FINAL TAX

BIR FORMS
TYPE OF TAX MONTHLY QUARTERLY ANNUALLY
1 Other Income 0619-F 1601-FQ 1604-F
(Annual
2 Interest Income - Bank 0619-F 1602-Q Information
3 Fringe Benefit Tax - 1603-Q Return)the
the last day following
the close of
Deadline of the month calendar
the month of
CAPITAL GAINS TAXATION after each year-end of
15% CGT PER TRANSACTION ANNUALLY
BIR Form 1707 1707A
Deadline
April 15 of the
1 If Individual within 30 days the 4th month
following year
2 If Corporation within 30 days following the
6% CGT PER TRANSACTION end of the
ANNUALLY
BIR Form 1706 N/A
Deadline
within 30 days from date of
1 Voluntary Disposition within N/A
sale30ordays from the
exchange
2 Foreclosure Sale expiration of the applicable N/A
within 30 redemption
statutory days after receipt
period
3 Installment N/A
of every installment
WITHHOLDING TAX ON COMPENSATION (SUBSTITUTED FILING S
FILED BY EMPLOYER MONTHLY ANNUALLY
BIR Form 1601-Cyear if
succeeding 1604-CF
canlendar
Deadline
of Compensation Payment or Income December year
Tax Withheld) on or before
January 31 of the succeeding year.
EXPANDED WITHHOLDING TAX
FILED BY AGENT-PAYOR MONTHLY QUARTERLY ANNUALLY
BIR Form 0619-E 1601-EQ
following the 1604-E
January 15 of calendar year
Deadline
and an income exempt copy of BIR close of the
theForm 2304 (Certificateinofwhich
income
the
payment not subject to withholding tax) quarter
INDIVIDUAL TAXPAYERS
Form 1700 Purely employed taxpayer
Form 1701A Purely in business or profession using OSD or 8% Optional Income Tax
Form 1701 Mixed Income Earners, Estates and Trusts, Purely in Business or Profe
CORPORATE TAXPAYERS
Form 1702-RT Corporations subject only to the 25% regular income tax
Form 1702-MX Corporations subject to special rate or combination of tax rates
Form 1702-EX Exempt corporations with not tax due
Deadline: 15th day of the fourth month following the taxable year of the taxpayer. Paid upon filing.
REQUIRED ATTACHMENTS IN THE ANNUAL INCOME TAX RETURN
1 Certificate of Independent CPA - if annual sales, earnings, receipts, or output exceed P3M
2 Supplemental form for taxpayers with multiple activities per tax regime
 5. Taxes and Licenses
3 6. Other information to be disclosed in the FS
4 Statement of Management Responsibility (SMR)
5 BIR Form 2304: Certificate of Income Payments not subjected to Withholding Tax
6 BIR Form 2307: Certificate of Creditable Withheld at Source
7 Duly approved Tax Debit Memo, if applicable
8 Proof of Prior Year's Excess Credits, if applicable
9 Proof of Foreign Tax Credits, if applicable
10 For Amended
Certificate Return,
of Tax Proof
Treaty of Tax Paymentissued
Relief/Entitlement and the
by Return Previously
the concerned Filed Promotion
Investment
11 Agency (IPA)
WHEN AND WHERE TO FILE AND PAY TAX
For eFPS Taxpayers: E-filed and Tax E-paid on or before April 15th of each year.
1. Authorized Agent Banks (AAB) located within the jurisdiction of the
For
For Non-eFPS
No Payment Taxpayers:
Returns With
RDO the RDO
where where the
taxpayer taxpayer is registered or has his legal
is registered
(tax returns with negative or residence or place of business, or with the concerned RCO under the
For taxable
zero Non-Resident
income) With
samethe Office of the Commissioner or Revenue District Office
RDO.
Taxpayers No.39, South Quezon City.
Updates:
1 NRFC final tax rate is also 25%, same as NRA-NETB.
2 Interest Income from long-term deposit
Deposit from corporations - 20%
Deposit subsitute issued by bank - 20%
RIT is applicable to deposit substitutes issued by non-bank
3 Dividend Income
Intercorporate (between domestic and RFC) dividend is exempt
If NRFC is receiver, it is 25%
Therefore, tax sparing credit is now 25% - 15% = 10%
4 PCSO and lotto winnings
5 Informer's tax reward - kahit sino ang informer, regardless of classification

FINAL WITHHOLDING TAX RETURN www.bir.gov.ph

MONTHLY QUARTERLY SUMMARY
Other Income subject to F 0619-F 1601-FQ 1604-F
(Anuual
Interest Income - Bank 0619-F 1602-Q Information
Fringe Benefit Tax - 1603-Q Return)
before
on or before January 31
10 days from
the last day following the
the close of
Deadline of the month calendar
the month of
after each year-end of
withholding
quarter the year of
withholding
Example: Month of Withholding: February
Deadline of Filing of Monthly Remittance: March 10
Deadline of Filing of Quarterly Remittance: April 30

Features of Final Income Tax

1 Withholding at Source The payor is the one who pays the tax to the government
Example: P1,000 x 20% = P200 tax withheld by payor. P800 will be given to payee.
2 Final/Full/Complete Tax The P200 is already a full and complete tax and non-creditable.
3 No Income Tax Return Payee no longer has to file an income tax return to report the
P800 since it is net of tax
4 Employed on CERTAIN Passive Income
Active: Compensation Income, Business Income, Professional Income
Passive: Residual Definition, but not all are subject to FIT
What are subject to final income tax? MNEMONIC:
1 Interest from bank deposits or deposit substitutes (if from non-bank, subject to RIT)
2 Domestic dividends, in general
3 Dividend income from a Real Estate Investment Trust (REIT)
 4 Share in the net income of a business partnership, taxable associations,
joint ventures, joint accounts, or co-ownership
5 Royalties, in general
6 Prizes exceeding P10,000
7 Winnings
8 Tax Informer's Reward
9 Interest income on tax free corporate covenant bonds
5 Employed on Certain Non-Residents (25% on both active and passive income)
1 NRA-NETB = Non-resident Alien not engaged in trade or business
2 NRFC - Non-resident Foreign Corporation
CREATE Update: 25% rate is effective January 1, 2021.
Use the 30% for all transactions before effectivity date.
Rationale:For taxpayer and government convenience.
Taxpayer Convenience - relieves the taxpayer of obligation to file an ITR
Government Convenience - safety net for non-compliance or non-remittance
6 Remitted QUARTERLY (with estimated monthly remittances)
Quarterly Return, remittance is net of first and second monthly remittance already made
for the quarter.
7 Territorial/Jurisdictional Withholding is allowed only if income is from Philippine source.

INTEREST INCOME - FROM BANKS

Liable to Withhold: The Bank (local currency bank deposits, deposit subsitutes, trust funds)
1 LOCAL CURRENCY Individual Corporation
Short-Term Deposits - Less than 5 Years 20% 20%
Long-Term Deposits - At least 5 years EXEMPT 20%
If preterminated, consider placement periods:
Less than 3 Years (2+ Years) 20% 20%
Less than 4 Years (3+ Years) 12% 20%
Less than 5 Years (4+ Years) 5% 20%
At least 5 years (5+ Years) 0% 20%

Tax Basis = Principal + Accrued Interest over the placement period

Application of pre-termination rates are based on REMAINING MATURITY upon acquisition of d
Example 1:Mr. X acquired a 10-year deposit and held it for 3 years.
It is a long-term deposit since its remaining maturity is at least 5 years.
Mr. X is now subject to 12% FIT since he held it for 3 years before pre-termination.
Example 2:Mr. Y acquired a 10-year deposit with a remaining maturity of 3 years and held it un
It is a short-term deposit since its remaining maturity is less than 5 years.
Mr. Y is now subject to 20% FIT.

2 FOREIGN CURREN Based on the recipient: Individual Corporation

 RESIDENT 15% 15%
NON-RESIDENT (including NRA-NETB and NRFC) EXEMPT EXEMPT

Rationale: This is to encourage the deposit of foreign currencies in PH banks which will be used
in the financing of our international trades since the peso is not a globally accepted currency.

NO LONG-TERM OR SHORT-TERM CLASSIFICATIONS.

Joint Accounts by a Resident and a Non-Resident:

50% is exempt - by virtue of the Non-Resident account owner.
The other 50% is subject to 15%.

Notes:
1 Classification of Debt Instruments Number of borrowers at origination/issuance
Issuer of debt instrument 19 or less (PRIVATE) 20 or more (PUBLIC)
1 Corporate Issuer Private borrowing Deposit Substitute
2 Government including BSP Deposit Substitute Deposit Substitute

Deposit Substitute An alternative form of obtaining funds from the public through the issuance,
subject to FIT endorsement, or acceptance of debt instruments for the borrowers' own account,
aka - public borrowing Purpose: Relending or purchasing of receivables and other obligations. or financing
their own needs or the needs of their agent or dealer.

Private borrowing is subject to regular income tax. Example: Interest Income from promissory notes.
Government Debt Instruments (treasury bonds, bills, and notes) are considered deposit substitute irrespecti
of the number of borrowers at origination if to be traded or exchanged in the secondary market.

Another exclusion from deposit substitutes: DI issued for interbank call loans with maturity of not more than
5 days to cover deficiency in reserves against deposit liabilities.

2 Deposit Substitute issued by NON-B Individual Corporation NRA-NETB/NRFC

Short-Term Deposits - Less than 5 Yea 20% 20% 25%
Long-Term Deposits - At least 5 years 20% RIT 25%
Exemption is limited only to those issued by banks.

3 Trust Funds or Investment Management Accounts (except qualified employee trust fund)
2 parties: 1 Taxpayer appointed the trust to manage his money
2 Trust often a bank, will invest the taxpayer's money in:
1 Deposit Subsitute under a non-bank- interest income is subject to 20% FIT since it is no
2 Deposit Substitute under a bank in the trust's name - interest income is subject to 20%
3 Deposit Substitute under a bank in the taxpayer's name - interest income is exempt f
 1. The taxpayer will hold the deposit for 5 years or more
2. The trust will hold the deposit for at 5 years or more
Underlying instrument is the deposit substitute.

4 Computation on final tax on pre-termination

1st year interest income (principal x interest rate)
2nd year interest income (principal x interest rate)
3rd year interest income (principal x interest rate)
4th year accrued interest income (principal x interest rate x month/year)
TOTAL INTEREST INCOME
x Final Tax Rate applicable
FINAL TAX TO BE WITHHELD

Principal Balance of Income

Accrued Interest on Pretermination Year
Less: Final Tax to be Withheld
Net proceeds to be released to the dep>>>> Reportable Income

5 Interest Income subject to RIT

1 Lending activities, regardless of nature
2 Investments in corporate bonds -> deposit substitutes of non-banks
3 Promissory notes
4 Foreign sources, whether bank or non-bank
5 Penalty for legal delay or default

6 FIT withheld from Bank If bank is the lender and earns interest income
1 Borrower is a bank
2 Borrower is not a banSubject to RITSubject to 5% Gross Receipt Business Tax

What if the lender bank is a Foreign Currency Deposit Unit?

Look at the classification of the Borrower:
1 FCDU/Off-shore borrowing unit - EXEMPT
2 Resident - 10% FIT
3 Non-Resident - EXEMPT

DIVIDEND INCOME
Types:
1 Cash Dividend paid in cash
Declared x 10% = Final Tax
2 Property Dividend paid in non-cash (property or stock of another corporation)
(FV of Declared / 90%) x 10% = Final Tax
 3 Scrip Dividend paid in notes or other evidence of indebtedness
(FV of Declared / 90%) x 10% = Final Tax
4 Liquidating Dividen distribution of corporate net assets, not taxable
5 Stock Dividend paid in the stocks of the corporation, not taxable
Exception to Exemption:
1 Upon subsequent cancellation and redemption becoming equivalent to a distribution of earnings/pro
2 Upon leading to substantial alteration in ownership structure:
1 When stock dividends are given in lieu of cash dividends
2 When the corporation declares an optional stock or cash dividend

Dividend Tax Rules

Source of Dividends Individual Corporation NRA-NETB/NRFC
1 Domestic Corporatio 10% EXEMPT 25%
2 Foreign Corporation RIT RIT 25%

NRA-ETB is subject to 20%.

