 years 6 years
VD? N/A ✔ ✖ ✔ ✖
Formula:
1. Determine the basis

a. Initial value to take  FMV of the property Prior Estate LOWER
Initial Basis Current Estate
b. Reduce by any mortgage payment
Final 𝐼𝑛𝑖𝑡𝑖𝑎𝑙 𝐵𝑎𝑠𝑖𝑠
c. Reduce by 𝐺𝑟𝑜𝑠𝑠 𝐸𝑠𝑡𝑎𝑡𝑒 x all deductions (except VD)
Basis
2. Apply the corresponding %
More than Not more than Percentage

- 1 year 100%
1 year 2 years 80%
2 years 3 years 60%
3 years 4 years 40%
4 years 5 years 20%
Requisites:
a. The present decedent died within 5 years from receipt of the property from a prior decedent or donor
b. The property must be part of the taxable estate of the prior decedent, or of the taxable gift of the donor
c. The estate tax on the prior succession or the donor's tax on the gift had been finally determined and
paid
d. The property on which vanishing deduction is claimed can be identified as the one received from a prior
decedent, or from the donor, or something acquired in exchange for it
e. No vanishing deduction on the property was allowable to the estate of the prior decedent
Special Deductions
a. Family Home
 Residential home
 Requisites:
a. The decedent is married or Head of the family Not more than 21 years old
- provides chief support to the dependents Unmarried
Not gainfully employed
b. The family home must be the actual residential home of the decedent and his family at the time
of his death
c. Certified by the barangay captain of the locality the family home is situated
d. Located in the Philippines
e. The value of the family home is included in the gross estate
 FMV
 ₱10M Lower
b. Standard Deduction
 ₱5M
 No need for substantiation
c. Amounts received by heirs under RA 4917 (Retirement Benefit of Private Firms)

 Included in the Gross Estate
 Received as a consequence of death  deductible
 Not from death  not deductible
Jan. 1 July 1 Dec. 31
Retired Death
✖ ✔

Net Distributable Estate
 for actual distribution to the heirs / 3rd party
Property Relations Between Spouses (Art. 74 of the Family Code)
 before marriage, spouses shall agree on marriage settlement / pre-nuptial agreement
Complete Separation of Property (CSP)

Property Regime Conjugal Partnership of Gains (CPG)
Absolute Community of Property (ACP)
Effectivity of Family Code
August 3, 1988
CPG ACP
before after
General Rules: marriage

exclusive conjugal
CPG Fruits, salaries, income
Note:
Exclusive = Separate
common Common/community
ACP Conjugal = Joint
Community = Joint
Special Rules:
CPG ACP
I. Property acquired BEFORE Marriage

a. Gratuitous Exclusive Community
b. Onerous Exclusive Community
c. Where the spouse has a legitimate descendant from a previous marriage Exclusive Exclusive
II. Property acquired DURING marriage

a. Gratuitous title Exclusive Exclusive
b. Onerous title Conjugal Community
c. In exchange of exclusive property Exclusive Exclusive
d. In exchange of conjugal/community property Conjugal Community
e. Fruits or income from exclusive property Conjugal Exclusive
f. Fruits or income from conjugal/ community property Conjugal Community
III. Property for personal and exclusive use of either spouse Exclusive Exclusive
(if jewelry, community under ACP; N/A to CPG)
Valuation Method (at the time of death)
a. Real properties - higher between fair market value and zonal value
b. Personal properties - fair market value
c. Shares of stocks are valued at:
i. If traded – average of high and low price
ii. If not traded – using the Book Value method

VALUE-ADDED TAX (VAT)
Income Tax Format:
 Seller is liable VAT
 Passed on to the buyer Output VAT - POV of Seller
o Indirect tax Less: Input VAT - POV of Buyer
VAT Payable
Sells
Output VAT
Barters
 Liable is any person who in the ordinary course of business: Exchanges Goods or
Leases Properties
Imports
12%  local/domestic sales Render Services
Rules 0% (zero-rated)  export sales
Sources: Cash
Credit
a. Sale of Goods Gross Sales Installment
Tax Base: Gross Selling Price - SR, D, A Due from buyer (packages, delivery, insurance)
Net Sales
+ Excise Tax (if any)  alcoholic drinks, tobacco, petroleum
Gross SP
x 12%
Output VAT ₱2M
b. Sale of Services Actually received Ex. 1 A B
₱1M
Tax Base: Gross Receipts Constructively received
services
Ex. 2 A B
When are you VAT-registered

liable to VAT? VAT-registrable
Past 12 months Penalty:

GSR > 3M Next 12 months  pays output tax
Mandatory
Radio and/or TV Companies GR > 10M (preceding year)  cannot claim input VAT
VAT Registration  output = VAT Payable
GSR ≤ 3M
Optional VAT Exempt
Radio and/or TV Companies GR ≤ 10M  once registered, irrevocable
Lessor of Residential Units

Monthly Annual VAT OPT (3% or 1%)
≤ 15k regardless ✖ ✖
Cannot be subject to
Rent > 15k ≤ 3M ✖ ✔ both VAT & OPT
> 15k > 3M ✔ ✖
≤ 3M
 commercial unit (regardless of monthly rent) > 3M
Land
Goods & Cargoes Air Subject VAT
Sea
Transportation Services
(Domestic) Land  OPT
Passengers Air
VAT
Sea
c. Sale of property Installment Reporting:

Capital Asset  not subject to VAT Initial Payment ≤ 25% of SP
Ordinary Asset  subject to VAT
SP
Tax Base: Higher
FMV (Zonal, Assessed)

d. Deemed Sale Transactions
 As if sold
a. Transfer, use or consumption, not in the ordinary course of business of goods or properties ordinarily
intended for sale
b. Distribution or transfer of inventory to shareholders for their shares in the profits
c. Distribution or transfer of inventory to creditors in payment of debt
d. Consignment of goods if actual sale is not made within sixty (60) days following the date such goods
were consigned
e. Retirement from or cessation of business with respect to ending inventories
e. Zero-rated Sales (0%)

a. Export Sales
b. Export of Services
c. PH  Abroad
d. Renewable sources of energy
Effectively Zero-rated Sales:
a. Sale to Asian Development Bank (ADB)

b. Sale to International Rice Research Institute (IRRI)
c. Sale to duly registered and accredited enterprises with Subic Bay Metropolitan Authority (SBMA)
d. Sale to duly registered and accredited enterprises with Philippine Economic Zone Authority (PEZA)
0% Exempt
Output 0 -
Input 100 -
VAT Payable 100 -
(refundable)
INPUT VAT
 buyer & seller must be both VAT-registered
Sources:
Sale (Inventory)  Merchandising
a. Purchase of goods & services Conversion (RM  FG)  Manufacturing
Supplies (used in business)
Input VAT
b. Importation
Business ✔
- You pay VAT whether or not used in business
Personal Use ✖
- When is it considered importation?
✖ ✔
goods once removed from BOC
Supplier BOC Mr. X
(US) (PH) (place of business)
VAT
Excise Tax (if any)
Prior to removal, importer has to pay
Customs Duties
Other Expenses
- What if Mr. X is a tax-free importer?

