Individual Taxation

Classification of Individual Taxpayers

1. Resident Citizen
2. Non-Resident Citizen
3. Resident Alien
4. Non-Resident Alien
a. Engaged in Trade or Business
b. Not engaged in Trade or Business
Source of Taxable Income

Tax payer Taxable Source

1. Resident Citizen Income from within and outside the

Philippines

2. Others Income from within the PH only

Nonresident Citizen

1. Physical presence abroad

2. Reason for going abroad is either:
a. Immigration
b. Employment
Residing abroad for more than 183 days
Exercise

A, Kline, a Filipina businessman, went on a business trip

abroad and stayed there most of the time during the year.

B. Artchiel, a Filipina professional singer, held a series of

concerts in various countries around the world during the
current taxable year. She stayed abroad most of the time
during the year.
C. Rizyl, a Filipina cue artist went to Canada during the taxable
year to train and participate in the world cup of pool. He
stayed there most of the time during the year

D. Engr. Dugso was hired by a foreign petroleum contractor in

Thailand to provide technical assistance for 2 months from Feb.
to March. He was hired again for the months June to July and
October to December in the same taxable year.
Overseas Contract Workers- refers to Filipino
Citizens employed in foreign countries, more
commonly known as OFW’s

OCWs are classified as nonresident citizens

Resident Alien

1. Not a transient or sojourner

2. Indefinite Stay
Exercise

On October 2018, Mr. Bald Nha an American basketball coach

was hired as a team consultant by one of the teams in the PBA
for one conference which will last for a period of not more
than 3 months from October to December 2018. His coming to
the Philippines was for a definite purpose. However, he was
subsequently chosen to coach the Philippine team for a period
of two years. The American mentor intends to leave the
Philippines as soon as his job is finished. For 2018 taxable
year, the American coach shall be classified as?
Simple Guide

Alien + Indefinite Stay= Resident Alien

Alien + Definite Stay(more than 1 year) = Resident Alien

Nonresident Alien

1. Engaged in Trade or Business

a. Actually engaged in business or trade in the Philippines
b. Stay of more than 180 days

2. Not engaged in trade or business

-those who do not qualify as engaged in trade or business
Exercise

A. Christopher, an American singer was engaged to sing for

one week at the Western Philippine Plaza after which she
returned to USA.
B. Mr. Paguia, an Italian and resident of China, Stayed in
the Philippines from Nov. 28 to Dec. 5, 2018 to watch the
2018 FIBA held on MOA, PH. During his stay he bought
equity investments from BDO and BPI which are Philippine
corporations. He likewise invested in a mutual fund in a
local bank.
Answeri mga Children

1. Which of the following individual taxpayer is taxable on

income derived from within and outside the Philippines?
A. Pedro, a Native of Bacolod city working as an overseas
contract worker in Iraq.
B. Lee Min Ho, Korean singer, held a 3-day concert for the Birthday
of Mr. Carl Fuerzas.
C. Elaydsen Sumicad, a Taiwanese citizen, a resident of Korea
spent one week vacation in Boracay.
D. George a German, a naturalized Filipino citizen and married to a
Filipina. He had been living in Pagadian since 2017.
Charter Cuizon, Nonresident Citizen arrived in the
Philippines on July 1, 2018 to reside here
permanently after working as a nurse in the
United States for many year. How shall his income
be classified for income tax purposes

He will be classified as nonresident citizen

from January to June 30,2018 until his
arrival in the Philippines which after he will
be classified as a Resident Citizen.
Computing Taxable Income

Gross Business Income xx

Less: Allowable Deductions (xx)
Taxable Income xx
Erika, married, left the Philippines in July 1, 2018 to go abroad and work for
there for five years. The following data is provided as of December 31,2018:

Gross Business Income Business Expenses

Period PH Abroad PH Abroad

Jan to June 30 300,000 200,000 100,000 50,000
July 1 to Dec 31 600,000 400,000 150,000 50,000

Compute the Taxable Income

Types of Income Taxes

1. Regular or Basic Income Tax

2. Final Withholding Tax on Passive Income
3. Capitals Gain tax on:
a. Shares of unlisted domestic stocks
b. Real Properties located on the
Philippines
1. Basic Income Taxes on regular or ordinary income
 Compute the Regular Income Tax payable for the following Individuals

1. Erika a Resident Citizen

Salary= 270,000
Business Income= 50,000

2. Carl a Resident Citizen

Salary= 270,000
Business Income= 250,000
Business Expenses= 100,000
Personal Expenses= 50,000