Rationale on Exemption of CorporatioBecause of direct duplicate taxation.

1 Taxed upon receipt of corporation.
2 Taxed upon receipt of owners of recipient corporation.

Foreign Corporations to RIT:

Branches in PH of RFCs are not the primary business entities. Dividend income is distributed by the HO.
Therefore, the dividend income from RFCs are actually sourced from outside. This means that they cannot
be subjected to final tax.

Subject to the PRE-DOMINANCE TEST:

Basis: World GI for 3-YEAR period before the year of declaration of such dividends:
1 PH GI < 50% of the Basis = ENTIRE DIVIDEND EARNED OUTSIDE
2 PH GI > 50^% of the Basis = PH GI x %Basis = Dividend earned within

PH-GI / WORLD-GI = % of the Basis

Tax Sparing Rule 15% now, subject to reciprocity of the foreign country
Tax Sparing Credit = 25% - 15% = 10%

Effect: Ex. If an NRFC establishes a branch in PH, and that branch invests in a DC.
Dividend from DC to NRFC under tax sparing rule is subject to 15%.
Dividend from DC to Branch is exempt. Branch to NRFC is subject to 15% Branch Remittanc
They are subject by the same 15%.
Considered Corporations:
1 Business Partnerships
2 Taxable Associations
3 Taxable Joint Venture
4 Taxable Joint Accounts or Co-ownerships

Share in Business Partnership/Joint Venture Net Income -> not a dividend income
This covers both distributed and undistributed profits. In contrast, dividend income is only distributed profits.
For tax purposes, the determined net income is taxable. The point of taxation is upon determination of net income,
Example: Net Income 100,000,000 Point of Taxation for Share in Net Income of BP/JV
Less: Distributed to taxpayers (40,000,000) Point of Taxation for Dividend Income
Retained Earnings 60,000,000

Recipient of Income Taxable BP/JVNon-Taxable

1 Individual Taxpayers FINAL TAX FINAL TAX
1 RC, RA, NRC 10% 10%
2 NRA-ETB 20% 20%
3 NRA-NETB 25% 25%
2 Corporate Taxpayers
1 DC, RFC EXEMPT* RIT** ***Treated as inter-corporate
TRAIN Law = 30% dividends.
2 NRFC 25% 25% CREATE LAW = 25% or 20% depending on source of

Salaries, Bonus, Interest:

If EXPENSED in the books: Subject to CWT
If NOT EXPENSED in the books: Subject to FIT

ROYALTYFIT for PASSIVE ROYALTIES

NRA-NETB/
Individual Corporation NRA-ETB/NRFC
Source of Royalties
1 Printed Books and Literary Works 10% 20% 25%
2 E-books and literary works 20% 20% 25%
3 Musical Compositions 10% 20% 25%
4 Other sources 20% 20% 25%

Income from active royalties are subject to RIT.

PRIZES only from domestic sources; if from foreign source - subject to RIT
RECIPIENT
AMOUNT of Taxable Prize Individual Corporation NRA-NETB/NRFC
1 Exceeding P10,000 20% RIT 25%
2 NOT Exceeding P10,000 RIT RIT 25%
 Not Exempt:
1 Sports
1 Accredited with Philippine Sports Commission or National Sports Association?
YES = EXEMPT
2 Not Accredited TAXABLE
2 Non-Sports = TAXABLE

Exempt Prizes (called Award):

1. Received without any effort.
2. Sport competition sanctioned by national sport organizations.

Requisites for Exemption:

1 Selected for the contest without any action on his part.
2 Not required to render substantial future services as condition to receiving the prize.

WINNINGSonly from domestic sources; if from foreign source - subject to RIT

RECIPIENT
Types of Winnings Individual Corporation NRA-NETB/NRFC
1 PCSO winnings not exceeding P10,000 EXEMPT EXEMPT 25%
2 PCSO winnings exceeding P10,000 20% 20% 25%
3 Other winnings, in general 20% RIT 25%

PCSO/lotto winnings are on a per ticket basis.

TAX INFORMER'S REWA10% of the Cash Reward

Given to ANY PERSON including NRA-NETB and NRFCs.
Requisites:
1 Sworn information not yet in the possession of BIR.
2 Such information leads to the discovery of fraud.
3 Enforcement results in recovery of revenues, surcharges and fees and/or conviction of guilty party
4 The informer must NOT be a:
1 BIR official or employee
2 Other public official or employee
3 Relative within the 6th degree of consanguinity of A and B

Amount of Cash Reward: LOWER between -

1 10% of that recovered and/or imposed fines or penalties
2 P1,000,000 (maximum)

FRINGE BENEFIT TAX of Managerial and Supervisory Employees (discussed in Fringe Benefit Tax part)
 given to payee.
nd non-creditable.
rn to report the

m non-bank, subject to RIT)

le associations,

ve income)

on to file an ITR
e or non-remittance

ttance already made

hilippine source.

INTEREST INCOME DRILLS

s, trust funds) QUESTION 1 Tax Base
NRA-NETB/NRFC Peso deposits in a domestic bank 40,000
25% Foreign currency deposits in domestic ba 42,500
25% Peso deposits with foreign banks 120,000
Foreign currency deposits with foreign ba 60,000
25% From bonds (subject to RIT) 30,000
25% From client's promissory notes (subject to 10,000
25% From lending to friends (subject to RIT) 50,000
25%

QUESTION 2
ING MATURITY upon acquisition of deposit. 1 Received from deposits made to other banks
2 On various savings deposits
maturity is at least 5 years.
it for 3 years before pre-termination. Received from loans made to other rural RIT
ning maturity of 3 years and held it until maturity. On loans made to other clients RIT
maturity is less than 5 years. Interest Expense on bonds issued CWT

QUESTION 3
2015 - 2017 Interest Income (1M x 15% x 450,000
 2018 Accrued Interest (1M x 15% x 6/12) 75,000
Total Interest Income subject to FIT 525,000
Applicable Pre-Termination Rate 12.00%
PH banks which will be used Final Tax 63,000
obally accepted currency.
Principal Balance 1,000,000
Accrued Interest Income on Preterminati 75,000
Less: Final Tax to be withheld (63,000)
Net Proceeds 1,012,000

QUESTION 4 P0
As of January 1, 2018, the deposit is still classified as long-term, and the
exempt from final income tax.
origination/issuance
20 or more (PUBLIC) QUESTION 5
Deposit Substitute 2018 Accrued Interest (1M x 15% x 6/12) 75,000
Deposit Substitute Total Interest Income subject to FIT 75,000
Applicable FIT Rate 20.00%
e public through the issuance, Final Tax 15,000
nts for the borrowers' own account,
bles and other obligations. or financing Principal Balance 1,000,000
Accrued Interest Income on Preterminati 75,000
Less: Final Tax to be withheld (15,000)
come from promissory notes. Net Proceeds 1,060,000
onsidered deposit substitute irrespective
n the secondary market. QUESTION 6
1 FCDU (2k x 15%) 300
oans with maturity of not more than 2 FCDU (2k x 50% x 15 150
3 FCDU (2k x 0%) 0

A-NETB/NRFC

se issued by banks.

employee trust fund)

me is subject to 20% FIT since it is not issued by a bank

me - interest income is subject to 20% FIT since it is not a deposit under the taxpayer's name
s name - interest income is exempt from tax, provided:
usiness Tax

DIVIDEND INCOME
QUESTION 7 The recipient sh
The declaring corporation is RC RA
Domestic Corporation
Taxable Amount 100,000 100,000
Tax Scheme FIT FIT
 Tax Rate 10% 10%
Foreign Corporation
Taxable Amount 100,000 60,000
Tax Scheme RIT RIT
Tax Rate
valent to a distribution of earnings/profits.
QUESTION 8
Residency and CitizenshiClassification Shares
Resident Chinese RA 150,000
Non-Resident Japanese NRA-NETB 100,000
Resident Citizen RC 300,000
Non-Resident Corporation NRFC 50,000
Resident Foreign Corporati RFC 150,000
Domestic Corporation DC 250,000

MONTLY
QUARTERLY

QUESTION 9
Net income before tax 15,000,000
Less: Corporate tax r (4,500,000)
Net income after tax 10,500,000
ncome is distributed by the HO. Distribution Policy 50%
side. This means that they cannot Distributed 5,250,000
Retained Profits 5,250,000

1 If DC (5.25M x 70% x 10%) 367,500

f such dividends: The 30% is exempt.
The Retained Profit will be taxed by 10% Improperly Accumulated

2 If BP/JV
Individual (10.5M x 70% x 10% 735,000
Corporation (10.5M x 30% x 1 315,000
1,050,000

QUESTION 10
nch invests in a DC. 1 Net income before tax 800,000
ect to 15%. Less: Corporate tax r (240,000)
is subject to 15% Branch Remittance Tax. Net income after tax 560,000

Elio Junior
 Salaries 300,000 300,000
Residual (20,000) (20,000)
Total 280,000 280,000
FIT Rate 10% 10%
Final Tax 28,000 28,000

2 Net Income 800,000

ome is only distributed profits. Less: Salaries (300,000) subject to CWT on compensat
is upon determination of net income, not distribution. Net Income before tax 500,000
for Share in Net Income of BP/JV Less: Corporate tax r (150,000)
for Dividend Income Net income after tax 350,000

Elio Junior
Salaries 300,000 300,000
Residual (125,000) (125,000)
Total 175,000 175,000
FIT Rate 10% 10%
Final Tax 17,500 17,500

-corporate dividends.
30%
25% or 20% depending on source of special corporations

ROYALTIES AND OTHERS

QUESTION 11
Filipino authors RC 300,000
Foreign authors NRA-NETB 450,000
Dream Books, LimitedNRFC 1,250,000
2,000,000

QUESTION 12 (800k/80% x 20%) 200,000

QUESTION 13 (10k x 20%) 2,000

A-NETB/NRFC
QUESTION 14 (50k x 20%) 10,000
 QUESTION 15 RC/DC
Royalties from the Philippines 20% FIT
Royalties from abroad RIT
rts Association? Rentals from the Philippines RIT
Rentals from abroad RIT
Service fees from the Philippines RIT
Service fees from abroad RIT

QUESTION 16 RBU
Interest Income:
From residents 8,000,000
From foreign clients 1,000,000
From deposits with fellow banks 1,500,000
From loans with fellow banks 1,000,000
ceiving the prize. Interest Expense on short-term deposits:
From individuals (residents) 5,000,000
From non-resident citizens 4,000,000
From non-resident aliens 2,000,000
A-NETB/NRFC From corporate (residents) 1,500,000
Interest Expense on long-term deposits:
Resident Individuals 2,000,000
Non-Resident Aliens 800,000
Resident Corporations 1,200,000
Non-Resident Corporations 500,000

1 3,165,000
2 67,500
3 a 300,000
b 15,000
c 40,000 400k x 10%
r conviction of guilty party The 300k EFCDU is exempt b
The 50k EFCDU is exempt be
Check #6 note in interest incom

QUESTION 17
1 Outside the Philippine 0 Speedy is an NRFC. Situs of s
2 Within the Philippines 500,000 (2M x 25%) It doesn't matter w

QUESTION 18 A 10 days from the close of the month of withholding

Query:
ed in Fringe Benefit Tax part) 1 eFPS filing? Group A 15 days
 Group B 14 days
Group C 13 days
Group D 12 days
Group E 11 days
2 Quarterly FWT Return? The last day of the month follo
taxable quarter of withholding
Applicable Rate Final Tax RC RA
20.00% 8,000
15.00% 6,375
0.00% 0 120,000
0.00% 0 60,000
0.00% 0 30,000 30,000
0.00% 0 10,000 10,000
0.00% 0 50,000 50,000
14,375 270,000 90,000

200,000 (800k/80% x 20%)

600,000 (3M x 20%)
ssified as long-term, and therefore, still
The recipient shareholder is a
NRA-NETB DC RFC NRFC

100,000 100,000 100,000 100,000

FIT FIT FIT FIT
 25% 0% 0% 25%

60,000 100,000 60,000 60,000

FIT RIT RIT FIT
25% 25%

w/ tax sparing rule

FINAL TAX FINAL TAX
15,000 15,000
25,000 25,000
30,000 30,000
12,500 7,500
0 0
0 0
82,500 77,500
0619-F 0619-F
1601-FQ 1601-FQ

% Improperly Accumulated Earrnings Tax.

