Gross annual compensation income: 816,000

Add Overtime pay : 21,250

Add 45 students : 10,625
Add Hazard Pay : 5,000
(Less Annual Mandatory Contributions : 29,895.6 + 6,800 = 36,695.6)
(DMB Christmas Bonus exceeds the threshold of 5,000 per annum. 12,000 - 5,000 = 7,000)

Fringe benefits are exempt

816,179.4
(130,000)
(16,179.4 x 30% = 4,853.82)
= 134,853.82
Business Income

Gross Sales
-It refers to the total sales transactions net of VAT, if applicable, reported during the period, without any other
deduction.
XPN - However, gross sales subject to 8% income tax rate option shall be net of the following deduction:
a. Sales returns and allowances for which a proper credit or refund was made
b. Discounts determined and granted at the time fo sale, which are expressly indicated in the invoice, the
amount thereof forming part of the gross sales duly recorded

Gross Receipts
-It refers to the total amount of money or its equivalent representing the contract price, compensation, service
fee, rental or royalty

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* Regular Imposition of Individual Income Tax

Net Sales/Revenue
Less: Cost of Sales______________________
Gross Income from Operations
Less: Allowable Deductions________________
Net Income
Add: Income by a Partner from GPP
Add: Net Capital Gains & Non-Operating Income
Taxable Income

* 8% of AGSR after P250K, In lieu of Regular Income Tax and Percentage Taxes
-Requirements
● SEI/Professional
● Annual Gross Sales/Receipts does not exceed P3M
● Election in the 1st Quarter of the Taxable Year
● Availment irrevocable for the Taxable Year

Net Sales/Revenue
Add: Net CapitalGains & Non-Operating Income
Less: P250,000_________________________
Taxable Income

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Employment Income

Compensation Income
-all remunerations for services performed by an employee for his employer under an employer-employee
relationship, unless specifically excluded by the Code.

Compensation Income Earners

-Individuals whose source of income is purely derived from an employer-employee relationship.

Taxable Income
-Taxable income for compensation earners is the gross compensation income less non-taxable income/
benefits

Passive Income

Passive income is a form of income that is earned passively. This means that the income is earned with very
little or no additional work. Typically this income is made through investments or passive businesses, and
because of this appeal, passive income has become a popular type of income in the Philippines.
We do not use the formula for Regular Imposition of Individual Income Tax.
Passive Income is subject to a final tax (20%) and a separate Tax Return. It is not included as part of the
formula.

● Within the PH - Passive Income Tax Rules APPLICABLE (The status of the individual income taxpayer
as the recipient will figure in the determination of how the passive income taxes will be applied)
● Without the PH - Passive Income Tax Rules NOT APPLICABLE(Taxable to Resident Citizen under RIT)

Interest Income

.-General Rule: A final tax of 20% is imposed on amount of interest received from:
● any currency bank deposit and yield or;
● any other monetary benefit from deposit substitutes and from trust funds and similar arrangements.
-XPN: Interest income received by an individual taxpayer (except a nonresident individual) from a depository
bank under the Expanded Foreign Currency Deposit System shall be subject to a final income tax at the rate of
15% of such interest income.
-XPN to XPN: Interest income from Long Term Deposits shall be exempt.
-XPN: 5-20% Pre-terminated LTDs
4 yrs. to less than 5 yrs at 5%
3 yrs to less than 4 yrs at 12%
Less than 3 yrs at 20%

-For non-resident aliens NETB, the rate is a flat 25% GIT

Royalties

- a payment made for the use of property, especially a patent, copyrighted work, franchise, or natural resource.
● Not Primary Purpose - Royalty Income is considered Passive Income subject to Final Taxes.
● Primary Purpose - Royalty Income is part of Business Income subject to Regular Income Tax
Computation.

-GR: A final tax of 20% is imposed on the amount of royalties received.

-XPNs:
● Royalty income on cinematographic films and similar works received by a NRA-ETB shall be subject to
a final tax of 25%. Rest at 20%.
● Royalty income on books, as well as other literary works and musical compositions, shall be imposed a
final tax of 10%.
● Royalty income from the use of softwares shall either be subject to 20% final tax or considered
business income under Revenue Memorandum Circular No. 44-2005.

-For non-resident aliens NETB, the rate is a flat 25% GIT

Prizes

-an award given to a person or a group of people to recognize and reward actions or achievements.

-GR: A final tax of 20% is imposed on the amount of prizes received.

-XPN: Prizes amounting to P10,000 or less which shall be subject to income taxes for taxable income
purposes subject to graduated rates
-XPN:
● Prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic,
literary, or civic achievement excluded under Section 32 of the Tax Code.
● Prizes and Awards in Sports Competition excluded under Section 32 of the Tax Code.

-For non-resident aliens NETB, the rate is a flat 25% GIT. (Also exempt on achievements and sports awards)
Other Winnings

-“winnings” connotes “gaming,” the act or practice of playing games for stakes.