sells Mr. Y  pays VAT
Mr. X
(as if importer)
(subsequent purchaser)
c. Purchase of Capital Goods

- Aggregate monthly acquisition cost (exclusive of VAT)
Claim
≤ 1M 100% (outright)
Useful life
< 1M shorter
60 months
- Note: Effective January 1, 2022, all input tax (100%) on purchases of capital goods shall already be
allowed upon purchase/payment and shall no longer be deferred.
d. Presumptive Input VAT (4%)
Processor of Sardine, Mackerel, Milk
Who can Avail?
Manufacturer of Refined Sugar, Cooking Oil Original State
& Packed Noodles-based instant meal
Tax base: purchases of primary agricultural products which are used as inputs to their production
EXC: Marine
e. Transitional Input VAT (2%)

Liable to VAT for the first time (3M)
Applies to
Opted to be VAT-registered
Beginning Inventory (goods, materials, supplies)

Tax Base:  whether purchased from VAT or Non-VAT Supplier
Whichever is HIGHER
VS
Actual VAT paid on Beginning Inventory
f. Standard Input VAT (7%)

- Applies to sale to government
₱100 Output VAT 12% Starting Jan. 1, 2021:
Seller Government Input VAT (7%)
₱90 (w/holds 5%) VAT Payable 5%
Output VAT
- Input VAT (Actual)
- Difference between Standard IV vs Actual IV = COGS/Exp - VAT w/held
- Applies on or before Jan. 1, 2021 VAT Payable
Excess Output or Input
Scenarios Output > Input  VAT Payable

Output < Input  Stays in the books as Input VAT (prepaid asset)
JEs:
Scenario 1:
1. Purchases 100,000
Input VAT 12,000
Cash 112,000
12% (domestic/local)  carried over to next month / quarter
2. Cash 224,000 Excess
Sales 200,000 Input 1. Carry over
Output VAT 24,000 VAT  offset to output tax of local/domestic sale
0% (exempt)  options
3. Output VAT 24,000 2. Refund (w/n 2 years)
Input VAT 12,000 3. Tax Credit Certificate (TCC)
VAT Payable 12,000  may be used in paying other internal
revenue taxes (2 years)
Scenario 2: Input: 30,000
3. Output VAT 24,000
Input VAT 24,000
Exempt Transactions
a. Sale or importation of agricultural and marine food product in their original state (original state even if they
have undergone the simple process of preparation or preservation for the market
b. Sale or importation of fertilizers, seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds
c. Importation of personal and household effects belonging to residents of the Philippines returning from abroad
and non-resident coming to resettle in the Philippines
d. Importation of professional instruments and implements, wearing apparel, domestic animals, and personal
and household effects belonging to persons coming to settle in the Philippines for their own use and not for
barter or sale
e. Services subject to other percentage tax (OPT)
f. Services of agricultural contract growers and milling for others of palay into rice, corn into grits and sugar
cane to raw sugar
g. Medical, dental, veterinary services except those rendered by professionals
h. Educational services rendered by private educational institutions duly accredited by DepEd, CHED and TESDA
and those rendered by government educational institutions
i. Services rendered pursuant to employee-employer relationship
j. Services rendered by regional or area headquarters established in the Philippines by multinational corporations
which act as a supervisory, communication and coordinating centers
k. Transactions which are exempt under international agreements to which the Philippines is a signatory or under
special laws
l. Sale by agricultural cooperatives duly registered with the Cooperative Development Authority to their members
as well as sale of their produce to non-members
m. Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered with the CDA
n. Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with the CDA duly registered
with the CDA, provided that the share capital contribution of each member does not exceed P15,000
o. Export sales by non-VAT registered individuals
p. Sale of real Properties
Before 1/1/21 TRAIN (after 1/1/21) CREATE

Exempt:
1. Not Primarily held for sale ✔ ✔ no changes
(capital asset)
2. Low-cost housing ✔ subject to VAT

3. Socialized housing ✔ ✔ ✔ exempt
Residential lot ✔ subject to VAT

4. Held for sale ≤ 1.5M (1,919,500)
House & Lot & ✔ ✔

other residential ≤ 2.5M (3,199,200) ≤ 2M
dwellings (2,599,300)
q. Lease of residential unit with monthly rental not exceeding P15,000

r. CREATE:
Sale, importation, printing or publication of books, and any newspaper, magazine, journal, review bulletin, or
any such educational reading material covered by the United Nations Educational, Scientific and Cultural
Organization (UNESCO) Agreement on the importation of educational, scientific and cultural materials, including
the digital or electronic format thereof. Provided, that the materials enumerated herein are not devoted
principally to the publication of paid advertisements. Provided further, that the materials enumerated herein are
compliant with the requirements set forth by the National Book Development Board
s. Transport of passengers by international carriers

t. Sale or importation or lease of passenger or cargo vessels and aircrafts, including engine, equipment and
spare parts for domestic or international operations
u. Importations of fuel, goods and supplies by person engaged in international shipping or air transportation,
provided, such fuel, goods and supplies are exclusively used for international transport operations
v. Service of banks, non-bank, financial intermediaries performing quasi-banking functions (money changers,
pawnshops)
w. Sale of goods or lease of goods to senior citizens and persons with disability (PWDs)
x. Transfer of property pursuant to Section 40 (C) (2) (Sale of exchange of assets in a newly organized or
incorporated corporation, merger and consolidation)
y. Association dues, membership fees, and other assessments and charges collected by homeowners’
associations and condominium corporations
z. Sale of gold to BSP
aa. CREATE:
Sale or importation of prescription drugs and medicines for: (i) diabetes, high cholesterol, and hypertension
beginning January 1, 2020; and (ii) cancer, mental illness, tuberculosis, and kidney diseases beginning
January 1, 2021
bb. Sale or importation of the following beginning January 1, 2021 to December 31, 2023:
a. Capital equipment, its spare parts and raw materials, necessary for the production of personal
protective equipment (PPE) components such as coveralls, gown, surgical cap, surgical mask, n-95
mask, scrub suits, goggles and face shield, double or surgical gloves, dedicated shoes, and shoe covers,
for COVID-19 prevention
b. All drugs, vaccines and medical devices specifically prescribed and directly used for the treatment of
COVID-19
c. Drugs for the treatment of COVID-19 approved by the Food and Drug Administration (FDA) for used in
clinical trials, including raw materials directly necessary for the production of such drugs
cc. Sale or lease of goods or properties or the performance of service other than the transactions mentioned in the
preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of P3,000,000.