I'm still not sure if 10% FIT for Corpo is correct.

Total
 600,000
(40,000)
560,000

bject to CWT on compensation

Total
600,000
(250,000)
350,000

(3M x 10%)
(1.8M x 25%)
(5M x 25%)
Final Tax Withheld

Based on chance since it's a raffle.

The 5k is exempt.
 RA/NRC NRA-NETB/NRFC
20% FIT 25% FIT
EXEMPT EXEMPT
RIT 25% FIT
EXEMPT EXEMPT
RIT 25% FIT
EXEMPT EXEMPT

FINAL TAX EFCDU FINAL TAX

RIT 400,000 RIT

RIT 300,000 RIT
300,000 100,000 15,000
RIT 50,000 RIT

1,000,000 100,000 15,000

800,000 300,000 0
500,000 180,000 0
300,000 100,000 15,000

0 100,000 15,000
200,000 30,000 0
240,000 150,000 22,500
125,000 50,000 0

e 300k EFCDU is exempt because it is from a non-resident.

e 50k EFCDU is exempt because it is from a fellow EFCDU.
eck #6 note in interest income.

eedy is an NRFC. Situs of sales of service is place where it is rendered.

M x 25%) It doesn't matter what sort of income it is, NRFCs are subejct to 25% FIT.

of the month of withholding (MANUAL)

following the
end of the
month
 following the
end of the
month

e last day of the month following the close of the

able quarter of withholding
CAPITAL GAINS TAX a final tax
applied on certain capital gains

CAPITAL GAINSearned from the disposal of capital assets

ASSET CLASSIFICATION
CAPITAL ASSETS any asset other than ordinary asset
1 Personal, non-business, assets of individual taxpayers.
2 Business assets of any taxpayer:
1 Financial assets
2 Intangible assets
3 Investment property held for capital appreciation or for speculation

ORDINARY ASSET assets used in business

1 Held for sale ex. inventory
2 Held for use ex. supplies and items of PPE

Earns: 1 Ordinary Gains - gross income

2 Ordinary Losses - deduction to gross income
Covered by regular income tax

OTHER RULES:
1 Classification is based upon the nature of the taxpayer's business and its usage by the business.
Exceptions:
1 ROPA (Real and Other Properties Acquired) by BANKS are ORDINARY ASSETS.
These are the collaterals foreclosed by banks in the event of debtor defaults.
The RR recognizes that ROPA are normally acquired and sold by banks in their normal
course of business (lending money, using the collateral's proceeds to recover lent money).
Exception:If the ROPA is a domestic stock it is classified as a CAPITAL ASSET.
This is pursuant to RR6-2008 where "stocks classified as capital assets"
means all stocks and securities held by taxpayers other than dealers in securities.

2 LOANS RECEIVABLES of Financial Institutions and Banks are ORDINARY ASSETS

Loans Receivable is a financial asset, should it should normally classify as a capital asset.
Capital losses usually have limited deductibility and are not deductible in full.
But since loans receivables are allowed full deductibility, they are effectively classified as

2 Ordinary asset still even after full depreciation as long as it is still used in business.
3 Ordinary asset if purchased for future use in business.
4 Ordinary asset if real property is used, is being used, or have been previously used, in trade of the
5 Discontinuance of active use does not change the previous classification if previously established as a
 Exception: Properties are automatically converted to CAPITAL ASSETS
after 2 years of abandonment.
Exceptions (the properties remain as ORDINARY ASSETS to them):
1 Taxpayers engaged in real estate business
1 Real Estate Dealer
2 Real Estate Developer
3 Real Estate Lessor
2 Taxpayers habitually engaged in real estate business
1 Those registered with HLURB or HUDCC as dealer or developer
HLURB - Housing and Land Use Regulatory Board
HUDCC - Housing and Urban Development Coordinating Council
2 Those with at least 6 taxable real estate sales transactions in the preceding year.
6 Capital Asset if real property used by exempt corporation in exempt operations (not a business).
7 Property Dividends transferred are classified depending on whether or not the acquirer uses it in busin
8 Involuntary Transferred Real Properties retain their previous classification. The involuntariness of the
sale does not have an effect of their classification.
9 Change in business from real estate to non-real estate business shall not change the classification
of ordinary assets previously held.
10 Gratuitous transfer

TREATMENT OF CAPITAL GAINS AND CAPITAL LOSSES

COMPARISON OF THE 6% CGT AND 15% CGT

6% CGT 15% CGT
Tax Object Real Property Domestic Stocks
Basis of the Tax Presumed Gain Actual Gain
Nature of the Tax Final Tax Self-Assessed Tax
Frequency of Payment Per Transaction Transactional and Annual

1 DOMESTIC STOCK - DIRECTLY TO BUYER 15% CGT Annual Tax

Tax Compliance: Self-Assessment Method (but final tax according to the provisions)

1 Sale
2 Barter
3 Other Disposition - any onerous conveyance of domestic stock (foreclosure, expopriation, etc.)
1 Foreclosure of property in settlement of debt
2 Pacto de retro sales or sale with buyback agreement
3 Conditional sales
4 Voluntary buy back of shares not intended for cancellation

MODES OF DISPOSITION:
 1 Through PSE (LISTED SHARES)
Subject to STT Stock Transaction Tax of 60% of 1% of the Gross Selling Price.
Provided: The seller is not a dealer in stocks. Otherwise, subject to regular income tax.

2 GR: Directly to Buyer (UNLISTED SHARES)

1 By Purchase - Cost of property determined under:
1 Specific Identification
2 Moving Average Method - the average unit cost is determined after every purchase
3 FIFO Method
2 By Devise, Bequest, or Inheritance - Fair Value at time of death
3 By Gift - LOWER of FMV at time of gift or the BASIS of last preceding owner who received it any o
4 For Inadequate Consideration - actual price paid
FV > Actual Price Paid or Selling Price = Excess subject to Donor's Tax if intended as a dona
5 Under Tax-Free Exchanges - substituted basis of the stocks

DETERMINATION OF NET GAIN (LOSS):

Selling Price xxx
Cash Sale - total consideration received per deed of sale
Partly Money, Partly Property - Money + FV of property received
Exchanges - FV of property received
Less: Cost
Basis of Stocks Disposed (1-5 above) xxx include obligations assumed
Selling Expenses (usually commissions) xxx
Documentary stamp tax (if paid by seller) xxx (xxx)
NET CAPITAL GAIN (LOSS) xxx

Note: The person paying DST is usually the one who is benefitted by the transaction.
In this case, the buyer is the one who usually benefits, and therefore pays it.
Therefore, only deduct the DST if it is assumed by the seller (treated as seling expense).
If the problem is silent, assume that the seller is the one who paid for the DST.
If the problem did not mention DST, assume that it is not relevant to the transaction.
However, if the problem is asking for the net proceeds of the seller, regardless of whether the problem
mentioned DST or not, it must be deducted from the SP along with the CGT to determine the net procee

Computation of DST:
1 If par-value stocks - P1.5 for every P200 par value
2 If no-par stock - 25% of the DST paid on the original issue of said stock
3 Limit - one instance of payment of DST will be collected on each sale or transfer of stock
4 Deadline - filed within 5 days after the close of the month

COMPLIANCE REQUIREMENTS
 1 Per Transaction
Every time there is a transaction throughout the year, file BIR Form 1707 within 30 days.
2 Annual Compliance
File BIR Form 1707A, follow the deadline of regular tax:
1 Individual - calendar (April 15 of next year)
2 Corporation - 15th day of the 4th month following the end of the taxable year
May not be necessary to file anymore when Transactional CGT = Annual CGT Due

Annual Net Gain xxx (Capital Gains - Capital Losses)

X CGT Rate xx%
Annual Capital Gains Tax Due xxx
Less: Transactional CGT Pai (xxx) (if there is no transactional net loss, it is equal to annual C
Capital Gains Tax Payable xxx ZERO if Transactional CGT = Annual CGT Due

APPLICABILITY OF 15% CGT:

1 All individuals Summary: 15% on all taxpayers except for foreign corporations.
2 Domestic Corporations

Old NIRC Rates were not changed under the Train 100k x 5% = 5k
Foreign Corporations are taxed in the following manner:
Excess x 10% = xx
1 5% tax on first 100k of Net Gain 5k + xx = Capital Gains Tax
2 10% tax on the excess

If there is a transactional loss within the year:

Offset the losses first with the subsequent gains. No tax payment is made until it turns into a net gain.
File BIR Form 1707 indicating therein a transactional loss. This is called an intraperiod loss carry-over proced
HOWEVER, the tax code does not allow inter-period carry-over.

NOT SUBJECT TO CAPITAL GAINS TAX:

1 Issuance of Stock, including Treasury Stock - financial tansaction; additional capital and not income
2 Gains from redemption of shares in a mutual fund - expressly excluded by the NIRC
3 Exchange of stock for services - no gain or loss can be imputed because it is a payment of an expen
4 Value of stocks becoming worthless - considered a capital loss subject to RIT
5 Mandatory redemption of shares for the purpose of cancellation - subject to RIT
6 Donation inter-vivos/Donation mortis causa - subject to transfer (donor's) tax
7 FV > Insufficient Consideration = Excess - subject to donor's tax if inteded as a donation by seller
Not a donation when the seller was just in desperate need of cash.

INSTALLMENT PAYMENT
The capital gains tax may also be paid in installments, subject to the following requirements:
1 Selling Price > P1,000
 2 Initial Payment < 25% x Selling Price
Inital Payment = Payments made within the first taxable year

Capital Gains Tax Payable = (Collection/Contract Price) x Capital Gains Tax Due
Contract Price = Selling Price - Mortgage Assumed by BUYER + Excess of Mortgage over Cost

How much is the amount that should be given to the seller?

Initial Payment - Capital Gains Tax due for the year

Example: P100k monthly installments CGT = [100k/(1.6M-600k)] x 45k

P1.6M Selling Price CGT payable in installment = 4,500
P600K Mortgage Assumed
P45k capital gains tax due

If mortgage assumed by buyer > cost basis of stocks = excess is considered as an indirect downpaym
The contract price cannot go lower than the selling price - cost basis (which is the net capital gai
Because that is the basis of the capital gains tax, and also the basis of the downpayments.

WASH SALES RULE FAKE OR FEIGNED LOSS

Includes both STOCKS and BONDS, including FOREIGN securities.

30 days before ---------- Day of Losing Sale ------------ 30 days after = 61 DAY PERIOD RULE
The taxpayer cannot reacquire the same or substantially identical securities within the 61-day period.
Otherwise, any capital losses reported within said period will not be recognized (treated as feigned loss).
Provided: Quantity of shares acquired = quantity of shares sold.

