CHAPTER III

TAX ON INDIVIDUALS

SEC. 24. Income Tax Rates. -

(A) Rates of Income Tax on Individual Citizen and Individual Resident Alien of the
Philippines.-

(1) An income tax is hereby imposed

(a) On the taxable income defined in Section 31 of this Code, other than income subject
to tax under Subsections (B), (C) and (D) of this Section, derived for each taxable year
from all sources within and without the Philippines be every individual citizen of the
Philippines residing therein;

(b) On the taxable income defined in Section 31 of this Code, other than income subject
to tax under Subsections (B), (C) and (D) of this Section, derived for each taxable year
from all sources within the Philippines by an individual citizen of the Philippines who is
residing outside of the Philippines including overseas contract workers referred to in
Subsection(C) of Section 23 hereof; and

(c) On the taxable income defined in Section 31 of this Code, other than income subject
to tax under Subsections (B), (C) and (D) of this Section, derived for each taxable year
from all sources within the Philippines by an individual alien who is a resident of the
Philippines.

(2) Rates of Tax on Taxable Income of Individuals. - The tax shall be computed in
accordance with and at the rates established in the following schedule: [12]

(a) Tax Schedule Effective January 1, 2018 until December 31, 2022 [4]:

Not over P250,000……………………………………………… 0%

Over P250,000 but not over P400,000……………………….. 20% of the excess over
P250,000

Over P400,000 but not over P800,000……………………….. P30,000 + 25% of the

excess over P400,000

Over P800,000 but not over P2,000,000…………………….. P130,000 + 30% of the

excess over P800,000

Over P2,000,000 but not over P8,000,000…………………... P490,000 + 32% of the

excess over P2,000,000
Over P8,000,000 ……………………………………………….. P2,410,000 + 35% of the
excess over P8,000,000

Tax Schedule Effective January 1, 2023 and onwards:

Not over P250,000………………………………………………. 0%

Over P250,000 but not over P400,000……………………….. 15% of the excess over
P250,000

Over P400,000 but not over P800,000……………………….. P22,500 + 20% of the

excess over P400,000

Over P800,000 but not over P2,000,000…………………….. P102,500 + 25% of the

excess over P800,000

Over P2,000,000 but not over P8,000,000…………………... P402,500 + 30% of the

excess over P2,000,000

Over P8,000,000 ……………………………………………….. P2,202,500 + 35% of the

excess over P8,000,000

For married individuals, the husband and wife, subject to the provision of Section 51 (D)
hereof, shall compute separately their individual income tax based on their respective
total taxable income: Provided, That if any income cannot be definitely attributed to or
identified as income exclusively earned or realized by either of the spouses, the same
shall be divided equally between the spouses for the purpose of determining their
respective taxable income.

Provided, That minimum wage earners as defined in Section 22(HH) of this Code shall
be exempt from the payment of income tax on their taxable income: Provided, further,
That the holiday pay, overtime pay, night shift differential pay and hazard pay received
by such minimum wage earners shall likewise be exempt from income tax.

(b) Rate of Tax on Income of Purely Self-employed Individuals and/or Professionals

Whose Gross Sales or Gross Receipts and Other Non-operating Income Does Not
Exceed the Value-added Tax(VAT) Threshold as Provided in Section 109(BB). – Self-
employed individuals and/or professionals shall have the option to avail of an eight
percent (8%) tax on gross sales or gross receipts and other non-operating income in
excess of Two hundred fifty thousand pesos (P250,000) in lieu of the graduated income
tax rates under Subsection (A)(2)(a) of this Section and the percentage tax under
Section 116 of this Code.[13]

(c) Rate of Tax for Mixed Income Earners. – Taxpayers earning both compensation
income and income from business or practice of profession shall be subject to the
following taxes:
(1) All Income from Compensation – The rate prescribed under Subsection (A)(2)(a) of
this Section.