Importation
Invoice Amount
Tax Base: + Customs Duties
Based on quantity/value (specific) + Freight, Insurance, Brokerage Fees
 Landed Cost Landed Cost
+ Excise tax (if any)
Customs & Tax Base
Tariffs Duties x 12%
VAT
Based on value of imported goods (ad valorem)

 Dutiable Value (determined by the BOC) Dutiable Value
+ Customs Duties
+ Other Charges
+ Excise tax (if any)
Tax Base
INVOICING REQUIREMENTS x 12%
VAT
A VAT-registered person shall issue:
a. A VAT-invoice for every sale, barter or exchange of goods or properties

b. A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of services
Information contained in the VAT invoice or OR
1. Statement that the seller is a VAT-registered person, followed by his Taxpayer's Identification Number (TIN)
2. The total amount which the purchaser pays or is obligated to pay the seller with the indication that such amount
includes the VAT
a. a. The amount of the tax shown as a separate item in the invoice or receipt
b. b. If the sale is exempt from VAT, the term 'VAT-exempt sale' shall be written or printed prominently on
the invoice or receipt
c. c. If the sale is subject to zero percent (0%) VAT, the term 'zero-rated sale' shall be written or printed
prominently on the invoice or receipt
d. d. If the sale involves goods, properties or services some of which are subject to and some of which are
VAT zero-rated or VAT-exempt, the invoice or receipt shall clearly indicate the breakdown of the sale
price between its taxable, exempt and zero-rated components, and the calculation of the VAT on each
portion of the sale shall be shown on the invoice or receipt
3. The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service
4. In the case of sales in the amount of P1,000 or more where the sale or transfer is made to a VAT registered
person, the name, business style, if any, address and TIN of the purchaser, customer or client.
ACCOUNTING REQUIREMENTS
All persons subject to VAT, in addition to the regular accounting records required, maintain a subsidiary sales
journal and subsidiary purchase journal on which daily sales and purchases are recorded.

OTHER PERCENTAGE TAXES (OPT) Exempt from OPT:
1. Cooperatives
- Sec. 116 to 127 5% Income Tax
2. Availing 8% option
3% OPT
3. Marginal Income Earners (≤ 100k/year)
1. Person exempt from VAT (116) 4. VAT-registered
≤ 3M  OPT (unless VAT-registered)  Optional/Voluntary

Annual GSR
> 3M  VAT  Mandatory
7/1/20 6/30/23
3% 1% 3%
Rate:
CREATE
2. Domestic Carries & Keepers of Garages (117)

 buses, taxis, jeep,  motor vehicles (repair shop,
Grab, FX, car for rent gasoline stations, towing
(PUVs) companies, parking spaces)
 3% common carrier’s tax (CCT)

 Liable: Operator, Lessor, Contractor
Land Passengers  3% CCT  Victor Line, DLTB, 5 Star

Goods/Cargos/Mail  JNT, JRS, Lalamove
Domestic (D  D) Air Passengers
Goods/Cargos/Mail VAT or OPT 116  Cebu Pacific, PAL
Sea Passengers 2Go, Lorenzo, Sulficio
Route Goods/Cargos/Mail
International (D  I) Air PH to Abroad  0% VAT

P/G/C/M
Sea Abroad to PH  Exempt
3. International Air & Shipping Carriers (118)

 RFCs & Transport P/G/C/M
 3% CCT + 2.5% GPB
 Originating from the Philippines
 Air Asia, Jetstar, Qatar Air, Korean Air
 Dole PH
P  Exempt (VAT  S)
PH to Abroad
G/C/M  3% CCT
Route
P
Abroad to PH Exempt
G/C/M
4. Franchise Grantees (119)

 Congressional / Legislative Franchise
Gas & Water  2% Franchise Tax (Manila Water, Maynilad, Water Districts)
Types
Radio & Television  Annual Gross Receipt > 10M  VAT
≤ 10M  OPT 3% Franchise Tax
(unless VAT-registered)
(ABS, GMA, TV5)
5. Overseas Dispatch, Message or Conversation Originating from PH (120)
 Overseas telephone calls
 10% Overseas Communication Tax (OCT)
PH to PH  VAT
Line PH to Abroad  10% OCT
Abroad to PH  Exempt
 Exempt
o Diplomatic services
o International organizations
o News agencies or services
o Government

6. Banks & Non-bank Financial Intermediaries Performing Quasi-Banking Functions (121)
 BDO,  Investment Banks  borrowing funds from 20 or more persons
BPI, MB or corporate lenders at any one time
 issuance of bonds
 Subject to Gross Receipts Tax (GRT)
≤ 5 years  5%
o Interest  maturity period
> 5 years  1%
o Dividends  0%
o Royalties, Rentals  7%
o Net Trading Gains  7%
7. Other Non-Bank Financial Intermediaries / Institutions (122)

 Pawnshops, money changers (Cebuana, Palawan)
 Subject to GRT
≤ 5 years  5%
Interest
> 5 years  1%
8. Life Insurance Premiums (123)

 Collected by Insurance Companies (Sunlife, Philam Life)
 2%
Insurance Life (accidents, health, disability)  2%
Non-life (car, buildings, fires)  12% VAT
 Exempt
o Premiums refund within six (6) months after payment on account of rejection of risk or returned
for other reasons
o Reinsurance premiums
o Premiums from life insurance of non-residents received from abroad by branches of domestic
corporation, firm or association doing business outside the Philippines
o Excess of premiums on variable contracts in excess of the amounts necessary to insure
the lives of the variable contract owners
o Premium collected by a purely cooperative company or association
9. Agents of Foreign Insurance Companies (124)

 Premiums by agents of foreign insurance companies
 Non-life (fire/marine/miscellaneous)
Agents  4%
Owners of Property  5%
10. Amusement Taxes (125)

 Liable: Proprietor, Lessee, Operator
a. Boxing  10% or Exempt Smart Araneta Colosseum

b. Professional Basketball  15% MOA Arena, PH Arena
c. Cockpits, Cabarets, Night & Day Clubs  18% - Pegasus, Palace Pool Club, World Slasher Cup
d. Jai-Alai & Racetracks  30% - Batangas Racing Circuit
 Requisites for Boxing

o World or oriental championship is at stake
o One of the contenders is a citizen of the Philippines
o Promoted by citizens of the Philippines or by a corporation or association at least 60% of the
capital of which is owned by such citizen
11. Winnings (126)

 Horseracing
Owner 10% on gross winnings
Who won?
Ordinary 10%
Bettor Net winnings = Gross Winnings – Cost of Tickets
Special 4%
Ordinary Win (1st)

Place (1st, 2nd, 3rd)
Double  2 consecutive races (1st)
Special Forecast  2 numbers in a selected race (1st & 2nd)
Quinella  2 numbers, 2 races (1st, 2nd or 2nd , 1st, any order)
Trifecta  3 numbers, 1 race (1st, 2nd, 3rd)
12. Stock Transactions Tax & Initial Public Offering (IPO) Tax (127)
Already listed & traded  STT of 6/10 of 1% based on SP