3. Lance a Resident Citizen

Salary= 230,000
Business Income= 50,000
Passive Income= 300,000
 2. Final Withholding Tax on Passive Income
Applicable only to passive income from within the Philippines

Passive Income derived from Philippines that

are subject to FWT:
1. Interest Income
2. Royalties
3. Dividends
4. Prizes
5. Other Winnings
True or False

1. Passive income are subject to separate and final tax

rates. Ans. true

2. Passive income are included in the computation of

taxable income from compensation or
business/professional income Ans. False- they are not included

3. Other income which do not belong to passive

income or capital gains for income tax purposes is
excluded in the determination of an individual
taxpayers returnable income Ans. False- should be included
An instrument with a maturity period of ten years was held
by Juan a RC for two years and was transmitted to smith a
RA, who in turn held it for eight years up to its maturity. The
Final withholding tax should be for
1. Juan?
2. Smith?

Juan- 20% FWT

Smith- Exempt
An instrument with a maturity period of ten years was
held by Juan an NRC for 3 years and transferred it to
Smith a resident alien. Smith held it for 2years before
subsequently transferring it to Pedro a RC who held it
until the day of maturity The Final withholding tax should
be for
1. Juan?
2. Smith?
3. Pedro?
Juan- 12% FWT
Smith- 20% FWT

Pedro- Exempt
On January 1, 2014, Erika invested 1,000,000 to BDO’s
5 year time deposit. The long term deposit pays 10%
annual interest every January 1. In need of cash, Lorna
pre terminated her investment on July 1, 2017. How
much is the final tax due?

A. 6,000
B. 12,000
C. 17,500
D. 42,000
On January 1, 2014, Erika invested 1,000,000 to
BDO’s 4 year time deposit. The long term
deposit pays 10% annual interest every January
1. In need of cash, Lorna pre terminated her
investment on January 1, 2017. How much is the
final tax due?
A. 36,000
B. 15,000
C. 24,000
D, 21,000
Situs of Dividend Income

If from Domestic Corporation= situs is within in all cases

If from Foreign Corporation= general rule: situs is

outside of PH/ without

Exception
However if the ratio of gross income from Philippine sources over
world income for the past 3 years is available, the following rules
apply:
Ratio is less than 50%= treated as derived purely from without the
PH
Ratio is at least 50%= treated as partly within and party without.
Carl, a resident citizen received dividend income of 300,00
from a foreign corporation. However the foreign corporation
also had operations here in the Philippines the following are
their gross income for the past three years

Source 2015 2016 2017

PH 16,000,000 15,000,000 17,000,000
Abroad 8,000,000 11,000,000 13,000,000

The amount of dividend income subject to tax is?

A. 0
B. 120,000
C. 180,000
D. 300,000
3. Capital Gains Tax
A. Real Properties located in the Philippines
1. The real Property must be a capital asset and
2. It must be located in the Philppines

B. Shares of stock of unlisted domestic corporations

A. Real Properties

Formula= TAX BASE x 6%

Tax base:
1. Selling Price
2. Fair Market Value Whichever is HIGHER
3. Zonal Value

Option of the seller if the buyer is the Government:

1. Pay 6% CGT
2. Pay Basic Income Tax
 Exemption from CGT of 6%
Requirements:

1. The property sold must be the Principal Residence of the seller.

2. Proceeds is fully utilized in acquiring or constructing a new principal residence

3. Utilization must be made within 18 calendar months from the date of sale.

4. Notify the BIR Commissioner within 30 days from the date of sale or intention to avail the
exemption.

5. The Said Exemption can only be availed once every 10 years.

BIR COMMISSIONER
Caesar Dulay
Mike a Resident citizen taxpayer owns a
real property used as apartment units with
a monthly rental of 10,000 per unit. He sold
the property to Leomar a resident alien. Is
the sale subject to capital gains tax?
Carl sold his House in USA during the taxable
year for 5,000,000, Fair market value of
6,000,000 and Zonal Value of 4,500,000.

How much is the Capital Gains Tax?

Carl sold his House in Buug, Zamboanga
Sibugay during the taxable year for
4,500,000, Fair market value of 6,000,000
and Zonal Value of 4,000,000.

How much is the Capital Gains Tax?

Shares of stock of unlisted domestic
corporations
For stocks not traded through the Local Stock Exchange

Formula= Capital Gain x 15%

Computing for Capital Gain

Selling Price 100
Acquisition Cost (45)
Capital Gain 55
 Cost Selling Price
A. 80,000 135,000

B. 175,000 150,000