INCOME

TAXATION
Individual Taxation
 TAXPAYERS
TYPES OF INCOME Individual Corporation
Compensation NT Not Applicable
Business/Professional NT NT
Income
Passive Income FT / NT FT / NT
Capital Gains FT / NT FT / NT
 Normal or
Regular Taxation Final Taxation
Filing of Required Not Required
Income Tax
Return (ITR)

Object of * Compensation * Passive income

taxation * Professional or Business *
income
Capital gains
* Other passive income
* Other capital gains
Withholding CWT / EWT FWT
tax
TAX CLASSIFICATION TAX
INDIVIDUAL CORPORATION SITUS
 Citizen
• Resident Citizen  Domestic Corporation In & Out
• Nonresident Citizen In
 Alien  Foreign Corporation
• Resident Alien • Resident Foreign Corp. In
• Nonresident Alien • Nonresident Foreign Corp. In
~ Engaged in Business In
~ Not Engaged in Business In
TYPES OF INCOME TAX SITUS
Compensation Place the service is rendered
Business/Professional Income
Service Place the service is rendered
Merchandising Place the goods are sold
Manufacturing Place the goods are sold
Passive Income
Dividends Domicile of the issuing corporation or
predominance test
Royalty Place the intangible is employed
Interest Place of the income payor
Prizes/Winnings Place of the income payor
Capital Gains
Personal property Securities - domicile of the issuing entity
Nonsecurities - place where the property is sold
Real property Location of the property
POSSIBLE SOURCE OF INCOME
TAX TREATMENTS WITHIN WITHOUT
Tax Exempt ✓ ✓
Taxable
Normal tax ✓ ✓
Final tax ✓ ❌
 • Citizen
CITIZENS – Resident
– Non resident – 183 days or more outside the Philippines

• Alien
ALIENS – Resident
– Nonresident
• Engaged in business / trade – more than 180 days within the Philippines
• Not engaged in business / trade
– Special
• Alien individual with managerial or technical positions employed in ROHQ

INDIVIDUAL TAXATION
 Income Income
Subject to Subject to
TAX BASE Normal tax Final tax Tax Situs
Resident Citizen Net Gross In and Out
Nonresident citizen Net Gross In
Resident alien Net Gross In
Nonresident alien Net Gross In
engaged in business
Nonresident alien Not Gross In
not engaged in Applicable (at 25%)
business
* Net means Gross Income reduced by Business Expenses
allowed for tax purposes.
INDIVIDUAL TAXATION
FINAL TAX
INTEREST INCOME RC, NRC, RA NRAEB NRANEB
Interest in any currency bank deposit 20% 20% 25%
Yield or any other monetary benefit from deposit 20% 20% 25%
substitutes
Yield or any other monetary benefit from trust funds 20% 20% 25%
and similar arrangements
Interest income received from a depositary bank under
expanded foreign currency deposit system
• Prior to TRAIN 7.5%, NRC is exempted Exempt Exempt
• Beginning Jan. 1, 2018 (TRAIN) 15%, NRC is exempted Exempt Exempt
Interest income from long-term deposit or investment Exempt Exempt 25%
certificates
(original maturity of 5 years of more/RMC 18-2011)
A final tax shall be imposed based on the
untaxed periods, if pre-terminated before
fifth year with the following holding period:
• 4 years to less than 5 years 5% 5% 25%
• 3 years to less than 4 years 12% 12% 25%
• less than 3 years 20% 20% 25%

FINAL TAX ON PASSIVE INCOME

Interest Income
FINAL TAX ON PASSIVE INCOME
Dividend Income
FINAL TAX ON PASSIVE INCOME
Summary on the Taxability of Dividend Income
FINAL TAX ON PASSIVE INCOME
Royalty Income
FINAL TAX ON PASSIVE INCOME
Prizes & Winnings
SALE OF CAPITAL ASSETS RC, NRC, RA NRAEB NRANEB
Net capital gains from sale of shares of
stock of a domestic corporation not traded
in the local stock exchange 
Prior to TRAIN (2018)
1st ₱100,000 net capital gain 5% 5% 5%
excess of ₱100,000 net capital gain 10% 10% 10%

Beginning Jan. 1, 2018 (TRAIN)

Net capital gain, regardless of amount 15% 15% 15%

Sale of real property located in the

Philippines
 Tax Base: Highest among fair market value, 6% 6% 6%
zonal value, and selling price
 Stocks traded in the local stock exchange are exempted from income tax (normal & final) but
subject to business tax .