 Except: Dealers in security  12% VAT
IPO of a closely held corporation (>50% of the OS is owned by not more than 20 individuals)
 Repealed under Bayanihan Act II starting Sept. 15, 202
Up to 25%  4%
Primary Offering  1st public offering (unlisted share)
During IPO 25% to 33.33%  2%
Secondary Offering  existing SH sell their shares
Stages of IPO Over 33.33%  1%
Follow-on / Follow through Offerings  after IPO
 not subject to IPO tax
 subject to STT

EXCISE TAX AND DST
VAT & OPT
 point of sale
EXCISE TAX
 Imposed on Excisable goods (alcohol, cigarettes, petroleum, minerals, automobiles, sweetened beverages,
non-essential cosmetic surgery)
 Indirect Tax
 Can be imposed together with VAT or OPT
Specific  based on weight, volume, unit of measurement

Types 4% increase every year
Ad Valorem  based on value (GSP) Tax Base: Exclusive of VAT
Domestically Produced  before the goods are removed at the point of production
Paid
Imported  before removal of the goods from customs
 SPECIFIC TAX
o Alcohol products
 Distilled spirits (including proof spirits) - whisky, brandy, rum, gin, and vodka, fortified wines
 Wines - sparkling wines, champagne, still wines
 Fermented liquor - beer, lager beer, ale, porter and other fermented liquors,
Except: tuba, pasi, tapuy
o Tobacco products
 Tobacco products (except stemmed leaf tobacco or tobacco by-products which are to be
exported or used in the manufacture of cigars and cigarettes);
 includes tobacco specially prepared for chewing
 Cigars
 Cigarettes
o Petroleum Products
 Lubricating oils and greases
 Processed gas
 Waxes and petrolatum
 Denatured alcohol to be used for motive power
 Naphtha, regular gasoline, and other similar products of distillation
 Leaded and unleaded premium gasoline
 Aviation turbo jet fuel
 Asphalts
 Kerosene
 Diesel fuel oil
 Liquified petroleum gas (LPG)
 Bunker fuel oil
o Mineral Products
 Coal and Coke
o Sweetened Beverages - imposes a tax per liter of volume capacity on sweetened beverages
 Excluding the following:
 All milk products
 100% natural fruit juices
 100% natural vegetable juices
 Meal replacement and medically indicated beverages
 Coffee - ground coffee, instant soluble coffee, and pre-packaged powdered coffee
products
 AD VALOREM
o Distilled spirits
o Cigars
o Automobiles excluding:  Purely electric vehicles and pick-ups are
 Buses, trucks exempt from excise tax
 Cargo vans
 Jeepneys/jeepney substitutes  Hybrid vehicles shall be taxed at 50% of the
 Single cab chassis applicable excise tax rates
 Special-purpose vehicles
 Automobiles used exclusively within the Freeport zones
o Non-essential goods
 Jewelry, whether real or imitation; pearls; precious and semi-precious stones and imitations
 Goods made of or ornamented, mounted or fitted with precious metals or imitations thereof of
ivory;
Except: surgical and dental instruments, silver-plated wares, frames, or mountings for
spectacles or eyeglasses and dental god or gold alloys and other precious metals used in filling,
mounting or fitting the teeth
 Opera glasses and lorgnettes
 Perfumes and toilet waters
 Yachts and other vessels intended for pleasure or sports
o Mineral products
 Non-metallic minerals and quarry resources such as marble, granite, volcanic cinders, basalt,
tuff and rock phosphate
 Metallic minerals - copper and other metallic minerals; gold and chromite
 Indigenous petroleum including locally-extracted mineral oil, hydrocarbon gas, bitumen, crude
asphalt, mineral gas (except locally-extracted natural gas and liquefied natural gas)
o Non-essential services - 5% tax on gross receipts on the performance of invasive cosmetic surgeries,
procedures and body enhancements for aesthetic/cosmetic purposes
DOCUMENTARY STAMP TAX
 Imposed on certain documents, instruments, agreements, etc.

 Liable: Benefiting Party
Ex. Buyer  DST

Deed of Sale Seller  CGT
 Effect of nonpayment
1. The document will not be accepted for recording in the Registry of Deeds
2. Will not be admissible as evidence in court
3. Notary or authorized officers shall not effect the acknowledgement of the document
 It does not invalidate the contract
 Subject to DST (check GSheets for full list)

o Share of stock
 Original Issuance
 w/ par P2.00/P200 of par value
 no par P2.00/P200 based on the actual consideration
 subsequent Issuance
 w/ par P1.50/P200 of par value
 no par 50% of DST paid on the original issuance
o Bonds
o Sales, certificates of stocks
o Debt Instruments P1.50/P200
o Deeds of Sale and Conveyances of Real Property P15/P1,000
 Not subject to DST (check GSheets for full list)

o Certificates of the assessed value of lands ≤ P200
o Loan agreements ≤ P250,000 executed by an individual for the purchase of a house and lot, motor
vehicle, appliance, or furniture for personal use

LOCAL TAXATION
Control
- Govern by RA 7160 Local Government Code 1991  implemented by LGUs Supervision
DILG
Executive
LGU Structure
Legislative
Executive Legislative  power to create & impose taxes (tax ordinances)
1. Province (81) Governor Sangguniang Panlalawigan
2. Cities (144) Mayor Sangguniang Lungsod Vice + Councilors
3. Municipalities (1490) Mayor Sangguniang Bayan
4. Barangays (42,028) Brgy. Captain Sangguniang Barangay  Brgy. Captain + Councilors + SK Chairman
Sec. 129 – Each LGU is vested with power Taxes 1. RPT

to create its own source of revenue Fees 2. Local Business Tax (LBT)
Charges 3. Community Tax
Limitations:
1. The LGU cannot impose national taxes
2. w/ Maximum rates
Fundamental Principles:
1. Taxation shall be uniform in each local government unit

2. Taxes, fees, charges and other impositions shall:
a. be equitable and based as far as practicable on the taxpayer's ability to pay
b. be levied and collected only for public purposes
c. not be adjust, excessive, oppressive, or confiscatory
d. not be contrary to law, public policy, national economic policy, or in restraint of trade
3. The collection of local taxes, fees, charges and other impositions shall in no case be let to any private person
4. The revenue collected pursuant to the provisions of this Code shall inure solely to the benefit of, and be subject
to disposition by, the local government unit levying the tax, fee, charge or other imposition unless otherwise
specifically provided herein
5. Each local government unit shall, as far as practicable, evolve a progressive system of taxation
Real Property Tax (RPT)
- Amilyar Provinces
- Power to impose RPT has been given to Cities & Municipalities w/ Metro Manila
Land
Buildings
- Imposed on real property
Machineries  attached/installed to land & building
Improvements  Land & Leasehold Improvement
Fundamental Principles
a. FMV
- Property Owners  tax declarations w/ LGU (self-declaration)  every 3 years
- LGUs  assessment of the value of the property (revaluation  every 3 years)
 assessor’s office  assessment rolls
b. Actual Use
Ex. 1 200 sqm. Ex. 2
Residential  business (commercial) 150 sqm.  house Predominance
Mr. X Mr. X 200 sqm.
or house 50 sqm.  business rule
c. Uniform Classification
- Residential 20%
- Agricultural 40%
- Commercial 50%
- Industrial 50%
- Mineral 50%
- Timberland 20%
d. Not be delegated to any private person

e. Equitable

RPT Computation:
1. Determine the FMV

2. Determine the Assessment Level
3. Determine the Assessed Level (Taxable Amount)
[ (1) x (2) ]
Province  1%
4. Multiply the RPT rate
City/Municipality w/n Metro Manila  2%
Basic RPT Amount Purpose