Treatment of Feigned Loss:

Deferred and added to the purchase price/tax basis of the replacement shares.
Effectively, the taxpayer is brought back to his original position (owning same number of shares at same cost)

What if:
1 Quantity of shares acquired (Replacement Shares) < Quantity of shares sold (Cover-Up Shares)
Disallowed/Deferred Loss - portion covered with replacement shares
Deductible Realized Loss - potion without replacement cover

Deferred Loss [(Covered Shares/Shares Sold) x Capital Los xxx

Deductible Loss [(Not Covered Shares/Shares Sold) x Capita xxx
Capital Loss xxx

Purchase Price of Replacement Shares xxx

Add: Deferred Loss on Wash Sales xxx
 Basis of Replacement Shares xxx

2 There are replacement shares both before and after the day of loss
Sum them up and repeat the process above.

3 Quantity of shares acquired (Replacement Shares) > Quantity of shares sold (Cover-Up Shares)
Same process, but the capital loss will be capitalized for the total number of replacement shares,
not just for the number of cover-up shares sold.

4 Seller is a SECURITY DEALER

Wash sales rule WILL NOT APPLY. It only applies to capital assets.

TAX-FREE EXCHANGE OF PROPE(also exempt from VAT)

1 Initial Acquisition of Control
1-5 people gain control of a corporation through an acquisition of stocks or units of participation.
The gain or loss from the acquisition is not recognized.
The law views this as an investing transaction rather than an income-generating transaction.

What if the exchange is not solely for stocks?

Shares + Cash + Property
The amount of cash and property received is recognized up to the extent of any gain resulting from

Total Consideration Received

Stocks xxx
Cash + Property xxx xxx
Less: Cost of Stocks Exchanged (xxx)
Capital Gain xxx

GAIN <<<< VALUE OF CASH + PROPERTY

Realized Return on Capital (to the extent of the gain)xxx RECOGNIZED AS A CAPITA
Return of Capital (in excess of the gain) xxx NOT RECOGNIZED
Total Cash and Property Received xxx

GAIN >>>> VALUE OF CASH + PROPERTY

Realized Return on Capital (to the extent of the value of cash + property)
xxx
Unrealized return on capital (gain in excess of cash + property) xxx
Total Indicated Gain xxx

Tax Substituted Basis Alternatively:

Tax Basis of Old Shares Exchang xxx Tax Basis of Old Shares Exchanged
Add: Gain recognized on the transf xxx Add: Tax Basis of Other Properties Exchan
 Less: Cash or other properties rec (xxx) Less: Return of Capital
Tax Basis of New Shares Receive xxx Tax Basis of New Shares Received

Note: 1 When gain <<<< value of cash + property, Tax Basis of NEW = Fair Value of NEW
2 When gain >>>> value of cash + property, Tax Basis of NEW = Tax Basis of OLD

Minimum public float requirement of publicly listed corporations:

Under PSE regulations, the minimum public ownership is the HIGHER of:
1 10% x Issued and Outstanding Shares
2 Required by the SEC or the PSE

Non-compliance = de-listing of stocks in the PSE, and thus, becomes subject to 15% CGT.

2 Share-for-Share SWAP pursuant to a merger/consolidation

Merger a corporation acquires all or substantially all (at least 80% of the assets, including cas
Consolidation when two or more corporations merged to form one corporation

The gains or losses through this are not recognized. In effect, it is merely a replacement of shares of sto
absorbed corporation with them being integrated as shareholders of the acquiring corporation. There is n

Rationale: The corporation's own shares are not its assets. It is an equity issuance rather than a prope
there should be no gainn recognized for income tax purposes. This holds true whether or n

Additional NoteInvestment in an investor's corporation's shares and an investment in the corporatio

are considered as capital assets.
1 No Corporate Control Acquired - ordinary exchange of property subject to CGT
2 Increase in Controlling Interest - exempt because the company already has pre-exist
3 Step-Up Acquisition (Acquired Control) - No pre-existing control, so the increase in c
4 Acquisition of Not Substantially All Assets - considered as mere acquisition of an ite
5 Acquisition of Substantially All Assets
1. Parent's Shares are given in exchange - exempt
2. Investor's Shares are given in exchange - taxable

Rationale: Acquisition by net assets is always at 100%. This means that the compan
The acquired company's net assets are in effect, the corporation's net as

Therefore, giving the parent's shares in exchange of the acquired compa

shareholders, who were the corporation's shareholders upon acquisition,
(Because the shareholders receive the parent's shares in exchange for th
It is a replacement of shares of stocks between parties to a merger or co
 On the other hand, giving the investor's shares in exchange of the acquir
acquired company's shareholders, who were the corporation's sharehold
them into the investor's shareholders. Any control acquired by the shareh
Neither the investor nor the corporation are parties to a merger or consol

Regarding shareholders and security holders of a party to a merger or consolidation:

Tax Basis for NEW = Tax Basis for OLD

Share Acquisitions Shares GIVEN in Exchange Status

Issuance of OWN Shares EXEMPT
ACQUIRED CONTROL Investment in Investors' Shares EXEMPT
Investment in Parent's Shares EXEMPT
Issuance of OWN Shares EXEMPT
DID NOT ACQUIRE
Investment in Investors' Shares CGT
CONTROL
Investment in Parent's Shares CGT
Issuance of OWN Shares EXEMPT
INCREASE IN
Investment in Investors' Shares EXEMPT
CONTROLLING INTEREST
Investment in Parent's Shares EXEMPT
Issuance of OWN Shares EXEMPT
STEP-UP ACQUISITIONS Investment in Investors' Shares EXEMPT
Investment in Parent's Shares EXEMPT
NET ASSETS OF XX Issuance of OWN Shares EXEMPT
(SUBSTANTIALLY ALL Investment in Investors' Shares CGT
ASSETS) Investment in Parent's Shares
ACQUISITION OF NOT Issuance of OWN Shares EXEMPT
SUBSTANTIALLY ALL Investment in Investors' Shares CGT
ASSETS Investment in Parent's Shares CGT

Recapitalization Schemes:
1 Reducing par value of stock
2 Conversion of debt to equity by issuance of common stocks

Reincorporation - literally the transfer of net assets and issuance of par values to become a new corpo

2 REAL PROPERTY 6% CGT Transactional Tax (per transaction)

Tax Compliance: Final Withholding Method (final tax accordiing to provisions)
Tax Basis: Whichever is HIGHER of -
 1 Selling Price - may be the bid price in the case of foreclosure sales
2 Fair Value - whichever is HIGHER of:
1 Zonal Value prescribed by the Comission of Internal Revenue
2 Fair Market Value shown in the schedule of market values in the Provincial and City Assess

Note: INDEPENDENT APPRAISAL VALUATION IS NOT USED IN TAXATION.

"Appraised Value"

Certificate Authorizing Registration (CAR)

Certification by the Commissioner that that:
1 the transfer has been reported
2 the capital gains tax or creditable withholding tax, if any, has been paid
Without this, the Register of Deeds cannot effect the transfer of real property.

Presumption of Capital Gains

6% is applied even if there is a loss because the basis is not the actual gain.

Applies to:
1 Expropriation sale
2 Foreclosure sale
3 Dispositions by judicial order
4 Conditional Sales
5 Pacto de retro sales

TAXPAYERS
Location of the Property INDIVIDUALS CORPORATIONS
Within the Philippines All individuals Domestic Corp only
Outside the Philippines NOT APPLICABLE NOT APPLICABLE
Actual gains realized on the disposition of properties abroad are taxable only RIT for RCs and DCs.

EXCEPTIONS TO THE 6% CGT:

1 Alternative Taxation Intended to ease the burden of
Option to be taxed at either: government expropriation where
1 6% CGT taxpayers may incur losses on the forced
2 RIT - loss will become a deductionexpropriation sale and are still required
to pay tax.
Permissible if:
1 Seller is an individual Loss = FV > Cost of Property
2 Buyer is the government

2 NIRC EXEMPTIONS - DISPOSITION OF PRINCIPAL RESIDENCE

 Principal Residence - primary domicile of the taxpayer / residence shown in latest tax declaration
Requisites for Exemption - availed only once every 10 years:
1 Seller is a citizen or resident alien
2 Object of sale is the principal residence
3 Proceeds will be used to acquire a new principal residence
4 Acquisition should be within 18 months from date of sale
5 Notification to BIR within 30 days of sale to avail the exemption through:
1 Sworn Declaration of Intent
2 Prescribed Return - BIR Form 1706
6 Capital Gain is held in escrow in favor of the government

Tax Basis of NEW Principal Residence:

1 FULL UTILIZATION OF PROCEE EXEMPT from CGT

Basis of the Old Residence xxx

Add: Additional Acquisition Cos xxx
Basis of the New Residence xxx

Purchase Price of the New Reside xxx

Less: Selling Price of the Old Res xxx
Additional Acquisition Costs xxx

2 PARTIAL UTILIZATION PARTIAL EXEMPTION

Basis of the Old Residence xxx

x Used / Proceeds xx%
Basis of the New Residence xxx PRO-RATED

The unused portion is subject to tax.

Any accrued interest on the escrow account is released to the taxpayer, not to the governme

To Taxpayer xxx [(Used/Proceeds) x Capital Gain + Accrued

To the Government xxx (Unused/Proceeds) Capital Gain
Total Amount in Escrow xxx

Why is it important to monitor tax basis?

When real property subsequently qualifies as ordinary assets when later employed in
business, the tax basis of the property becomes necessary for gain or loss measurement.

3 SPECIAL LAWS EXEMPTION

1 SALE OF LAND UNDER THE CARP (Comprehensive Agrarian Reform Program)
 Sale of agricultural lands by land owners.
Capital gains are exempt from CGT.
Interest Income on the Selling Price is exempt from income tax.

2 SALE OF SOCIALIZED HOUSING UNITS BY NHA (Naional Housing Authority)

1 For the underprivileged
2 For the homeless citizens

This is pursuant to the Urban Development and Housing Act of 1992.

Capital gains are exempt from CGT.
Socialized housing units must comply with price ceilings set by the NIRC and other special

INSTALLMENT PAYMENT
The capital gains tax may also be paid in installments, subject to the following requirements:
1 Selling Price > P1,000
2 Initial Payment < 25% x Selling Price
Inital Payment = Payments made within the first taxable year + Excess of Mortgage over Cost

Capital Gains Tax Payable = (Collection/Contract Price) x Capital Gains Tax Due
Contract Price = Selling Price - Mortgage Assumed by BUYER + Excess of Mortgage over C

How much is the amount that should be given to the seller?

Initial Payment - Capital Gains Tax due for the year

Example: P100k monthly installments CGT = [100k/(1.6M-600k)] x 45k

P1.6M Selling Price CGT payable in installment = 4,500
P600K Mortgage Assumed
P45k capital gains tax due

If mortgage assumed by buyer > cost basis of stocks = excess is considered as an indirect down
The contract price cannot go lower than the selling price - cost basis (which is the net capit
Because that is the basis of the capital gains tax, and also the basis of the downpayments.

STATUTORY REDEMPTION PERIOD ON FORECLOSURE SALE

Right of redemption is available to the individual mortgagor within one year from the time of registrati
in the Office of the Registry of Deeds.