FINAL TAX ON CAPITAL GAINS

PASSIVE INCOME AND CAPITAL GAINS NOT SUBJECT
TO FINAL TAX
 In general, both active and passive
income earned within the Philippines
of a Non Resident Alien Not Engaged
in Trade or Business (NRANETB) are
subject to final income tax rate of 25%.

INDIVIDUAL TAXATION
Non Resident Alien Not Engaged in Trade/Business
 PASSIVE INCOME CAPITAL GAINS TAX
• BIR Form 0619-F  Monthly • BIR Form 1706 – 30 days from the
Remittance Return of Final Income date of sale or exchange
Taxes Withheld
• BIR Form 1601-FQ  Quarterly
Remittance Return of Final Income
Taxes Withheld

The manner and place of filing and payment is similar to that of normal tax.

INDIVIDUAL TAXATION
Deadlines of Filing of Tax Return – Final Tax
INDIVIDUAL TAXATION
NORMAL TAX
INDIVIDUALS WITH INCOME FROM BUSINESS/PROFESSION
BUSINESS REGISTRATION BUSINESS TAX INCOME TAX
NONVAT REGISTRATION
Gross Sales/Receipts of
≤ ₱3 Million
Option 1 3% percentage tax Graduated Tax Table
Option 2 (TRAIN) None PURE BUSINESS INCOME EARNER
 8% income tax based on gross sales/receipts &
other non-operating income less ₱250,000.
MIXED INCOME EARNER
 8% income tax based on gross sales/receipt &
other non-operating income
Gross Sales/Receipts of 3% percentage tax Graduated Tax Table
> ₱3 Million within the year 12% VAT
VAT REGISTRATION 12% VAT Graduated Tax Table
Note for Mixed Income Earners:
 Compensation income is always subject to the graduated tax table
 Not allowed to deduct the 250,000 from gross sales/receipts and non operating income since the first
250,000 is already incorporated in the computation of tax due on compensation income, regardless if
the compensation income does not exceed the 250,000 limit .
Note for NonVAT taxpayers whose gross sales/receipts exceeded > ₱3 Million within the year
 3% PT shall be imposed on sales/receipts prior to becoming VAT registered.
 12% VAT shall be imposed upon VAT registration, on or before end of the month following the month
gross sales/receipts exceeded 3 million.
INDIVIDUAL TAXATION (Except Non Resident Alien Not Engaged in Business)
WITH BUSINESS
(Purely Self-Employed & Mixed Income Earner) WITHOUT
N O N V A T BUSINESS
(Purely
Gross sales is 3,000,000 Gross sales is VAT compensation)
Option 1 Option 2 (TRAIN Law) > 3,000,000
Business tax 3% None 1st 3M 12% VAT N/A
(on gross sales/receipts in percentage  3% percentage tax
the Philippines) tax over 3M
 12% VAT
Income Tax (Normal & Final Taxes)
Income from GTT 8% on gross GTT GTT N/A
business/profession sales/receipts plus
nonoperating income
 Mixed income earner
Not reduced by
250,000
 Purely self employed
Less 250,000
Compensation income GTT GTT GTT GTT GTT
Passive income/capital Final tax Final tax Final tax Final tax Final tax
gains
Other passive income and GTT 8% preferential tax GTT GTT GTT
capital gain subject to normal
tax (nonoperating income) rate
GTT  Graduated tax table (Normal Tax)  Does not apply to a purely self-employed/professional income earner
NEW TRAIN TAX TABLE
For the years 2018 - 2022
If net taxable
income is But not Of excess
over over Tax is Plus over
250,000 None
250,000 400,000 None 20% 250,000
400,000 800,000 30,000 25% 400,000
800,000 2,000,000 130,000 30% 800,000
2,000,000 8,000,000 490,000 32% 2,000,000
8,000,000 2,410,000 35% 8,000,000