+ Special Education Fund (SEF) Tax 1% of the assessed value Public School
Optimize Land Use
+ Idle Land tax (1/2 of the land remains unutilized/uncultured) 5% of assessed value
Discourage land speculation
+ Special Levy Tax (Special Assessment Tax) 60% of the actual project cost Public Improvements
TOTAL RPT
Ex. Land 6M x 20% = 1.2M

Residential Property (QC) House 4M x 40% = 1.6M
Land 6M Assessed Value 2.8M
FMV
House 4M x 2%
Basic RPT = 56k
SEF (2.8M x 1%) = 28k
Total = 84k
Who is liable?  Property Owner (Jan. 1)

1-time  advance (20% discount)
Payment March 31
Quarterly June 30
Sept. 30
Dec. 31
Late Payment  2% per month
Exempt from RPT:
a. Government owned real property

b. Real property exclusively used for religious, charitable or educational purposes
c. Real property of registered cooperatives
d. Machineries and equipment actually, directly and exclusively used by local water districts and GOCCs engaged in
the supply and distribution of water and/or generation and transmission of electric power
e. Machineries and equipment used for pollution control and environmental protection

Local Business Taxes (LBT)
- % of annual GSR
I. Imposed by Provinces:
a. Real Property Transfer
- Sale or Donation of RP
- 50% of 1% of Highest (Zonal, Assessed, SP)
- Registry of Deeds
b. Printing & Publication

- Businesses engaged in printing & publication of books, cards, posters, certificates, receipts, tarpaulins,
etc.
- Not exceeding 50% of 1% of annual GSR
c. Franchise Tax
- 50% of 1% of annual GSR
- Meralco
d. Sand, Gravel & Other Quarry Resources

- 10% of FMV 30%  Province
- Collected by province  proceeds 30%  City / Municipality
40%  Barangay
e. Professional Tax
- Maximum of ₱300
f. Amusement Tax
- 10% of annual GR
g. Delivery Vans & Trucks

- Delivery and distributions of alcohol, soft drinks, cigarettes to outlets or customers
- Maximum of ₱500
II. Imposed By Municipalities (Sec. 142)

- Municipalities may levy taxes, fees, charges not otherwise levied by provinces
1. Manufacturers, Wholesalers, Exporters, Retailers of Wine, Liquor, Commodities

(rice, meat, cooking oil, dairy products)
2. Banks & other Financial Institutions
 50% of 1% of annual GSR
III. Imposed by Cities (Sec. 151)

- Cities may levy taxes, fees & charges which the province or municipality may impose
IV. Imposed by Barangay (Sec. 152)

- Stores or retailers (1% of annual GR)
- Barangay Clearance

Community Tax
- Cedula or residence certificates

- Levied & issued by cities or municipalities
- Proof of residence
- Basic Tax ₱5
Individuals +
Additional Tax of ₱1 for every ₱1,000 GSR (Maximum of ₱5,000)
How much?
Basic Tax ₱500
Corporations +
Worth of RP
Additional Tax of ₱2 for every ₱5,000 GSR
GR from business
(Maximum of ₱10,000)
Through City or Municipal Treasurer  100% City/Municipality

Collection 50%  City / Municipality
Through Barangay Treasurer
50%  Barangay
Required to be presented every time an individual:

a. Acknowledges any document before a notary public
b. Takes the oath of office upon election or appointment to any position in the government service
c. Receives any license, certificate, or permit from any public authority
d. Receives any money from any public fund
Individuals
Every inhabitant of the Philippines who is at least 18 years old are required to pay community tax when:
a. Someone who has been regularly employed on a wage or salary basis for at least 30 consecutive working
days during any calendar year
b. Someone who is engaged in business or an occupation
c. Someone who owns real property with an aggregate assessed value of P1,000 or more
d. Someone who is required by law to file an income tax return
Corporation
- Every corporation no matter how created or organized, whether domestic or resident foreign, engaged in or
doing business in the Philippines.
Exempt from Community Tax
a. Diplomatic and consular representatives

b. Transient visitors when their stay in the Philippines does not exceed three (3) months

PREFERENTIAL TAXATION
I. SENIOR CITIZENS
Resident of the Philippines
Filipino Citizen
at least 60 years old
Qualifications
Proof of Filipino Citizenship
Dual Citizen +
≥ 6 months residency
Benefits
a. 20% discount & VAT exemptions on certain goods and services for their own use:
Ex: Mr. X ₱112
SP (inclusive) 112 SP 112

 12% VAT (12)
SP (exclusive) 100 Discount (20)
x 20% Total 80
Discount 20
1. Medicines, essential medical supplies, accessories and equipment, dental services, diagnostic and
laboratory fees in private hospitals, clinics, and etc.
2. Professional fees of their physicians and healthcare workers
3. Fare for land (jeepney, buses, taxis, shuttle services, MRT, LRT, and PNR), sea shipping vessels, and
domestic transport services
4. Restaurants, hotels, lodging establishments, and recreation centers
5. Theaters, cinema houses, and concert halls, circuses, leisure, and amusement
6. Funeral and burial services
b. 5% discount on water & electricity

- Up to 100 kwh of electricity
- 30 cubic meters of water
- Registered under their name
c. MWE  exempt from income tax

d. Mandatory PhilHealth coverage
e. GSIS, SSS, PAG-IBIG benefits and privileges
f. Express lanes or priority status
g. Employment assistance from the government for elderlies who are able and willing to work
h. Educational assistance through scholarships, grants, or subsidy should the senior citizen wish to continue or
take a secondary and/or higher education, vocational and technical training, or short-term courses in public and
private educational or training institutions
i. Training fees exemptions for programs organized by private and government for socioeconomic assistance and
development
j. Social safety nets, such as food, medicine, and financial assistance for home repairs during economic shocks
and calamities
k. Centenarian’s privilege
- Republic Act No. 10868 (Centenarians Act of 2016):
- ₱100,000 cash gift and a
- letter of felicitation signed by the Philippine president
l. City/municipality-specific benefits. Each city or municipality in the country has their own set of perks for their
seniors aside from those established by law
m. Indigent senior citizens will be entitled to the following:

- Free vaccine for influenza virus and pneumococcal diseases vaccine
- P500 free grocery allowance but released every semester
a. Disabled or Sickly elders

b. No pension
c. No income
d. No financial support

n. Groceries worth up to P1,300 per week enjoy 5% off the retail prices of at least four kinds of basic
necessities and prime commodities:
o. Death benefit assistance of a minimum of P2,000 given to the nearest surviving relative
Establishment’s POV
1. SC Discount - deductible expense

2. Input VAT - charged to cost/expense
3. Additional Compensation Expense
- 15% of the total amount paid as salaries and wages (deductible expense)
- At least 6 months employed
How to avail?
- Apply to the Office of the Senior Citizen’s Affairs (OSCA)  headed by a SC (3 years)
- OSCA  SC ID
II. PERSONS WITH DISABILITIES (PWDs)
Filipino Citizen Physical

Qualifications
w/ Permanent Disability Mental Long-term; interferes w/ their
Intellectual interactions w/ society
Sensory
The Department of Health (DOH) considers the following types of disabilities as eligible for a PWD ID:
a. Psychosocial disability – includes bipolar disorder, depression, ADHD, schizophrenia, epilepsy, and other
long-term and recurring mental or behavioral issues
b. Disability resulting from a chronic illness – includes orthopedic disability due to cancer, blindness due to
diabetes, and other disabilities due to a chronic disease
c. Learning disability – includes processing problems that hinder learning math, reading, writing, and other
basic skills
d. Visual disability – the visual impairment cannot be corrected
e. Orthopedic (Musculoskeletal) disability – Includes people with dwarfism and amputated hands or feet.
Individuals with scoliosis may also apply for an ID.
f. Mental/Intellectual disability
g. Hearing disability
h. Speech impairment
i. Multiple disabilities
Benefits of PWDs
a. 20% discount and Value Added Tax (VAT) exemption when buying certain products and services nationwide,
which include the following categories:
1. Room accommodations in lodging establishments, including dormitories for students
2. Restaurants
3. Cinemas, theaters, and other recreational centers
4. Medicines and food for special medical purposes
5. Medical and dental services, including professional fees, diagnostic, and laboratory fees
6. Fares for domestic air and sea travel
7. Fares for land transportation, including jeeps, buses, taxis, trains, and TNVS/ride-hailing services
8. Funeral and burial services for the death of a PWD
b. 5% discount on basic necessities and prime commodities

c. Mandatory coverage under SSS/GSIS, PhilHealth, and Pag-IBIG
d. Educational assistance
e. Express lanes for PWDs
f. City-specific PWD benefits

Establishment’s POV
1. PWD Discount - deductible expense

2. Input VAT - charged to cost/expense
3. Additional Compensation Expense
- 25% of the total amount paid as salaries and wages (deductible expense)
- At least 6 months employed
How to apply?
- City Hall / Municipality

- National Council Disability Affairs (NCDA)
- NCDA  PWD ID
III. BARANGAY MICRO BUSINESS ENTERPRISE (BMBE)

- Grants incentives & privileges to small businesses
Micro - 887k (88%) MSME 99%

# of
Small - 106k - contributes 63% of
enterprises in
Medium - 4k the total employment
the PH
Large - 4k
Qualifications
Productions
Processing Includes Loans
Any businesses w/ total assets of ≤ 3M
Manufacturing Excludes land value
Trading & Services
Does not apply to exercise of profession
Benefits
1. Income tax exemption

2. Exemption from MW Law
3. Priority to a special credit window set up specifically for the financing of BMBEs, set up by:
a. Land Bank of the Philippines (LBP)
b. Development Bank of the Philippines (DBP)
c. Small Business Guarantee and Finance Corporation (SBGFC)
d. People's Credit and Finance Corporation (PCFC)
4. Technology Transfer
5. Reduce local taxes, fees & charges
How to apply?
1. Treasurer’s Office, DTI Office, Negosyo Centers  15 days processing

2. Issued  Certificate of Authority (2 years)
Revocation of Income Tax Exemption
a. Transfer of place of business

b. Value of its total assets exceeds P3M
c. Voluntary surrender of the Certificate of Authority
d. Death of the registered individual owner of the BMBE; violation or noncompliance with the provisions of R.A. 9178
e. Merger or consolidation with an entity which is not eligible to be a BMBE
f. Sale or transfer of the BMBE, if it is a sole proprietorship without prejudice to the transferee applying for
registration
g. Submission of fake or falsified documents
h. Retirement from business, or cessation/suspension of operations for one (1) year
i. Making false or omitting required declarations or statements
IV. DOUBLE TAXATION AGREEMENT

Scope of agreement
- The PH has tax treaties w/ 43 countries
taxes covered
Tax treaties Tax exemption

Preferential tax rate PH AUS

Who can qualify?
Non-resident Individuals Whose income derived from sources w/n the PH &
Corporations whose country has effective tax treaties w/ the PH
Documents
Dividends, Interest, Royalties - Certificate of Residence for Tax Submitted to the
Income (passive income) Treaty Relief (CORTT) International Tax Affair
Other Income - Tax Treaty Relief Application (TTRA) Division (ITAD)
Preferential Rate
a. Dividends
b. Interests
c. Royalties
d. Profits of shipping and air transport in international traffic
e. Remitted branch profits
Exemptions
a. Business profits
b. Capital gains
c. Income from employment
d. Income from independent professional services
e. Income of athletes and performers supported by public funds
f. Income from government service
g. Pensions
h. Income of visiting teachers and researchers
i. Allowances and remuneration of visiting students and trainees
j. Other income
V. PHILIPPINE ECONOMIC ZONE AUTHORITY (PEZA)

- Government agency tasked to provide investments, assistance incentives to both local & foreign investors
- Under DTI
- Economic Zones (Ecozones)
Ecozones Sale (export)

Purchase (import)
 separate customs
territory
Eligible Activities Categories of ecozones

a. Export manufacturing a. Manufacturing economic zone
b. IT Service export b. IT parks/centers
c. Tourism c. Agro-industrial economic zone
d. Medical tourism d. Tourism economic zone
e. Agro-industrial export manufacturing e. Medical tourism parks/centers
f. Agro-industrial bio-fuel manufacturing
g. Logistics and warehousing services
h. Ecozone development/operation
i. Facilities providers
j. Utilities
Benefits
1. Fiscal Incentives
a. Income Tax Holiday (ITH) – 100% exemption from corporate income tax:
IT - major innovation
 Pioneer - w/ project cost of at least $5M
6 years – 8 years
Manufacturing - has never been produced in the PH
- new & untried in the PH
 Non-Pioneer - existing  4 years
 Expansion/Modernization Projects  3 years
Upon expiry of the Income Tax Holiday, 5% Special Tax on Gross Income and exemption
from all national and local taxes, except real property taxes
b. Tax and duty-free importation of raw materials, capital equipment, machineries, and spare parts.
c. Exemption from wharfage dues and export tax, impost or fees.
d. VAT zero-rating on local purchases of goods and services, subject to compliance with BIR and PEZA
requirements.
e. Exemption from payment of any and all local government imposts, fees, licenses, or taxes.
f. Exemption from expanded withholding tax.
2. Non-Fiscal Incentives
a. Simplified Import-Export procedures
b. Non-resident foreign nationals may be employed by PEZA-registered Economic Zone Enterprises in
supervisory, technical, or advisory positions.
c. Special Non-Immigrant Visa with Multiple Entry Privileges for non-resident foreign nationals in a
PEZA-registered Economic Zone Enterprise
PEZA Board
Chairman - DTI Secretary
V. Chairman - Director General
Deputy Director General (3)
VI. BOARD OF INVESTMENTS (BOI)