(2) All Income from Business or Practice of Profession –

(a) If Total Gross Sales and/or Gross Receipts and Other Non-Operating Income Do
Not Exceed the VAT Threshold as Provided in Section 109(BB) of this Code. – The
rates prescribed under Subsection (A)(2)(a) of this Section on taxable income, or eight
percent (8%) income tax based on gross sales or gross receipts and other non-
operating income in lieu of the graduated income tax rates under Subsection (A)(2)(a) of
this Section and the percentage tax under Section 116 of this Code.

(b) If Total Gross Sales and/or Gross Receipts and Other Non-operating Income
Exceeds the VAT Thresholds Provided in Section 109(BB) of this Code. – The rates
prescribed under Subsection (A)(2)(a) of this Section. [13]

(B) Rate of Tax on Certain Passive Income: -

(1) Interests, Royalties, Prizes, and Other Winnings. – A final tax at the rate of
twenty percent (20%) is hereby imposed upon the amount of interest from any currency
bank deposit and yield or any other monetary benefit from deposit substitutes and from
trust funds and similar arrangements; royalties, except on books, as well as other
literary works and musical compositions, which shall be imposed a final tax of ten
percent (10%); prizes (except prizes amounting to Ten thousand pesos (P10,000) or
less which shall be subject to tax under Subsection (A) of Section 24; and other
winnings (except winning amounting to Ten thousand pesos (P10,000) or less [13] from
Philippine Charity Sweepstakes and Lotto which shall be exempt [13]), derived from
sources within the Philippines: Provided, however, That 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 fifteen percent (15%) [14] of such interest income [4]: Provided, further, That
interest income from long-term deposit or investment in the form of savings, common or
individual trust funds, deposit substitutes, investment management accounts and other
investments evidenced by certificates in such form prescribed by the Bangko Sentral ng
Pilipinas (BSP) shall be exempt from the tax imposed under this Subsection: Provided,
finally, That should the holder of the certificate pre-terminate the deposit or investment
before the fifth (5th) year, a final tax shall be imposed on the entire income and shall be
deducted and withheld by the depository bank from the proceeds of the long-term
deposit or investment certificate based on the remaining maturity thereof:

Four (4) years to less than five (5) years - 5%;

Three (3) years to less than (4) years - 12%; and

Less than three (3) years - 20%

(2) Cash and/or Property Dividends. - A final tax at the rate of ten percent
(10%) [15] shall be imposed upon the cash and/or property dividends actually or
constructively received by an individual from a domestic corporation or from a joint stock
company, insurance or mutual fund companies and regional operating headquarters of
multinational companies, or on the share of an individual in the distributable net income
after tax of a partnership (except a general professional partnership) of which he is a
partner, or on the share of an individual in the net income after tax of an association, a
joint account, or a joint venture or consortium taxable as a corporation of which he is a
member or co-venturer:

(C) Capital Gains from Sale of Shares of Stock not Traded in the Stock
Exchange. - The provisions of Section 39(B) notwithstanding, a final tax at the rate of
fifteen percent (15%) [16] is hereby imposed upon the net capital gains realized during
the taxable year from the sale, barter, exchange or other disposition of shares of stock
in a domestic corporation, except shares sold, or disposed of through the stock
exchange.

(D) Capital Gains from Sale of Real Property. –

(1) In General. - The provisions of Section 39(B) notwithstanding, a final tax of six
percent (6%) based on the gross selling price or current fair market value as determined
in accordance with Section 6(E) of this Code, 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,
including pacto de retro sales and other forms of conditional sales, by individuals,
including estates and trusts: Provided, That the tax liability, if any, on gains from sales
or other dispositions of real property to the government or any of its political
subdivisions or agencies or to government-owned or controlled corporations shall be
determined either under Section 24 (A) or under this Subsection, at the option of the
taxpayer;