INDIVIDUAL TAXATION
Normal Graduated Tax Table
FILING OF INCOME TAX
RETURN (ITR)
INDIVIDUAL TAXATION – NORMAL TAX
NORMAL TAX:
FILING OF INCOME TAX RETURN FOR INDIVIDUAL - BIR FORMS
QUARTERLY ANNUAL
1st May 15 April 15 of
2nd Aug. 15 suceeding
INDIVIDUAL INCOME EARNER 3rd Nov. 15 year
Pure Compensation Income Earner
 Single employer
• without non-business/prof income subject to normal ❌ Substituted
tax, with correct tax properly withheld and remitted. Filing of ITR*
• with non-business/prof income subject to normal tax, ❌ 1700
or those with incorrect amount of tax withheld and
remitted.
 Multiple employer within the year ❌ 1700
Pure Business/Professional Income Earner 1701Q 1701A
Mixed Income Earner 1701Q 1701
* The employer must file the Annual Information Return using BIR Form 1604-C .
WHERE TO FILE AND PAY?
RESIDENTS No payment return With payment return
EFPS taxpayers File through eFPS File and pay through eFPS
Non EFPS taxpayers File through RCO File and pay through the following
(under the jurisdiction of the
taxpayer's jurisdiction):
 AAB - Authorized Agent Banks
 RCO - Revenue Collection Officer

NONRESIDENTS
With legal residence or place of business in the Philippines same as resident
taxpayers
With no legal residence or place of business in the Philippines RDO no. 39

INDIVIDUAL TAXATION
Filing of Income Tax Return – Normal Tax
WHO ARE REQUIRED TO FILE?
 Pure self-employed individual
• Resident citizen - within and
without
• NRC, RA, NRAETB - within
 Mixed income earner
 A trustee of a trust, guardian of a
minor, executor/administrator of an
estate, or any person acting in any
fiduciary capacity for any person
where such trust, estate, minor, or
person is engaged in trade or
business
INDIVIDUAL TAXATION
Filing of Income Tax Return – Normal Tax
WHO ARE NOT REQUIRED TO FILE?
 Minimum wage earners (MWE)
 An individual whose gross income
does not exceed Php250,000.
 Pure compensation earners qualified
under the substituted filing
 Individuals whose income has been
subjected to final withholding tax
such as in the case of non-resident
alien not engaged in trade or
business (NRANETB)
TAX TREATMENTS ON
CERTAIN INDIVIDUAL
TAXPAYERS
 TAX PROCEDURES:
• Spouses shall compute separately their income tax liability.
• Income and expenses that cannot be specifically identified to each
spouse shall be divided EQUALLY.
• Single income tax return shall be filed for the spouses.

INDIVIDUAL TAXATION
Married Individuals – Normal Tax
TAX SITUS OF INDIVIDUAL TAXPAYER
The following are the financial data of Alma Sunurin for the current taxable year:

Philippines U.S.A.
Compensation 500,000 400,000
Business Income 200,000 300,000
Business Expense 80,000 120,000
Professional Income 150,000 20,000
Dividend Income 15,000 10,000
Interest income on savings deposit 5,000 2,000

Compute the income tax still due if the taxpayer is classified as follows:
(a) Resident citizen
(b) Nonresident citizen
(c) Resident alien
(d) Nonresident alien engaged in business
(e) Nonresident alien not engaged in business (Ignore business income/expenses)
8% PREFERENTIAL TAX RATE
Lorna is a resident citizen, earning compensation and business income for 2018 as follows:

Compensation income 1,400,000

Gross sales 2,800,000
Cost of sales 1,200,000
Operating expenses 650,000
Withholding tax on compensation income 310,000
Other creditable withholding taxes 80,000

Compute the quarterly business tax and income tax still due based on the following assumptions:
(a) Taxpayer opted the 8% preferential income tax
(b) Taxpayer does not opt the 8% preferential income tax
TAXPAYER CLASSIFICATION
Reign Bow, single has the following income during the year:

Compensation 200,000
Income from lease of equipment 400,000
Dividend income from domestic corporation 20,000
Dividend income from nonresident foreign corporation 35,000
Interest income on bank deposit abroad 15,000
Interest income on bank deposit under FCDU 10,000
Royalty income 10,000
Gain from sale of shares of stock of a domestic corp. directly sold to buyer 30,000
Gain from sale of shares of stock of a nonresident corp. directly sold to buyer 5,000
Gain from sale of land classified as Property, Plant and Equipment 20,000
Gain from sale of land classified as Investment property, selling price is Php2million 40,000

Compute the following: Normal tax due Final tax due

Resident citizen
Resident alien
Nonresident alien engaged in business
Nonresident alien not engaged in business
CJ, single, had the following data for 2018 taxable year:

Gross business income, Philippines 1,000,000

Gross business income, USA 500,000 Compute the following assuming the
Business expenses, Philippines 700,000 taxpayer is a resident citizen:
Business expenses, USA 430,000 (a) Taxable income
Compensation income, Philippines 600,000 (b) Income tax payable
Dividend from a domestic corporation 50,000 (c) Total final taxes on passive income
Dividend income from a foreign corporation 40,000 (d) Total income tax expense
Interest income from peso bank deposit - Philippines 20,000
Interest income from bank deposit abroad 30,000
Interest income from FCDS deposits 40,000
Royalty income from composition 25,000
Raffle draw winnings 10,000
PCSO winnings 200,000
Creditable withholding taxes on business income 125,000
TAX SITUS OF INDIVIDUAL TAXPAYER
Aldrin, a single (Awww) resident citizen, has the following income during the taxable year 2018:

May to
Jan - April December
Compensation 150,000 400,000
Gross sales - Philippines, net of 1% CWT 297,000 594,000
Cost of sales - Philippines 118,800 237,600
Business expenses - Philippines 47,520 95,040
Interest income on savings deposit - Phil. 4,000 30,000
Interest income on bank deposit - abroad 20,000 50,000

Aldrin is earning rent income in the Philippines for a monthly rent of 20,000 less 5% CWT.
Aldrin became an OFW on May 1, 2018 and has a contract of 5 years.

Compute the following:

Taxable income
Income exempt from tax
Final tax on passive income
Income tax still due and payable
Income tax due
QUARTERLY INCOME TAX
The following are the financial data of Alma Sunurin, a NonVAT entity, for the current taxable year:

1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.

Sales, net of 2% CWT (Cost of sales is 40% of Sales) 833,000 245,000 784,000 392,000
Compensation income, net of 5% WTW 85,500 80,750 90,250 84,550
Interest income on FCDU, net 425 2,550 1,275 1,700
Business expense 255,000 50,000 160,000 80,000
Dividend income from domestic corp., net 9,000 18,000
Capital gain on sale of car, Selling price of Php150,000 30,000
Capital gain on sale of land
Cost - Php450,000 10,000

Compute the quarterly business tax and income tax still due based on the following assumptions:
(a) Taxpayer does not opt the 8% preferential income tax
(b) Taxpayer opted the 8% preferential income tax
QUARTERLY INCOME TAX - EXCEEDED THE VAT THRESHOLD
The following are the financial data of Alma Sunurin, a NonVAT entity, for the current taxable year:

1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.

Sales, net of 2% CWT (Cost of sales is 40% of Sales) 1,274,000 833,000 1,176,000 588,000
Interest income on FCDU, net 400 2,400 1,200 1,600
Dividend income from domestic corp., net 9,000 18,000
Business expense, including percentage tax if any 260,000 170,000 240,000 120,000
Capital gain on sale of painting, Selling price of Php150,000 30,000
Capital gain on sale of shares directly to buyer
Cost - Php450,000 10,000

The taxpayer opted the 8% preferential income tax rate.