- Under DTI
- To attract local & foreign investors
- 2020: ₱1 trillion approved BOI investments
- France & The Netherlands  top investor
- DITO Telecom, TI PH, San Miguel Airport
How to qualify?
- Investors in priority areas of activities listed in the IPP
1. Preferred Activities
a. Manufacturing
i. Motor vehicle
ii. Shipbuilding including parts and components
iii. Aerospace parts and components
iv. Chemicals
v. Virgin paper pulp
vi. Copper wires and copper wire rods
b. Agribusiness and Fishery

i. Production of animal and aqua feeds
ii. Production of fertilizers and pesticides
iii. Modernization of sugar mills
iv. Mechanized agriculture support services, e.g., harvesting, plowing, and spraying/dusting
v. Agriculture support infrastructures, e.g., facilities for drying, cold chain storage, blast freezing,
bulk handling and storage
c. Services
i. Integrated Circuit Design
ii. Creative Industries/ Knowledge-Based Services
iii. Ship repair
iv. Charging stations for electric vehicles
v. Maintenance, Repair and Overhaul (MRO) of aircraft
vi. Industrial waste treatment
d. Economic and Low-cost Housing

e. Hospitals
f. Energy
i. Exploration and development of energy sources
ii. Power generation plants
g. Public Infrastructure and Logistics

i. Airports and seaports (include RO-RO ports) for cargo and passenger
ii. Air, land and water transport (limited to brand new ships, aircraft, seaplanes, RO-RO; buses,
boats, mass rail)
iii. LNG Storage and Regasification Facility
iv. Bulk water treatment and supply
h. PPP Projects
2. Export Activities
a. Production and Manufacture of Export Products - covers the production/manufacture of non-traditional
export products and with export requirement of at least 50% of its output, if Filipino-owned or at least
70%, if foreign-owned
b. Services Exports - covers service activities rendered to clients abroad and paid for in foreign currency
with export requirement of at least 50% of its revenue, if Filipino-owned or at least 70%, if foreign-
owned
3. Special Laws
4. Autonomous Region of Muslim Mindanao (ARMM)
Fiscal Incentives
a. Income tax holidays (ITH)

six (6) years for projects with pioneer status and for projects located in a Less Developed Area (LDA)
four (4) years for new projects with non-pioneer status
three (3) years for expansion/modernization projects
b. Duty exemption on imported capital equipment, spare parts, and accessories
c. Exemption from wharfage dues and export tax, duty, impost, and fees
d. Tax exemption on breeding stocks and genetic materials
e. Tax credits on imported raw materials
f. Tax and duty-free importation of consigned equipment
g. Additional deduction for labor expense (ADLE)
Non-Fiscal Incentives
a. Employment of foreign nationals

b. Simplification of customs procedures for imported products
c. Importation of consigned equipment
d. Privilege to operate a bonded manufacturing/trading warehouse (subject to custom rules and regulations)
Foreign Ownership
At least 70%  export
Pioneer  100% initial foreign-owned
Less Developed Areas
(eventually, 60% Filipino-owned)
Non-Pioneer  60 (Filipino) : 40 (Foreign)  70% Export
Not in IPP
 60:40  50% export

 > 40% Foreign-ownership  70% export
Board of Governors
BOI Chairman  DTI Secretary
Vice Chairman
Governor
 appointed by the President of the Philippines

TAX REMEDIES
TAX AUDIT PROCESS
5 days 15 days to respond
① Letter of Authority (LOA) ② Notice of Discrepancy (NOA) ③ Preliminary Assessment Notice (PAN)
- authorization from BIR to perform - deficiencies (can be extended -findings, facts, basis
assessments - initial findings for 30 days) (laws, rules, regulations)
- BIR Officer  examine/audit
CIR  National
Given by
RD  Regional
- GR: 3 years to amend ITR
EXC: Issuance of LOA  cannot amend Motion for Reconsideration  CIR
Direct 30 days
30 days Request for Reconsideration - explicit Appeal to CTA Division
to protest - reassess using existing evidence Denial of ✔
④ Formal Letter of Demand (FLD) / CIR
Final Assessment Notice (FAN) Protest Avail Final decision from CIR
Request for Reinvestigation
- Demand for payment 30 days
- additional evidence Indirect Appeal to CTA Division
- Facts, laws, rules & regulation - 60 days to provide supporting - not acted (30 days)
- amount, deadline documents upon w/n 180
days from date
of submission
15 days 15 days 15 days

to appeal to appeal to appeal
✔ Denial of Appeal CTA en banc SC Division SC en banc Collection
- final, executory &
demandable
Structures:
1st Division (3) 1st Division (5)
Presiding Justice (1) Chief Justice (1) en
CTA 9 2nd Division (3) en banc SC 15 2nd Division (5)
Associate Justice (8) Associate Justice (14) banc
3rd Division (3) 3rd Division (5)
Preliminary Assessment Notice (PAN) is NOT required in the following cases:
a. When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as
appearing on the face of the return
b. When a discrepancy has been determined between the tax withheld and the amount actually remitted by the
withholding agent
c. When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable
period was determined to have carried over and automatically applied the same amount claimed against the
estimated tax liabilities for the taxable quarter or quarters in the succeeding taxable year
d. When the excise tax due on excisable articles has not been paid
e. When an article locally purchased or imported by an exempt person has been sold, traded or transferred to
non-exempt persons
Prescription Period
ITR
Actual filing later > 1M  CIR
Not fraudulent - 3 years
* Deadline for filing ≤ 1M  RDO
Assessment Fraudulent - 10 years from date of discovery (fraud/omission)
No return was filed
Actual – physical seizure
Distraint - public auction
- seizure of personal Constructive – sign an
Administrative property
Remedies agreement not to dispose
- pre-emption property (preserve)
w/ prior assessment - 5 years
Levy
Collection (issuance of FAN)
- seizure of real property
w/o prior assessment - same rules * - redemption (1 year)
File civil case  damages