(2) Exception. - The provisions of paragraph (1) of this Subsection to the contrary
notwithstanding, capital gains presumed to have been realized from the sale or
disposition of their principal residence by natural persons, the proceeds of which is fully
utilized in acquiring or constructing a new principal residence within eighteen (18)
calendar months from the date of sale or disposition, shall be exempt from the capital
gains tax imposed under this Subsection: Provided, That the historical cost or adjusted
basis of the real property sold or disposed shall be carried over to the new principal
residence built or acquired: Provided, further, That the Commissioner shall have been
duly notified by the taxpayer within thirty (30) days from the date of sale or disposition
through a prescribed return of his intention to avail of the tax exemption herein
mentioned: Provided, still further, That the said tax exemption can only be availed of
once every ten (10) years: Provided, finally, That if there is no full utilization of the
proceeds of sale or disposition, the portion of the gain presumed to have been realized
from the sale or disposition shall be subject to capital gains tax. For this purpose, the
gross selling price or fair market value at the time of sale, whichever is higher, shall be
multiplied by a fraction which the unutilized amount bears to the gross selling price in
order to determine the taxable portion and the tax prescribed under paragraph (1) of this
Subsection shall be imposed thereon.

SEC. 25. Tax on Nonresident Alien Individual. –

(A) Nonresident Alien Engaged in trade or Business Within the Philippines. –

(1) In General. - A nonresident alien individual engaged in trade or business in the

Philippines shall be subject to an income tax in the same manner as an individual
citizen and a resident alien individual, on taxable income received from all sources
within the Philippines. A nonresident alien individual who shall come to the Philippines
and stay therein for an aggregate period of more than one hundred eighty (180) days
during any calendar year shall be deemed a 'nonresident alien doing business in the
Philippines'. Section 22 (G) of this Code notwithstanding.

(2) Cash and/or Property Dividends from a Domestic Corporation or Joint Stock
Company, or Insurance or Mutual Fund Company or Regional Operating
Headquarter or Multinational Company, or Share in the Distributable Net Income
of a Partnership (Except a General Professional Partnership), Joint Account,
Joint Venture Taxable as a Corporation or Association, Interests, Royalties,
Prizes, and Other Winnings. - Cash and/or property dividends from a domestic
corporation, or from a joint stock company, or from an insurance or mutual fund
company or from a regional operating headquarter of multinational company, or the
share of a nonresident alien individual in the distributable net income after tax of a
partnership (except a general professional partnership) of which he is a partner, or the
share of a nonresident alien individual in the net income after tax of an association, a
joint account, or a joint venture taxable as a corporation of which he is a member or a
co-venturer; interests; royalties (in any form); and prizes (except prizes amounting to
Ten thousand pesos (P10,000.00) or less which shall be subject to tax under
Subsection (B)(1) of Section 24) and other winnings (except winnings amounting to Ten
thousand pesos (P10,000.00) or less from [17] Philippine Charity Sweepstakes Office
(PCSO) games which shall be exempt [17]); shall be subject to an income tax of twenty
percent (20%) on the total amount thereof: Provided, however, That royalties on books
as well as other literary works, and royalties on musical compositions shall be subject to
a final tax of ten percent (10%) on the total amount thereof: Provided, further, That
cinematographic films and similar works shall be subject to the tax provided under
Section 28 of this Code: Provided, furthermore, That interest income from long-term
deposit or investment in the form of savings, common or individual trust funds, deposit
substitutes, investment management accounts and other investments evidenced by
certificates in such form prescribed by the Bangko Sentral ng Pilipinas (BSP) shall be
exempt from the tax imposed under this Subsection: Provided, finally, That should the
holder of the certificate pre-terminate the deposit or investment before the fifth (5th)
year, a final tax shall be imposed on the entire income and shall be deducted and
withheld by the depository bank from the proceeds of the long-term deposit or
investment certificate based on the remaining maturity thereof: [45]
Four (4) years to less than five (5) years - 5%;

Three (3) years to less than four (4) years - 12%; and

Less than three (3) years - 20%.