For a juridical person, redemption must be made whichever is earlier between:

1 registration of the certificate of foreclosure sale with the applicable Register of Deeds
2 within 3 months from foreclosure
 Computation of DST:
P15 for every P1,000 of the gross selling price or FMV whichever is HIGHER
P15 minimum if less than P1000
Exception: If the government is the buyer, the DST is based on the gross selling price
Deadline: 10 days from the end of the month of sale

3 OTHER CAPITAL ASSETS RTI: DEALINGS IN PROPERTIES

NET PROCEEDS FOR BOTH:

Selling Price xxx
Less: Capital Gains Tax (xxx)
Less: Documentary Stamp tax (xxx)
Net Proceeds xxx
 ILLUSTRATION 1: Relative Classification
REALTY
DEVELOPER
1 Vacant Lot ORDINARY
2 Office Supplies ORDINARY
3 Domestic Stocks CAPITAL
4 Bonds CAPITAL
5 Accounts/Notes Receivable CAPITAL
6 Office Building ORDINARY
7 Office Equipment ORDINARY
8 Land where the office building stands ORDINARY
9 Personal car of the business proprieto CAPITAL
10 Personal house and lot of the proprieto CAPITAL
11 Jewelry of the proprietor CAPITAL

PROBLEM 1 - Transactional CGT

1 Not subject to CGT because it is sold through PSE.
It is subject instead to STT because Andy is not a security dealer.
No income tax at all.
2 Not subject to CGT because it is sold through PSE.
It is subjected instead to RIT because Andy is a security dealer.
With income tax, subject to VAT (RIT). Stocks are OA to Andy.
3 Andy is a security dealer, so the stocks are OA to him.
usage by the business. Therefore, it is not subject to CGT, but rather to VAT (RIT).
4 300k x 15%; Stocks are capital assets to realty dealers
ARY ASSETS. 5 Not subject to CGT because it is sold through PSE.
It is subject instead to STT because Andy is not a security dealer.
s in their normal No income tax at all.
cover lent money). 6 Not subject to CGT because issuance of stock of a corporation
AL ASSET. is a financing transaction, not a sales transaction. It is not income.
pital assets" 7 (1.4M - 1M) x 15%
dealers in securities. 8 Bonds are not Stocks. It is covered under Dealings in Properties (RIT)
9 (400k - 200k) x 15%
DINARY ASSETS 10 50k x 15%
as a capital asset. 11 (1.8M - 1M) x 15%; the 2.4M > 1.8M = Excess is subjec
12 Foreign stocks are not subject to CGT. They are subject to RIT.
ectively classified as Resident Corpo is presumed an RFC.

PROBLEM 2 - Annualized CGT

DATE SELLING PRICE COST
ously used, in trade of the taxpayer. CGT 1/18/20 400,000 120,000
previously established as an ordinary asset.RIT 2/12/20 200,000 180,000
 STT 3/14/20 280,000 250,000
RIT 4/22/20 180,000 120,000
CGT 6/18/20 150,000 120,000
RIT 8/15/20 200,000 240,000
STT 9/2/20 310,000 320,000
CGT 9/24/20 280,000 300,000
CGT 10/28/20 150,000 110,000
CGT 12/11/20 400,000 380,000

Regular Income 400,000

Less: Deductions -150000
s in the preceding year. Add: Ordinary Gains/(Losses)
ions (not a business). 2/12/20 10,000
he acquirer uses it in business. 4/22/20 60,000
The involuntariness of the 8/15/20 (20,000) 50,000
Taxable Net Income 300,000
change the classification
PROBLEM 3 - Installment CGT
Selling Price 500,000
Less:Cost of Stocks (300,000)
Documentary Stamp (1,875) (250k/200)*1.5

Net Gain 198,125

x Capital Gains Tax Rate 15.00%
Capital Gains Tax Due 29,719

1 Selling Price < P1,000

2 Initial Payment > 25% of SP
Downpayment 50,000.00
1st Installment 50,000.00
100,000 500,000

Qualified for installments.

expopriation, etc.) Collection 100,000

Divided by: Contract Price 500,000
x Capital Gains Tax Due 29,719
Capital Gains Tax per insta 5,944

PROBLEM 4 - Special Cases

1 Zero. Meiko is a security dealer, therefore, the shares are ordinary assets to him.
 OA are not subject to CGT.

2 Zero. the payment of STT implies that the sale was made through PSE.
Therefore, it is not subject to CGT.

3 (300k - 100k) x 15% 30,000

ter every purchase PROBLEM 5 - Wash Sales

Net Loss (9/28/2020) 32,000 (30-28) x 16k

owner who received it any other way but by

Deferred
gift. Loss (12k/16k x 3 24,000
Deductible Loss (4k/16k x 8,000
s Tax if intended as a donation
Purchase Price of Replacement Shares 288,000
Add: Deferred Loss 24,000
Basis of 12k replacement shares 312,000
Divided by: Number of shares 12,000
Unit Price 26

12/27/2020 Sale
From 7/17/2020 (4k x 30) 120,000
From 10/13/2020 (6k x 26) 156,000
Total Cost 276,000
Selling Price (10k x 32) 320,000
Capital Gain 44,000

Capital Loss (8,000)

Capital Gain 44,000
g expense). Net Capital Gain 36,000
x CGT Rate 15.00%
Capital Gains Tax, 2020 5,400
ess of whether the problem
o determine the net proceeds PROBLEM F - Tax Free Exchanges
Fair Value of B Company Shares Received 1,100,000
Fair Value of Other Properties Received 350,000
Total Consideration 1,450,000
Less: Cost
r transfer of stock Basis of Shares Give 1,200,000
Cash Paid to B 100,000 (1,300,000)
Indicated Gain 150,000
 Realized return on capital 150,000
7 within 30 days. Return of Capital (excess) 200,000 SQUEEZED
FV of Other Properties Rec 350,000

Basis of Shares Given 1,200,000

Add: Cash Paid to B 100,000
al CGT Due Add: Gain recognized on transfer 150,000
Less: FV of Other Properties Received (350,000)
Basis of Shares Received 1,100,000

Basis of Shares Given 1,200,000

oss, it is equal to annual CGT due) Add: Cash Paid to B 100,000
nnual CGT Due Less: Return of Capital (200,000)
Basis of Shares Received 1,100,000

eign corporations. 1 150k x 15% 22,500

2 TAX BASIS 1,100,000
3 basis of the boot 350,000
4 (1.45M + 100k cash received) 1,350,000

DISPOSAL OF REAL PROPERTY

PROBLEM A - SCOPE OF THE 6% CGT

urns into a net gain. 1 3M x 6% 180,000
iod loss carry-over procedure. 2 Warehouse is an OA. 0
3 Foreign Corps are not subject to CGT. 0
4 1.2M x 6% 72,000
5 The house and lot is in Japan, without 0
nal capital and not income 6 It is an inventory under a realty corpor 0

t is a payment of an expense in kind. PROBLEM B-1: SCOPE OF EXEMPTION

Principal Residence = Zonal Value of Land + FV of Buid
Residential Lot (higher between zonal value and fv of l
Acquisition Costs
as a donation by seller Ignore the Property Appraised Value
CGT
1 Full Utilization of the Proceeds - Exem 0
2 2.5M vs 3.5M = 3.5M; (3.5M x 6%) x 42,000
3 2.5M vs 3.5M = 3.5M x 6% 210,000
4 4M vs 3.5M = 4M x 6% 240,000
 5 4M vs 2.5M vs 1.5M = 4M x 6% 240,000
6 3M vs 3.5M = 3.5M x 6% 210,000
7 1.5M vs 3.5M = 3.5M x 6% 210,000

of Mortgage over Cost PROBLEM B-2: INSTALLMENT CGT

Mortgage = 1M
a. Initial Payment 400,000
(3M-1M)/5 installments
b. Contract Price 2,000,000
3M SP - 1M Mortgage
c. Capital gains tax due in 42,000
400k payments/2M x 210k CG
d. Documentary Stamp Tax 52,500
3.5M / P1,000 x P15
as an indirect downpayment. Qualification for Installment 400k IP < 25% x 3M = YEP
hich is the net capital gain). 3M x 25% =750,000
wnpayments.
Capital Gain = 3.5M x 6% 210,000

PROBLEM B-3: INSTALLMENT CGT

1 Selling Price 2,000,000
2 Contract Price 1,700,000
hin the 61-day period. 3 Initial Payments 500,000
ated as feigned loss). 4 Capital Gains Tax in 2019 44,118
5 Reportable Gain if Shiela opted regular 850,000
6 Documentary Stamp Tax 30,000

Qualification for Installment 500k < 25% x 1.6M

ber of shares at same cost). 500k < 500k
YEP sakto lang

sold (Cover-Up Shares) Fair Value of Property = 2M / 80% 2,500,000

Capital Gains Tax 2M SP vs 2.5M FV = 2.5M x 6%

DST is based on lower on the selling price or the consideration they paid if the bu

PROBLEM B-4: INSTALLMENT CGT

1 Capital Gains Tax 270,000
2 Venue where to file BIR Form 1706 RDO Angeles
3 Net Proceeds of the Sale 3,662,500
 Second house =/= Principal Residence

House = FV of 2M
Land = Assessed Value of 500k / 20% 2,500,000
sold (Cover-Up Shares) vs
eplacement shares, Zonal Value 2,000,000

DST SP of 4M vs NIRC Value of 4.5M 67,500

its of participation.

ng transaction.

nt of any gain resulting from the transaction.

Realized
COGNIZED AS A CAPITAL GAIN Return on
OT RECOGNIZED Capital
Return of Capital
This Rectangle is the Total Cash and Property Received

RECOGNIZED AS A CAPITA Realized

NOT RECOGNIZED Return on
Capital
Unrealized Return on Capital
This Rectangle is the Total Indicated Gain
Shares Exchanged xxx
f Other Properties Exchan xxx
 (xxx) (basically gain - value of cash + property)
w Shares Received xxx

W = Fair Value of NEW

W = Tax Basis of OLD

to 15% CGT.

of the assets, including cash) of the properties of another corporation.

placement of shares of stocks of the shareholders of the

iring corporation. There is no disposal of stocks.

suance rather than a property dispotion. Hence,

s holds true whether or not there is acquisition of control.

vestment in the corporation's controlling parent's shares

perty subject to CGT

pany already has pre-existing control over the investee
control, so the increase in controlling interest resulted in acquisition of control -> exempt
s mere acquisition of an item of asset; subject to tax

his means that the company acquired is merged with the corporation.
ct, the corporation's net assets.

nge of the acquired company's net assets is in effect, the integration of the acquired company's
eholders upon acquisition, in the parent corporation, which then turns them into the parent's shareholders.
s shares in exchange for the net assets of their corporation)
en parties to a merger or consolidation, exempt from income tax.
s in exchange of the acquired company's net assets is an exchange of assets between the
he corporation's shareholders upon acquisition, and the investor, which then turns
trol acquired by the shareholders in the investor is not of any concern to the corporation.
rties to a merger or consolidation. Therefore, this exchange is taxable.

onsolidation:

es to become a new corporation

Provincial and City Assessors
wn in latest tax declaration

payer, not to the government.

) x Capital Gain + Accrued Interest]

ds) Capital Gain

r employed in
oss measurement.