Judicial Remedies File criminal case  imprisonment (tax evasion)
Constructive Distraint may be availed of in the following cases
a. The taxpayer is retiring from any business subject to tax

b. He intends to leave the Philippines
c. He removes his property therefrom
d. He performs any act tending to obstruct the proceeding for collecting the tax due or which may be due from him
Suspension of Assessment Prescription Period
a. When the taxpayer's request for reinvestigation was granted

b. When the taxpayer cannot be located in the address given in the return
c. When no property of the taxpayer can be located
d. When the taxpayer is out of the country
Civil Penalties
25% - simple neglected

Surcharge (filed w/o notice from BIR)
50% - willful neglect (filed after notice)

Overstated deduction
- fraudulent return 30%
understated GI
25%
1. Failure to file any return and pay the tax due on time
2. Filing a return with an internal revenue officer other than those with whom the return is required to be filed,
unless authorized by the CIR (wrong venue)
3. Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment
4. Failure to pay the full or part of the amount of tax shown on any return, or the full amount of tax due for which
no return is required to be filed
Deficiency
Interest Cannot be imposed simultaneously
Delinquency
(12% p.a.)
Compromise
Grounds Reasonable doubt as to validity of the claims Already filed in court

EXC: Criminal Cases
Financial Incapacity Involving fraud
Financial Incapacity  10% of basic Must be approved

Minimum Compromise assessed tax > 1M by the Evaluation
If amount
Other cases  40% of basic Settlement offered is Board
assessed tax less than the minimum (CIR + 4 Deputy
Commissioner)
Abatement / Cancellation
tax appears to be unjustly or excessively assessed

Grounds
Cost > Collection
Refund of Taxes 2 years from

date of payment 30 days
Claim for Refund/Credit CIR CTA
(TCC  5 years) (must be w/n 2 years)
30 days
Beyond 2 years – Motion for reconsideration CIR

FILING
Individuals Required to File Income Tax Return:
a. Every Filipino citizen residing in the Philippines (RC)

b. Every Filipino citizen residing outside the Philippines on his income from sources within the Philippines (NRC)
c. Every alien residing in the Philippines on income derived from sources within the Philippines (RA)
d. Every non-resident alien engaged in the trade or business or in the exercise of profession in the Philippines
(NRA-ETB)
Individuals Not Required to File Income Tax Return
a. An individual whose taxable income does not exceed P250,000

b. An individual receiving purely compensation income, regardless of amount, from only one employer in the
Philippines for the calendar year, the income tax of which has been withheld correctly by the said employer
(substituted filing)
c. An individual whose sole income has been subjected to final withholding tax
d. A minimum wage earner (MWE)
Where to File Return
a. An authorized agent bank (AAB)

b. Revenue District Officer, Collection Agent, or duly authorized Treasurer of the city or municipality in which
such person has his legal residence or principal place of business in the Philippines, or if there be no legal
residence or place of business in the Philippines, with the Office of the Commissioner.
BIR FORMS
Title Form Filing Date

a. Quarterly Income Tax Return for Individuals, 1701Q On or before May 15 of the current taxable year
Estates and Trusts On or before August 15 of the current taxable year
On or before November 15 of the current taxable year
b. Annual Income Tax Return for Individuals 1701 On or before April 15 of each year covering income
(including MIXED Income Earner), Estates and for the preceding taxable year.
Trusts
c. Certificate of Compensation Payment / Tax 2316 On or before January 31 of the succeeding year
Withheld for Compensation Payment
With or Without Tax Withheld
d. Annual Income Tax Return for Corporation, 1702 On or before 15th day of the 4th month following
Partnership and Other Non-Individual Taxpayer close of the taxpayer's taxable year.
Subject Only to REGULAR Income Tax Rate
e. Estate Tax Return 1801 Within one (1) year from the decedent's death
f. Monthly Value-Added Tax Declaration 2550M Not later than the 20th day following the close of the
month
g. Quarterly Value-Added Tax Return 2550Q Not later than the 25th day following the close of
each taxable quarter

Inbound 3957617422269830470

Uploaded by

Copyright:

Available Formats

You might also like

Inbound 3957617422269830470

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Inbound 3957617422269830470

Uploaded by

Copyright:

Available Formats

TAXATION NOTES

Primary  to raise revenues

1. Necessity Theory  existence of the government is necessary

2. Lifeblood Theory  w/o taxes, the government cannot exist

3. Benefits-Protection Theory  reciprocal duties

Characteristics of Tax Nature of Taxation

 1987 Constitution Executive Legislative

Aspects of Taxation Sound Tax System:

Reference: Sir Brad Lecture & G-Sheets Compiled by: CPM

Subject Matter Situs

1. Persons Residence of the taxpayer

1. Due process of law

Other Charges & Fees

Reference: Sir Brad Lecture & G-Sheets Compiled by: CPM

National Tax  income, estate, donor’s, VAT, OPT, excise, DST

Specific  based on volume, weight / quantity

Proportional  flat rate (VAT, OPT, Estate)

Escape from Taxation

1. Tax evasion / dodging – illegal

Sources of Tax Laws

1. Constitution  Local Government Code

Reference: Sir Brad Lecture & G-Sheets Compiled by: CPM

BIR Organizational Structure

Operations Legal Information Resource

Reference: Sir Brad Lecture & G-Sheets Compiled by: CPM

a. Resident Citizen (RC)

b. Nonresident Citizen (NRC)

c. Resident Alien (RA) (exchange student)

d. Non-Resident Alien (NRA) (< 2 years)

 Not engaged in trade or business (NETB) (25% FWT, gross)

Compensation Tax table

a) Gross sales are

Income Tax ≤ 3M Sales; &

Reference: Sir Brad Lecture & G-Sheets Compiled by: CPM

c) Not in excess of 250,000 – mixed income earner

FINAL WITHHOLDING TAX

 Applies to passive income

1. Professional (15%) SGV 150

CGT: Rate Tax Base

1. Sale of unlisted shares of stock 15% Gain (SP – Cost)

2. Sale of real property 6% Highest (Zonal, Assessed, SP)

Income Tax Paid Abroad (Tax Credits)

Actual Income Tax Paid Abroad

Reference: Sir Brad Lecture & G-Sheets Compiled by: CPM

I. FINAL WITHHOLDING TAXES

Reference: Sir Brad Lecture & G-Sheets Compiled by: CPM

*** Requisites for exemption:

****15% if with tax sparing; 25% if without tax sparing

II. EXPANDED WITHHOLDING TAX (EWT)

2. Withholding tax on rentals of real and personal properties: 5% of gross rentals

3. Withholding tax on income payments to certain contractors: 2% of gross payments

4. Withholding tax on income payments to beneficiaries of estates: 15% of income distribution

5. Withholding tax on income payments to partners of general professional partnership (GPP)

Reference: Sir Brad Lecture & G-Sheets Compiled by: CPM

1. Domestic Corp. (DC) ✔ ✔ 25% Net TI

2. Resident Foreign Corp. (RFC) ✔ ✖ 25% Net TI

3. Nonresident Foreign Corp. (NRFC) ✔ ✖ 25% FWT Gross Income