(3) Capital Gains. - Capital gains realized from sale, barter or exchange of shares of
stock in domestic corporations not traded through the local stock exchange, and real
properties shall be subject to the tax prescribed under Subsections (C) and (D) of
Section 24.

(B) Nonresident Alien Individual Not Engaged in Trade or Business Within the
Philippines.- There shall be levied, collected and paid for each taxable year upon the
entire income received from all sources within the Philippines by every nonresident alien
individual not engaged in trade or business within the Philippines as interest, cash
and/or property dividends, rents, salaries, wages, premiums, annuities, compensation,
remuneration, emoluments, or other fixed or determinable annual or periodic or casual
gains, profits, and income, and capital gains, a tax equal to twenty-five percent (25%) of
such income. Capital gains realized by a nonresident alien individual not engaged in
trade or business in the Philippines from the sale of shares of stock in any domestic
corporation and real property shall be subject to the income tax prescribed under
Subsections (C) and (D) of Section 24.

(C) Alien Individual Employed by Regional or Area Headquarters and Regional

Operating Headquarters of Multinational Companies. - There shall be levied,
collected and paid for each taxable year upon the gross income received by every alien
individual employed by regional or area headquarters and regional operating
headquarters established in the Philippines by multinational companies as salaries,
wages, annuities, compensation, remuneration and other emoluments, such as
honoraria and allowances, from such regional or area headquarters and regional
operating headquarters, a tax equal to fifteen percent (15%) of such gross income:
Provided, however, That the same tax treatment shall apply to Filipinos employed and
occupying the same position as those of aliens employed by these multinational
companies. For purposes of this Chapter, the term 'multinational company' means a
foreign firm or entity engaged in international trade with affiliates or subsidiaries or
branch offices in the Asia-Pacific Region and other foreign markets.

(D) Alien Individual Employed by Offshore Banking Units. - There shall be levied,
collected and paid for each taxable year upon the gross income received by every alien
individual employed by offshore banking units established in the Philippines as salaries,
wages, annuities, compensation, remuneration and other emoluments, such as
honoraria and allowances, from such off-shore banking units, a tax equal to fifteen
percent (15%) of such gross income: Provided, however, That the same tax treatment
shall apply to Filipinos employed and occupying the same positions as those of aliens
employed by these offshore banking units.
(E) Alien Individual Employed by Petroleum Service Contractor and
Subcontractor. [10] - An Alien individual who is a permanent resident of a foreign
country but who is employed and assigned in the Philippines by a foreign service
contractor or by a foreign service subcontractor engaged in petroleum operations in the
Philippines shall be liable to a tax of fifteen percent (15%) of the salaries, wages,
annuities, compensation, remuneration and other emoluments, such as honoraria and
allowances, received from such contractor or subcontractor: Provided, however, That
the same tax treatment shall apply to a Filipino employed and occupying the same
position as an alien employed by petroleum service contractor and subcontractor.

Any income earned from all other sources within the Philippines by the alien employees
referred to under Subsections (C), (D) and (E) hereof shall be subject to the pertinent
income tax, as the case may be, imposed under this Code.

(F) The preferential tax treatment provided in Subsections (C), (D), and (E) of this
Section shall not be applicable to regional headquarters (RHQs), regional operating
headquarters (ROHQs), offshore banking units (OBUs) or petroleum service contractors
and subcontractors registering with the Securities and Exchange Commission (SEC)
after January 1, 2018:  [18] VETOED by the President [19]

(NOTE: The amendments introduced by the TRAIN Law on Section 6(F) was vetoed by
the President. The veto message reads:

“I am constrained to veto the provision under Section 6(F) of the enrolled bill that
effectively maintains the special tax rate of 15% of gross income for the aforementioned
employees, to wit:

‘Provided, However, That Existing RHQs/ROHQs, OBUs or Petroleum Service

Contractors and Subcontractors Presently Availing of Preferential Tax Rates For
Qualified Employees Shall Continue To Be Entitled To Avail Of The Preferential Tax
Rate For Present And Future Qualified Employees.’