Reform Program)
using Authority)

he NIRC and other special laws.

g requirements:

of Mortgage over Cost

cess of Mortgage over Cost

ered as an indirect downpayment.

sis (which is the net capital gain).
he downpayments.

rom the time of registration of sale

ster of Deeds
elling price
 SECURITY MERCHANDIS
DEALER ER
CAPITAL CAPITAL
ORDINARY ORDINARY
ORDINARY CAPITAL
ORDINARY CAPITAL
CAPITAL CAPITAL
ORDINARY ORDINARY
ORDINARY ORDINARY
ORDINARY ORDINARY
CAPITAL CAPITAL
CAPITAL CAPITAL
CAPITAL CAPITAL

s not a security dealer.

y is a security dealer.
tocks are OA to Andy.
OA to him.
er to VAT (RIT).
45,000

s not a security dealer.

ock of a corporation
nsaction. It is not income.
60,000
Dealings in Properties (RIT)
30,000
7,500
120,000
y are subject to RIT.
262,500

NET GAIN/LOSS CGT STT

280,000 42,000
20,000 0 0 bonds are not stocks
 30,000 1,680 through PSE
60,000 0 0 foreign stocks
30,000 4,500
(40,000) 0 0 bonds are not stocks
(10,000) 0 1,860 through PSE
(20,000) 0 0 carry over to subsequent capital gain
40,000 3,000 (40k - 20K) x 15%
20,000 3,000
52,500 3,540

500k > 1k

20.00%

the shares are ordinary assets to him.

ale was made through PSE.
Subject to RIT
Subject to RIT
Apply principle of presumed gains
Subject to RIT
Subject to RIT

3,500,000
2,500,000
2,000,000

New Tax Basis

5,500,000
2,800,000
Not a PR He did not buy a new PR, so taxable under CGT in full
Not a PR
 Not a PR
Not a PR
Not a PR

Mortgage = 2M
700,000
(3M-2M)/5 + (2M-1.5M cost)
1,500,000
3M SP - 2M Mortage + 500k
excess
98,000
700k payments/1.5M x 210k CG
52,500
3.5M / P1,000 x P15
700k IP < 25% x 3M = YEP
3M x 25% =750,000

200k + 200k + 1.2M + 400k mortgage

2M - 400k + (400k - 300k)
200k + 200k + (400k-300k)
500k/1.7M x 150k CGT
(2M - 300k) x 50% because of long period of ownership
2M x 1.5%

< 25% x 1.6M 500,000

150,000

or the consideration they paid if the buyer is the government.

4.5M x 6%
RDO where the property is located
(4M - 270k - 67.5k)
 2,000,000
2,500,000 HIGHER

4,500,000 Tax Basis

4.5M x 1.5%
nt's shareholders.
REGULAR INCOME TAX STRUCTURE/MODEL
Gross Income (inclusions and exclusions) xxx
Less: Deductions (optional and itemized) (xxx)
Taxable Income xxx
If Individual - follow tax table
If Coporation - 30%

EXCLUSIONS specifically exempted by the tax code

1 LIFE INSURANCE POLICY STUFF
1 Proceeds - received by beneficiaries if the insured did not outlive the policy
Regardless of the designation of the beneficiary and whether revocable or irrevocable.
Exception: If there are interest payments received from the insurer, they shall be included in GI.
2 Return of Premium - received by the insured if he/she outlived the policy

If insured outlived the policy, he/she will receive a maturity value, broken down as such:
Total Maturity Value Received xxx
Less: Return of Premium (Paid x ?Years) (xxx) NOT TAXABLE
Return on Capital (Excess of Premiums over Pr xxx TAXABLE

Assignment or Sale of Policy to another person:

Perspective of Old Insured/Assignor:
Selling Price (what the assignee paid them) xxx
Less: Return of Premium (Paid x ?Years) (xxx) NOT TAXABLE
Return on Capital (Excess) xxx TAXABLE

Perspective of New Insured/Assignee:

Proceeds Collected (if old insured dies b4 mat xxx
Less: Purchase Price for the policy (xxx)
Less: Return of Premium (Paid x ?Years) (xxx) NOT TAXABLE
Return on Capital (Excess) xxx TAXABLE

When beneficiary is the EMPLOYER CORPORATION:

Entirety of proceeds is exempt, no matter the payments of the corporation.

Property Insurance
Total Proceeds xxx
Less: Basis of Property Destroyed (xxx) RETURN OF CAPITAL
Excess of Proceeds over Cost xxx RETURN ON CAPITAL

2 GIFTS, BEQUESTS, AND DEVISES OR DESCENSubject to Transfer Tax

However, income from such after the death of the transferor is included in gross income.
 Income from such before death of transferor is the gross income of the transferor.
Except if the income of the property itself is also donated to the heir.

Characterized by pure liberality or disinterested generosisty and are given w/o any cosideration.
Therefore, they are not realized income. (realized income requires an exchange)

Gratuities given by employer to:

1 rank and file - is treated as exchange for services rendered; subject to RIT
2 managerial and supervisory - subject to fringe benefit tax
Christmas or major anniversary gifts granted by employer to eployees are de minimis benefits subject to RI

3 COMPENSATION FOR INJURIES AND SICKNESS

Not taxable:
1 Indemnity for damages
2 Reimbursement for hospitalization expenses

Reimbursement for lost salary is a recovery of lost profit and is included in gross income.

4 INCOME EXEMPT UNDER TREATY

Treaty agreements override provisions of our revenue tax laws in case of conflict under
the exemption doctrine of international comity.

5 RETIREMENT BENEFIT UNDER RA. 7641 (BOTH FOR PRIVATE AND PUBLIC EMPLOYEES)
1 WITH A REASONABLE PRIVATE BENEFIT 1-10-50+RPBP
Requisites of Exemption:
1 first time availment (exempt only once in a lifetime, no matter how many times you retired)
2 at least 10 cumulative, not continuous, years of service under the same employer
3 at least 50 years of age
4 employer maintains a reasonable private benefit plan, trusteed
(ex. pension, gratuity, stock bonus, or profit-sharing plan, etc. wherein the employer
makes contributions for the purpose of distributing the funds accumulated to employees)

If requisites are not met, the benefit is an inclusion in gross income as compensation income.

2 WITHOUT A RETIREMENT PLpwede i-avail more than once (if kaya mo, umay pahinga ka na)
Requisites of Exemption:
1 at least 60 years of age
2 at least 5 cumulative, not continuous, years of service under the same employer

3 SEPARATION OR TERMINATION
Requisites of Exemption:
 1 Cause: job threatening sickness, deaths, or physical disability
2 Cause must be beyond the control of the employee/involuntrary on the part of the employee

Does not extend to (these are subject to income tax):

1 Backwages or illegal deductions repaid by the employer
2 Terminal leave pay or the commutation of accumulated unused leave credits

Compliance: Employee or his heirs should request for a ruling or certificate of exemption (CTE)
from the BIR. File the request and other required documents at the RDO where the employer is registere

4 SOCIAL SECURITY BENEFITS, RETIREMENT GRATUITIES, ETC.

Received by RCs or NRCs or Aliens who come to settle permanently in the Philippines.
They are earned abroad so under the situs rule, they are not taxable in the Philippines.
This holds true even if the taxpayer subsequently receives the income as a resident of the Philippines.
Exception: Secondment Contracts where employee is still considered a Resident Citizen
even during their time abroad. Therefore, you were taxable for global income when you earned it.

5 UNITED STATES VETERANS ADMINISTRATION (USVA) - ADMINISTERED BENEFITS

Ex. For beneficiaries of Filipino veterans who fought under the American flag in World War II.

6 SOCIAL SECURITY SYSTEMS (SSS) BENEFITS UNDER RA 8282

7 GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS) UNDER RA 8291

6 MISCELLANEOUS ITEMS
1 INCOME BY FOREIGN GOVERNMENTS
1 By financing institutions owned, controlled, or enjoying refinancing from them
2 By international or regional financial institutions established by them

2 INCOME DERIVED BY THE GOVERNMENT

From:
1 Any public utility
2 The exercise of essential government function.

Does not apply to GOCCs which are generally taxable as regular corporations because of their
proprietary nature. Exempt GOCCs: Local Water Districts, PhilHealth, GSIS, SSS

3 PRIZES AND AWARDS MADE PRIMARILY IN REGONITION OF R,C,S,E,A,L,C ACHIVEMENTS

Requisite for Exemption:
1 Recipient was selected without any effort on his part
2 Recipient is not required to render substantial future services as a condition
 It is a unilateral transfer, so there is no exchange, and it is therefore not considered as an income.

4 PRIZES AND AWARDS IN SPORTS COMPETITIONS

1 In local or international competitions and tournaments
2 Whether held in the Philippines or abroad
3 Sanctioned by accredited national sports associations
included if not accredited

5 EMPLOYEE SHARE IN CONTRIBUTIONS FOR GSIS, SSS, PHILHEALTH, PAG-IBIG, AND UNION D
Only mandatory or compusory monthly contributions are exempt.
Voluntary contributions in excess of monthly contributions are taxable.

6 EMPLOYER'S CONTRIBUTIONS TO (PERA) PERSONAL EQUITY RETIREMENT ACCOUNT

PERA - voluntary retirement account established from qualified contributions for the sole purpose of bein
invested in qualifed PERA investment products.

OFWs: Allowed to contribute up to P200k per year

Non-OFWs: Allowd to contribute up to P100k per year

7 PERA Investment Income and PERA Distributions

The assets in these accounts are distributed back to the contributor either in lumpsum, life pension
or in installment upon reaching the age of 55 or to his heirs or beneficiariers upon death.

8 13TH MONTH PAY AND OTHER BENEFITS NOT EXCEEDING P90,000

Discussed under Compensation Income

9 GAINS FROM SALE OF BONDS, DEBENTURES, OR OTHER CERTIFICATE OF INDEBTEDNESS

WITH A MATURITY OF MORE THAN 5 YEARS
Rests upon the assumption: Long-Term debt is diverted to financing long-term projects that are
beneficial to the development of the country.

But accrued interest income is taxable.

10 GAINS REALIZED FROM REDEMPTION OF SHARES IN A MUTUAL FUND

Mutual Fund = open-end and close-end investment company
= pool the money invested by different investors and invest the money to earn investment income.

To be an investor, we need to purchase participation shares @ Net Asset Value (NAV).

Gain from the redemption of such shares attributing to the increase or decrease of the NAV is exempt.

11 INCOME DERIVED FROM THE SALE OF GOLD (RA 7076)

 AKA. PEOPLE'S SMALL-SCALE MINING ACT OF 1991

Flow of gold production sales and income tax exemption rules:

Registered small-scale miners (SSMs) licensed by the Mines and Geosciences Bureau (MGB)
extract minerals or ore-bearing materials under small-scale mining contracts.
Taxability depends on the buyer:
1 Registered gold traders accredited by BSP - EXEMPT
1 To BSP - EXEMPT
2 To Black Market - TAXABLE
2 BSP - EXEMPT
3 Black Market - TAXABLE

Compliance: Anyone who is not a registered

SSMs and gold traders must be registered with BSP. gold trader is considered part
Fulfill mining standards of the MCG and the DENR. of the black market. Any sale to them
Secure local permits and clearances. would subject the proceeds
Otherwise, they are taxable. to income tax.

7 EXEMPT UNDER NIRC AND SPECIAL LAWS

1 MINIMUM WAGE EARNERS
Minimum wage is fixed by the Regional Tripartite Productivity Wage and Productivity Board of the
Department of Labor and Employment.
They are specifically exempt from income tax on:
1 Basic Pay
2 Holiday pay
3 Overtime pay
4 Night shift differential pay
5 Hazard pay

2 COVID-19 BENEFITS (RA 11494)

Exempt special benefits for health workers:
1 COVID-19 Special Risk Allowance - to workers directly catering to or in contact with patients; mont
2 Actual hazard duty pay - given to temporary Human Resource for Health (HRH) in the front lines
3 Compensation to health workers who contracted COVID-19 in the line of duty
1 P1,000,000 in case of death
2 P100,000 in case of severe or critical sickness
3 P15,000 in case of mild or moderate sickness

3 BARANGAY MICRO-BUSINESS ENTERPRISE (BMBE) under RA 9178

An entity that:
1 engages in the production, processing, and manufacturing of products or commodities
 2 engages in agro-processing, trading, and services (NOT rendered by licensed professionals)
3 is NOT a branch or a subsidiary of a large-scale enterprice
4 it's policies and modus operandi are not determined by such large-scale enterprise (cannot be a fra
5 has total assets of less than P3M (exclusive of the land where they built their office, plant, and equ

Compliance: Secure a certificate of authority from the Office of the Treasurer that has jurisdiction.
Filing: Annual Information Return in lieu of income tax return.
Exemption does not apply to: income from non-operating, passive, and capital gains.
Revocation:
1 Change of place of business
2 Value of assets exceed P3M
3 Voluntary surrender of CoA
4 Death of the registered individual owner
5 Violation or non-compliance of the registered individual owner with the provisions of RA 9178
6 Merger or consolidation with an entity which is NOT a BMBE
7 Sale or transfer of the BMBE
8 Submission of fake or falsified documents
9 Retirmement or cessations of operations for one year

4 COOPERATIVES
General Rule: Income from related transactions with members and non-members is exempt.
Exception: Income from transactions with non-members are taxable if their retained earnings
and undivided savings exceed P10M.