-GR: A final tax of 20% is imposed on the amount of winnings received including winnings amounting to
P10,000 or less not from PCSO and Lotto.
-XPN: Winnings amounting to P10,000 or less from PCSO and Lotto shall be exempt from taxes.
-Horse Race Winnings: Tax on winnings on horse races are imposed under Section 126 of the Tax Code for
every kind of taxpayer.

-For non-resident aliens NETB, the rate is a flat 25% GIT.

Dividends

-Domestic Entities: 10%FT (20%FT for NRA-ETB)

-Foriegn Entities: Graduated Rate (those which are sourced w/n PH; if RC, all subjected to graduated rates)

-For non-resident aliens NETB, the rate is a flat 25% GIT.

Sale of SOS-NTLSE

-A final tax at the rate of fifteen (15%) is hereby imposed upon the net capital gains realized during the taxable
year from the sale, barter, exchange or disposition of shares of stock, except shares sold or disposed of
through the Local Stock Exchange.

Sale of Real Property

-a final tax of six percent (6%) based on gross selling price, current fair market value as determined by the BIR,
or current fair market value as determined by the provincial and city assessor, whichever is higher, is hereby
imposed upon capital gains presumed to have been realized from the sale, exchange, or other disposition of
real property located in the Philippines, classified as capital assets.

-Option: sale or other to government

● Under Section 24(A) of the Tax Code. This means that it will be included as capital gains or losses for
income tax purposes under the graduated rates provided by the Tax Code; or
● Under 6% capital gains tax.
Capital Transaction

Capital assets
-property held by the taxpayer (whether or not connected with his trade or business), but does not include
these properties( Goods for Sale, Inventoriable Properties, Depreciable Assets, Real Properties.)
-The distinction between ordinary and capital assets will depend on the primary business of the entity.

Capital Loss
-The term ‘net capital loss’ means the excess of the losses from sales or exchanges of capital assets over the gains
from such sales or exchanges.
-If any taxpayer, other than a corporation, sustains in any taxable year a net capital loss, such loss (in an
amount not in excess of the net income for such year) shall be treated in the succeeding taxable year as a loss
from the sale or exchange of a capital asset held for not more than twelve (12) months.

Mixed Income

Consolidated

*Normal formula - Taxable Employment Income add Taxable Business Income = Taxable Income
* at 8% - Income Tax add Income Tax at 8% AGSR = Total Income Tax
- At 8%, no 250k deduction
Resident Citizen - taxable from all sources

Non-Resident Citizen
Resident Alien } same computation ( sources within)
Non-Resident Alien ETB

Non-Resident Alien NETB - Entire income received from all sources within the Philippines reduced by any
direct expenses is subject to 25% of such income. (sources within)
-If one of the transactions are passive income for the NRA-NETB, e passive income is not one of those
enumerated earlier(Interest Income from EFCDS exempt, Capital Gains Tax Sale of SOSNTLSE 15%, Capital
Gains Tax Sale of Real Property 6%), then it is part of the entire gross income subject to 25% income taxes.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Elderlies

-any Filipino citizen who is a resident of the Philippines, and who is 60 years old or above.
-may apply to senior citizens with “dual citizenship” status
-Senior Citizens deriving returnable income during the taxable year, whether from compensation or otherwise,
are required to file their income tax returns and pay the tax as they file the return.
-tax exemption, if the returnable income of a Senior Citizen is in the nature of compensation income but he
qualifies as a MWE under RA 9504

PWDs

-are those suffering from restriction of different abilities, as a result of a mental, physical or sensory impairment,
to perform an activity in the manner or within the range considered normal for a human being.
-PWDs deriving returnable income during the taxable year, whether from compensation or otherwise, are
required to file their income tax returns and pay the tax as they file the return.
-tax exemption, if the returnable income of a Senior Citizen is in the nature of compensation income but he
qualifies as a MWE under RA 9504

Special Employees

-If an employee (regardless of status as a taxpayer) is employed with these corporations, any income from
such ROP employment is subject to a 15% tax rate, namely: Multinational Companies, Offshore Banking Units,
Petroleum Contractors(established in the Ph)

Employees of MNCs

-Filipinos employed by ROHQs or RHQs in a managerial or technical position shall have the option to be taxed
at 15% of their gross income or at the regular income tax rate on taxable compensation income.
-Test:
● Position Test - Employee in a managerial position or technical position AND actually exercising such
position.
● Exclusivity Test - Exclusively working for the RHQ or ROHQ as a regular employee (not a consultant or
contractual personnel). Exclusivity means having just one employer at a time.
● Threshold Test - Gross annual taxable compensation must be at least P975K.

MWEs

-a worker in the private sector paid the statutory minimum wage, or to an employee in the public sector with
compensation income of not more than the statutory minimum wage in the nonagricultural sector where he/she
is assigned.
-an MWE remains tax-exempt even if he receives the following (as long as his basic wage is SMW:
● Other Income in excess of the P90,000 threshold under Section 32(B)(7)(e), NIRC (excess is taxable).
● Other income aside from compensation, i.e., conduct of trade, business or practice of profession (which
is subject to tax); Income subject to final taxes.