While I understand the laudable objective of the proposal, the provision is violative of
the Equal Protection Clause under Section 1, Article III of the 1987 Constitution, as well
as the rule of equity and uniformity in the application of the burden of taxation:

Section 1. No person shall be deprived of life, liberty, or property without due process of
law, nor shall any person be denied the equal protection of the laws.

In line with this, the overriding consideration is the promotion of fairness of the tax
system for individuals performing similar work. Given the significant reduction in the
personal income tax, the employees of these forms should follow the regular tax rates
applicable to other individual taxpayers.)

(G) Alien Individuals Employed by an Offshore Gaming Licensee and Service

Providers. – Alien individuals regardless of residency and who are employed and
assigned in the Philippines, regardless of the term and class of working or employment
permit or visa, by ban offshore gaming licensee or its service provider as defined in
Section 22(II) and Section 27(G) of this Code, shall pay a final withholding tax of twenty-
five percent (25%) on their gross income as computed in the succeeding
paragraph: Provided, however, That the minimum final withholding tax due for any
taxable month from said persons shall not be lower than Twelve thousand five hundred
pesos (P12,500.00).

“In computing the tax provided in this Section, gross income shall include, whether in
cash or in kind, basic salary/wages , annuities, compensation, remuneration and other
emoluments, such as honoraria and allowances, received from such service provider or
offshore gaming licensee: Provided, That all  offshore gaming licensees and service
providers shall submit to the Bureau of Internal Revenue the original copy of notarized
contract of employment clearly stating therein the annual salary and other benefits and
entitlement of the concerned alien.

“The tax imposed herein shall be withheld and remitted in accordance with the provision
of this Code and failure to do so shall be governed by this Code. In addition, the alien
concerned may be barred from reentering the Philippines, or blacklisted as a foreign
employee by the Department of Labor and Employment, Bureau of Immigration, and
other relevant agencies.

“For the efficient assessment, verification, and administration of taxes imposed in this
Section, the Bureau of Immigration, the Department of Labor and Employment, the
Bureau of Internal Revenue, the Securities and Exchange Commission, the Philippine
Amusement and Gaming Corporation and any special economic zone authority, tourism
zone authority, freeport authority, as provided for in their respective charters, shall issue
joint and consolidated rules and regulations, including the issuance of a gaming
employment license by the concerned agency, for the implementation of free and
efficient exchange of information among the said agencies in relation to the proper
payment of taxes by persons covered under this Section. For this purpose, the data
sharing and reporting system as well as the joint inspection team created under Joint
Memorandum Circular No. 1, Series of 2019, entitled, ‘Rules and Procedures Governing
Foreign Nationals Intending to Work in the Philippines shall be institutionalized.

“All foreign employees of offshore gaming licensees and their service providers,
regardless of nature of employment, shall have a tax identification number. All offshore
gaming licensees and service providers that employ or engage a foreign national
without the foregoing shall be liable for affine of Twenty thousand pesos (P20,000.00)
for every foreign national without such tax identification number and, in proper
instances, revocation of their primary and other licenses obtained from government
agencies and/or perpetual or temporary ban in employing or engaging foreign nationals
for their operations: Provided, That the foreign national concerned shall still pay, and
the employee shall remit, any corresponding taxes, penalties, interests and surcharges
due in accordance with this Code.
“Any income earned from all other sources within the Philippines by the alien employee
referred to under this Subsection shall be subject to the pertinent income tax imposed
under this Code. [20]

SEC. 26. Tax Liability of Members of General Professional Partnerships. - A

general professional partnership as such shall not be subject to the income tax imposed
under this Chapter. Persons engaging in business as partners in a general professional
partnership shall be liable for income tax only in their separate and individual capacities.

For purposes of computing the distributive share of the partners, the net income of the
partnership shall be computed in the same manner as a corporation.

Each partner shall report as gross income his distributive share, actually or
constructively received, in the net income of the partnership.