5 NON-STOCK AND NON-PROFIT ENTITIES

Income from related operations are exempt.

6 QUALIFIED EMPLOYEES' TRUST FUND

Conditions for exemption:
1 Contributions are made to trust to distribute them to the employees.
2 Asset of the fund is not diverted for other purposes other than for the exclusive benefit of the emplo

7 INCOME OF PERA ACCOUNTS

Income of the contributor from the investments and reinvestments. However, this may still be subject
to: Percentage Tax, VAT, STT, and DST

8 LIFETIME GRATUITY TO MEDAL OF VALOR AWARDEE

P20,000 monthly

9 INCOME OF SELF-EMPLOYED OR PROFESSIONALS WHO OPTED TO BE TAXED AT 8%

Excluded from gross income subject to regular tax. This is in lieu of the 3% tax and the progressive inco
Additional Notes:
1 To establish the exemption, taxpayers must file required documents with the BIR.
2 BMBE's need a Certificate of Authority.
3 Cooperatives need a Certificate of Tax Exemption/Ruling (CTE)

INCLUSIONS
1 Compensation for services in whatever form paid
Types of Employee Benefits that are subject to RIT
Excludes: Fringe Benefits of managerial or supervisory employees

Discussed in another sheet - CI

2 Gross income from the conduct of trade, business, or exercise of a profession

Whether legal or illegal
Whether registered or unregistered

Sales/Revenues/Receipts/Fees xxx
Less: Cost of Sales or Services (xxx)
Gross Income from Operations xxx

Excluded:
1 Business income exempt from income tax (ex. BMBE under RA 9178 and those enjoying tax holidays un
2 Business income subject to special tax (ex. PEZA, TIEZA, SE/P)
3 Business income subject to final tax when not subjected to final tax by the payor
(ex. subcontractors of petroleum service contractors, FCDUs and eFCDUs)

3 Gains derived from dealings in properties

Gains or losses in dealing in ordinary assets and in capital assets other than domestic stocks and real propert

Ordinary Gains inclusion Discussed in another sheet - DIP

Ordinary Losses items of deduction
Net Capital Gain inclusion
Net Capital Loss NOT an item of deduction

4 Interest Incomeother than passive interest income subject to final tax

1 From lending activities to taxpayers by banks, finance companies, and other lenders
2 From corporate bonds and promissory notes
3 From bank deposits abroad

Exempt:
 1 Earned by landowners in disposing their lands to their tenants pursuant to Comprehensive Agrarian Refo
2 Imputed interest income (opportunity cost of money) (ex. interest income from rediscounting and from TS

If problem is silent, assume that it is a regular income.

5 Rent Income passive income but not subject to final tax

Add: Obligations of Lessor assumed by Lessee
Add: Advance Rentals (unrestricted or if restricted but applied in future years)
Add: Income from Leasehold Improvements
Total Taxable Rent Income xxx

Advanced Rentals are not included if:

1 It constitutes a loan
2 It is a security deposit to guarantee payment
3 It is a rent subject to contingency which may or may not happen

6 Royalties
Subject to RIT when:
1 Active by nature
2 Active by nature AND earned from outside the Philippines

7 Dividends
1 Foreign-sourced dividends XPN: If the recipient is an NRFC, even if it is from an RFC
2 Those declared by foreign corporations it is still subject to 25% FIT.

Cash, Property, Stock Dividends - YES

Stock Dividends: GR - Exempt, XPN - if ownership intereest is changed upon redemption, FMV is taxable
Liquidating Dividends - Subject to Dealings in Properties

Subject to predominance test:

1 Gross income ratio in the preceding 3 years is:
1 less than 50% - the entire amount of the dividends is deemed earned abroad
2 more than 50% - pro-rate the amount of dividend taxable within the Philippines

Exemption of Foreign-Sourced Dividends when received by Domestic Corporations:

1 If predominance test is less than 50%
1 DC directly owns at least 20% in value of the oustanding shares of the NRFC.
2 These shareholdings were held uninterruptedly for a minimum of 2 yearas or throughout the NRFC
3 Dividend must be reinvested within the next taxable year in business operations
If there is a portion unutilized, the DC will be imposed with 25% surcharge plus interest
It will be considered undeclared income in the year of receipt, justifying the penalties
 2 If predominance test is at least 50% - exempt without conditions
ex. Subsidiary Corporations and Associates

Taxable income distribution sources:

1 Dividends from foreign investee
2 Share from PH joint venture
3 Profit sahre from foreign partnership

8 Annuities Payments Received > Premiums Paid = Excess is a taxable income in the year of receipt

9 Prizes and winnings

Subject to RIT:
1 Prizes (Individuals)
1 P10,000 and below, earned within and without
2 More than P10,000, earned without
2 Winnings (Individuals)
1 Winnings other than PCSO and lotto winnings, no matter the amount, earned without
3 Corporate Taxpayers
1 Prizes: Regardless of amount, earned within and without
2 Winnings other than PCSO and lotto winnings, no matter the amount, earned within or without

10 Pensions and Retirement Benefits

Those that failed to meet the exclusion critera.
If silent, assumed taxable.

11 Partner's distributive share from the net income of GPPs, Exempt Joint Ventures, or Exempt Coowner
Partner is a: Philippines Abroad
1 Individual 20% FIT RIT
2 Corporation RIT RIT

OTHER INCLUSIONS/SOURCES OF GROSS INCOME

1 Income distribution from taxable estates or trusts
Provided: It is not subject to CGT or FIT

Estate - Judicial:
1 Taxable as an individual. Follow the classification of the descedent.
2 The income distributed to the heirs is:
1 Part of the gross income of the estate
2 Part of deductioons against his gross income
3 Part of the gross income of the heirs
 Estate - Extrajudicial:
1 Not taxable
2 The income distributed to the heirs is taxable to the heirs

Trust - Irrevocable Designation:

1 Taxable as an individual.
2 The income distributed to the beneficiary:
1 Part of the gross income of the trust
2 Part of deductioons against his gross income
3 Part of the gross income of the beneficiary

Trust - Revocable Designation:

1 Not taxable
2 The income distributed to the beneficiary is taxable to the grantor/donor/beneficiary

2 Share from the net income of exempt joint ventures and co-ownerships
Exempt Joint Venture - those engaged in oil exploration and construction
Exempt Co-ownership - if the taxpayers engage only in asset preservation and income collection
Same as the tax treatment of generap professional partnerships.

3 Farming Income
1 RAISE AND SELL Operation
Gross Income = proceeds from the sales of livestock or farm products.
Deductions = animal raising expenses

2 PURCHASE AND SELL Operation

Gross Income = gross profit from the sale (sales less cost of purchases)

3 PROCEEDS OF CROP OR LIVESTOCK INSURANCE

Constitutes recovery of lost profits, so included in gross income.

4 Recoveries of Past Deductions

Examples:
1 Recovery of previously claimed bad debt expense
2 Refund of local tax expense
3 Refund of foreign tax previously claimed as a deduction
4 Recommissioning of abandoned petroleum service contacts or mining tenements
5 Release of reserve funds of insurance companies
6 Interest expense which were subsequently condoned by the lender

Reverted back to gross income if:

 1 Deductions: subsequently recovered
2 Accrued Expenses: subsequenly paid at an amount less than the deduction claimed
3 Created tax benefit (the income that escaped taxation) for the taxpayer
1 Direct - reduction of taxable income
2 Indirect - reduction of future taxable income through carry-over of net operating loss (NOLCO)

NOLCO Deductions > Gross Income

Applicable to the net income for next three years of operations.
TLDR: Because of NOLCO, almost all prior year deductions have tax benefit.

WITHOUT NOLCO PAST YEARFUTURE YEAR

Net Income before deduction xxx xxx
Less: (Deductions)/Recoveries (deducted) recovered
Net Income after deduction xxx xxx

Notes: Recoveries are added to revert them back to gross income.

In turn, the taxable net income will increase, effectively allowing the recovery which
should have been taxed in the past year to be taxed in the future year.

As-If Approach
Recompute the net income in the year of deduction by adjusting the deduction
as if the subsequent deduction recovery is known.

Net income before deduction - PY xxx

Less: Deduction if recovery is known - PY
Total Deduction xxx
Less: Recovery (xxx) (xxx)
Net income if recovery is known - PY xxx
Less: Net income if recovery is unknown (xxx) as reported
Tax Benefit of the Deduction - Recove xxx
Add: Net income before deduction - TY xxx as reported
Net income after deduction - TY xxx

WITH NOLCO PAST YEARFUTURE YEAR FUTURE YEAR

Net Income before deduction xxx xxx xxx
Less: (Deductions)/Recoveries (deducted) - recovered
Net Income after deduction (xxx) xxx xxx
Less: NOLCO application ---------------------------------- (xxx)
Net Income ---------------------------------------------------- xxx

Notes: If there is a NOLCO, the deduction only benefitted the taxpayer by the amount of
 net income before deduction + any application of NOLCO in the next three years.
Only this amount can be reverted back to gross income.

Exception:
If there is a net loss in the year of recovery, NOLCO is increased.
This increase in NOLCO is considered as a tax benefit.

Net LOSS before recovery (Tax Benefit) (xxx) Tax Benefit - application of NOLCO
Add: Recovery (limit is tax benefit) xxx
Net Income xxx
Less: Apply NOLCO of past year (xxx) Tax Benefit - application of NOLCO
Taxable Net Income xxx

Refund of non-deductible expenses

Will never create a tax benefit and is never included in gross income.
1 Philippine income tax
2 Estate or donor's tax
3 Income tax paid or incurred to a foreign coutnry when claimed as tax credit
4 Stock transaction tax
5 Special asssessment

5 Reimbursement of Expenses By customer or client.

6 Cancellation of Indebtedness
1 In consideration of service or goods - INCOME; constructive receipt
2 Gratuity - GIFT, NOT INCOME
3 Capital Transaction - DIVIDEND INCOME

SPECIAL CONSIDERATIONS IN REPORTING GROSS INCOME

1 Accounting Method
1 PRINCIPAL METHODS
1 CASH BASIS
Income - reported in the year actually or constructively received
Expenses - reported in the year it is paid

Cash Basis Net Income, Unadjusted xxx

Less: Prepayments, Beg (xxx) deductible this year. prepayments last year
Add: Prepayments, End xxx deductible next year, ending balance of prep
Cash Basis Net Income, Adjusted xxx

2 ACCRUAL BASIS
Income - reported in the year it is earned
 Expenses - reported in the year it is incurred

Accrual Basis Net Income, Unadjusted xxx

Less: Advanced Income, Beg (xxx) Assumed earned already this year, so alrea
Add: Advanced Income, End xxx Not yet earned, but still taxable, recognized
Accrual Basis Net Income, Adjusted xxx

Note: FOR SERVICE INCOME, receipt of income in advance is taxable in the year of receipt, follow
doctrine and the ability to pay theory.

FOR GOODS AND PROPERTIES, income is only realized upon passing of legal title.