Compute the quarterly business tax and income tax still due
Ally owns a mini-grocery store located at the municipal public market. Ally's business is
established in 2017 for an initial investment of Php50,000 and is registered as a Non-VAT
entity. She opened a bank account in Landbank of the Philippines that earns 1% interest
income. In 2018, Ally's grocery generated quarterly sales of Php200,000, Php280,000,
Php270,000, and Php310,000, respectively. Ally's cost and expenses include cost of sale
of 40%, monthly depreciation of Php10,000, monthly rent expense of Php5,000. Other
expenses such as utilities, salary, etc. approximated 20% of cost of sales. Ally's
merchandise consists of 70% goods imported from a supplier in China, Xiaoxiao
Incorporated. At the start of the year, Ally is employed as a marketing manager in TYU
Corporation receiving a monthly salary of Php30,000. In September 1, 2018, Ally
franchised a branch of Mommy Siomai paying the franchisor 5% of its sales. Ally's Mommy
Siomai's franchise incurred a cost of sales of 35% of sales, and operating expenses of 30%
of sales, while sales generated in September amounted to Php25,000, while Php80,000 in
4th quarter of 2018. Ally's LBP deposit earned an interest income of Php2,000 during
2018. Ally decided to use the 8% preferential tax rate for 2018 in her 1st quarter income tax
return.
Effective April 30, 2019, Ally resigned from TYU Corporation, thereafter, she applied for a 2-year
overseas employment in New Zealand earning a monthly income of Php80,000 starting June 1,
2019. Her businesses in the Philippines are still in operation and are handled by her brother but
is still registered under her name. As Ally's income escalates, she thought of investing some of
his income in shares of stocks and subsequently purchased stocks of Ayala Land Corporation, a
publicly listed entity, for Php100,000. Before she flew to New Zealand, Ally got married with
Elvis, a civil engineer who earns a monthly income of Php50,000. The couple purchased two
titles of lot in Tagaytay for a price of Php1,500,000 each and shares in a closely held corporation,
EVL Company, for a cost of Php80,000. During the year, Ally received a cash dividend of
Php10,000 from Ayala. Her grocery business expanded and generated a quarterly sales that is
20% higher than in 2018, with cost of sales and other costs proportionately remains the same.
The Mommy Siomai's franchise generated a quarterly sales revenue of Php150,000,
Php180,000, Php170,000, and Php190,000. Ally's LBP deposit has an interest income of
Php5,000 in 2019. Moreover, Ally entered into a lease contract and leased out the first title of the
lot in Tagaytay starting October 1, 2019 for a monthly rental of Php300,000 less 5% CWT. There
were no expenses on the real property since the building were constructed and paid by the
tenant. EVL Company declared a property dividend worth Php80,000, of which Php12,000 is
attributable to the Php80,000 investment.
At the start of the year, Ally changed her business registration to VAT.
During the year, Ally sold half of her investment in Ayala Land for
Php60,000. Her grocery business generated sales that is 10% higher
than in 2019. Likewise, sales of Mommy Siomai jumped to 120% of
2019 sales. Both the ratio of costs and expenses of Ally's businesses
remains the same. Ayala declared same amount of cash dividend as
in 2019, while her LBP bank account earned a Php5,000 interest
income. Ally opened a FCDU account in Union Bank of the
Philippines and earned Php3,000 interest. Moreover, Ally won
Canadian dollar equal to Php50,000 from a small time lotto and put it
in a bank account in ANZ Bank New Zealand that earned an interest
income equal to Php2,500.
Ally's employment contract in New Zealand ended exactly two years, thereafter, she went back to the
Philippines in July 1, 2021 and decided to permanently stay in the country so she can handle all her businesses
by herself. Ally sent resumes to several companies and is waiting for a call. During her unemployment, Ally
joined a singing contest and won 2nd prize receiving a cash prize of Php10,000. She also tried betting on lotto
and won Php5,000 and a marathon organized by their municipality where she won Php15,000. After several
weeks, Ally got a call from a company where she applied and was hired on October 1, 2021 for a monthly
income of Php35,000. Ally sold the second title of the lot in Tagaytay and earned a gain of Php300,000 during
the time when the zonal value is Php1,900,000. Ally sold the investment in EVL for Php90,000. The sales of
Ally generated from her grocery business and Mommy Siomai franchise are as follows (ratio of cost and
expenses remains the same), including interest income from various bank deposits:

1st Quarter 2nd Quarter 3rd Quarter4th Quarter

Grocery 220,000 231,000 219,000 230,000
Mommy Siomai 160,000 168,000 158,000 166,000
LBP 800 900 600 1,500
UBP 1,000 1,100 700 1,800
ANZ 1,200 1,300 800 2,200

Compute the following: 2019 2020 2021 2022

Income tax still due and payable of Ally
Final income taxes of Ally
Income subject to final tax of Ally
Income exempted from income tax of Ally
Cassie Siano has earned the following passive invcome during the year:

Philippines Australia Philippines Australia

Gross sales, less 2% withholding tax 2,000,000 1,200,000 Prizes from painting contest 11,000 8,000
Sales discount 40,000 24,000 Lotto winnings, ticket 1 9,000 5,000
Cost of sales 800,000 480,000 Lotto winnings, ticket 2 20,000 30,000
Business expenses 160,000 96,000 Interest in time deposit 3,500 8,000
Personal expenses Gain on sale of shares of a closely held corporation 39,000 32,500
Interest income from bank deposit 10,000 30,000 Gain on sale of shares of a publicly listed corporation 19,800 16,500
Half of the deposit in the Philippines are used Cash dividend from a domestic corporation 26,400 22,000
for personal purpose Property dividend from a domestic corporation 33,500 27,900
Interest income on lending 25,000 40,000 Cash dividend from a foreign corporation 17,900 14,900
Interest on foreign currency deposit unit 12,000 7,500 Property dividend from a foreign corporation 16,300 13,600
Royalty from composition 13,000 9,000 Share in income from a trading partnership 36,000 30,000
Royalty from franchise 40,000 50,000 Share in income from a partnership - professional 51,000 42,500
Prizes, singing contest 7,000 14,000

Required:
Compute the income subject to normal tax
Compute the income tax due on April 15 the following taxable year
Compute the total tax credits
Compute the income subject to final tax
Compute the final withholding taxes