3 HYBRID METHOD - combination of cash and accrual basis

2 DEFERRED PAYMENT SALES

BY NON-DEALER
1 INSTALLMENT METHOD BY DEALER
(CASUAL)
Movable/Personal Propert Always allowed! Should meet conditions*
Immovable/Real Property Should meet conditions* Should meet conditions*

*Conditions:
1 Selling price < P1,000
2 Initial Payment < 25% of Selling Price
3 Property would be an inventory if on hand at the close of the taxable year

2 DEFERRED PAYMENT BASIS

Buyer has issued evidence of obligation such as promissory notes.
Note is valued at market vaue at the date of receipt (fair value)
Interest Income = Fair Value - Face Value
Amortized in the future taxable period.
1 Premium = additional interest expense
2 Discount = additional interest income

Gross Profit = Selling Price - (PV of Note + Cash Downpayment)

3 LONG-TERM CONSTRUCTION CONTRACTS

1 Percentage of completion
2 Completed contract basis

4 FARMING INCOME
1 If animals - cash basis or accrual basis
2 If crops
 1 short-term crops - cash basis or accrual basis
2 long-term crops
1 perennial crops (continuous) - capitalize costs of development and amortize in years
2 non-perennial (one-time harvest) - costs of development are expensed at 1st year of

5 LEASEHOLD IMPROVEMENT
1 Outright Method
all be included in GI.
cosideration.

mis benefits subject to RIT.

EMPLOYEES)

times you retired)

rein the employer

mulated to employees)

ensation income.

ay pahinga ka na)
part of the employee

of exemption (CTE)
re the employer is registered.

Philippines.

sident of the Philippines.

Resident Citizen
when you earned it.

D BENEFITS
in World War II.

s because of their

,L,C ACHIVEMENTS
 dered as an income.

PAG-IBIG, AND UNION DUES

MENT ACCOUNT
for the sole purpose of being

in lumpsum, life pension

pon death.

TE OF INDEBTEDNESS

m projects that are

n investment income.

Value (NAV).
se of the NAV is exempt.
 sciences Bureau (MGB)

ot a registered
sidered part
et. Any sale to them

roductivity Board of the

contact with patients; monthly

h (HRH) in the front lines

or commodities
ensed professionals)

enterprise (cannot be a franchise)

their office, plant, and equipment)

rer that has jurisdiction.

provisions of RA 9178

mbers is exempt.
etained earnings

clusive benefit of the employees

r, this may still be subject

E TAXED AT 8%
x and the progressive income tax.
se enjoying tax holidays under the CREATE law)

stic stocks and real properties.

 mprehensive Agrarian Reform Law
m rediscounting and from TS notes)

C, even if it is from an RFC,

mption, FMV is taxable

as or throughout the NRFC's existence

rcharge plus interest

fying the penalties
he year of receipt

arned without

arned within or without

ures, or Exempt Coownership

come collection
perating loss (NOLCO)

overy which
lication of NOLCO

lication of NOLCO

ar. prepayments last year

ear, ending balance of prepayments this year
already this year, so already included in unadjusted net income
ut still taxable, recognized this year

in the year of receipt, following the lifeblood

g of legal title.
ment and amortize in years of harvest
re expensed at 1st year of harvests
Employer-Employee Relationship
Elements:
1 Screening process for selection and engagement of employees
2 The employer is in control of the payment of wages.
3 The employer has power to dismiss employees on reasonable basis
4 The employer has power to control the way the employee needs to work

Types of Employees:
1 AS TO FUNCTION
1 Managerial - lays down and executes managerial policies
2 Supervisory - recommends managerial actions that requires independent judgment
3 Rank and file - residual

2 AS TO TAXABILITY
1 Minimum Wage Earner
1 Private - paid the minimum wage
2 Public - paid not more than the statutory minimum wage
Statutory Minimum Wage - whichever is HIGHER of:
1 Fixed by the Regional Tripartite Wage and Productivity Board of the DOLE
2 5k a month or 60k a year
2 Regular Employees

COMPENSATION INCOME TAX MODEL

Gross Compensation Income xxx
Less: Non-Taxable Compensa (xxx) 1. Mandatory Deductions; 2. Exempt Benefits
Taxable Compensation Inc xxx

1 GROSS COMPENSATION INCOME

All remunerations received under an employer-employee relationship.
Examples of items included in gross compensation income but also part of deductions:
1 Termination Pay - it is a remuneration received, but also a benefit exempt under NIRC

1 REGULAR COMPENSATION INCOME

Fixed remunerations due to be received by an employee every period
1 Basic Salary
2 Fixed Allowances - except if:
1 Ordinary and necessary allowances incurred in the pursuit of the employer's T,B, or P
2 Subject to accounting or liquidation
3 If any excess advances are returned to the employer
3 Paid vacation and sick leave allowances
 PAID IN KIND
GR: FV of Consideration Received
XPN: If paid in SHARES, FV of shares at the date services were provided

2 SUPPLEMENTARY COMPENSATION
Performance-based remunerations in addition to the regular compensarion with/without regard to pe
1 Overtime, Holiday, Hazard, and Night Differential Pay
XPN: When derived by a minimum wage earner

2 Commissions - incentives to stimulate sales, given as a profit sharing or performance bonus

Honoraria - additional payments for attending to special tasks or assignments
Emoluments - any pay in general

3 Living quarters or meals

FOR FREE:The value to the employee of such is included in compensation income.
OUT OF NECESSITY OF THE EMPLOYE Not compensation income

4 Stock Option Plans

Allows employees to earn additional rewards on the appreciation of the stock price of the compan
Value: Value of the Stock > Exercise Price fixed at the grant date
1 Equity-Settled Options: entitlement of purchase of stock at a pre-detemined price fixed on

Fair Value of Stocks (FV x Shares) xxx

Less: Exercise Price of Option (xxx)
Compensation Income (the disco xxx

FAIR VALUE
1 Listed Shares - (High Price + Low Price)/2 -> remember Binance
2 Non-Listed Shares
1. Over the Counter (OTC) market price
2. If OTC is not available, use the book value per share

SUBSEQUENT SALE OF THE STOCKS

1 Employer is a DOMESTIC CORPORATION
1 Sale is through PSE
Selling Price xxx
x Stock Transaction Tax Rat 60% of 1%
Stock Transaction Tax xxx withheld by the broker

2 Sale is directly to buyer

Selling Price xxx
 Less: Tax Basis of Shares So (xxx)
Capital Gains xxx
x CGT Rate 15%
Capital Gains Tax xxx

2 Employer is a FOREIGN CORPORATION

Selling Price xxx
Less: Tax Basis of Shares So (xxx)
Capital Gains xxx
x Holding Period Rate xx% 50% if more than 1 year, 1
Capital Gains subject to RI xxx

2 Cash-Settled Options: entitlement to receive cash in excess = fair value of stocks > exerc

Fair Value of Stocks (FV x Shares) xxx

Less: Exercise Price of Option (xxx)
Cash (Fringe Benefit subject to FBT) xxx

DETERMINE FRINGE BENEFIT SUBJECT TO FINAL TAX IF EQUITY-SETTLED OPTION

Cash (increase in value of stocks) xxx TOTAL
Divided by: Exercise Day Closing Price xxx PRICE
Number of Shares xxx UNIT
x Fair Value (listed/unlisted) xxx PRICE
Stock (Fringe benefit subject to FINAL T xxx TOTAL

5 Profit sharing or taxable bonus - payable only if the business is at a profit

Reward for churning the business to post a profit.
XPN: If linked solely to productivity under a productivity incentive plan of the employer, they
as de minimis benefits.

Productivity Incentive Bonus - anchored on improvements in the factors of production. U

collectively by employees. It is based upon cost savings, thus payable even if at a net loss.

6 Excess 13th month pay and other benefits (above 90k)

2 NON-TAXABLE COMPENSATION
1 Mandatory Deductions (Employees' Contributions to):
1 GSIS
2 SSS
3 PhilHealth
4 HDMF
 5 Union Dues
2 Exempt Benefits
1 Under NIRC, as amended, and Special Laws
1 Remunerations received as incidents of employment
1 RA 7641
ex. w/plan, w/o plan, separation and termination pay, social security, USVA, SSS, GS
2 Covid-19 benefits RA 11494 (BAYANIHAN 2)
ex. special risk allowance, actual hazard duty pay, compensation to those who contra
2 De Minimis
Relatively small value furnished by the employer to promote the health, goodwill, contentme
Includes petty fringe benefits which fall within the purview of de minimis even if not in the fo
Considered a business expense.
Taxable over their regulatory limits.
DE MINIMIS BENEFIT REGULATORY LIMITS
Monetized unused vacation leave of private
10 days per year
employees
Monetized unused vacation AND sick leave of
No limit
government employees P1,500 per employee per semester
Medical cash allowance to dependents
P250 per month (1,500/6)
Rice Subsidy P2,000 or 1 sack of 50kg rice
Uniform and clothing allowance P6,000 per annum
Actual Medical Assistance P10,000 per annum
Laundry
other thanAllowance
cash or gift certificates) received P300 per month
under an established written plan which does P10,000 per annum
GIFTS given during
not discriminate Christmas
in favor of highlyorpaid
major
P5,000 per employee per annum
anniversary celebrations
Daily meal allowance for overtime and night 25% of the basic minimum wage on a per
or graveyard
Collective shift
Bargaining Agreement (CBA) and regionminimisbasis
Productivity Incentive Schemes COMBINED If more than P10,000 - enitre amount is

Treatment of taxable de minimis benefits

1 For rank and file employees - compensation income under 13th month pay and ot
2 For managerial and supervisory employees - fringe benefit subject to final fringe

3 13th month pay and other benefits not in excess of P90,000.

1 13TH MONTH PAY
Government Employees = Christmas Bonus of 1 month salary + P5,000 cash gift
Private Employees - 1 month salary
Christmas Bonus of Private Employees (PERFORMANCE-BASED):
1. Non-Performance Based Incentive Pay - other benefits
2. Profit Share - additional compensation income

Christmas Gifts (GRATUITY)

1. To Govt. Employees - 13th month pay and other benefits
2. To Private Employees - De minimis benefit
 2 OTHER BENEFITS
1. Christmas bonus of private employees if non-performance based
2. Cash gifts (other than for Christmas or anniversary)
3. Additional compensation allowance (ACA) of government personnel
4. 14th month pay, 15th month pay, etc.
5. Other fringe benefits of rank and file employees (does not include those of M and
1 Employee personal expenses shouldered by the employer
2 Benefits not included in the de minimis list
Including excess de minimis benefits (over the regulatory limits)

4 Certain benefits of minimum wage earners

ex. basic pay, hazard pay, overtime pay, night differential pay, holiday pay
MWEs are only taxable if their taxable income exceeds P250,000 for the year.
Any excess is subject to 15% withholding tax on compensation.

CHANGE IN STATUS DURING A YEAR

1 Becomes a MWE - subject only to income tax on compensation earned BEFORE
This happens when:
1. The minimum wage is fixed higher
2. Transfer to an employer paying salary at the minimum wage
3. Transfer of employment to a region with higher minimum wage
2 Ceases to be MWE - only the income for the remaining year is taxable
This happens when:
1. Promotion
2. Transfer to an employer paying salary above the minimum wage
3. Transfer of employment to a region with lower statutory minimum wage
3 Is disqualified from being a MWE - when they earn taxable income

2 Under Treaty or International Agreements

Foreign embassy, Philippine embassy or

missions, or organization consulate office
In the Philippines
TAXABLE (with proof of
- Filipino Citizens N/A
grant)
- Aliens EXEMPT N/A
Abroad
- Filipino Citizens EXEMPT TAXABLE
- Aliens TAXABLE EXEMPT

Their filipino employees are not exempt. They are taxable as a rule except to employees of
1 United Nations (UN)
 2 Specialized Agencies of the United Nations
3 Australian Agency for International Development (AUSAID)
4 Food and Agriculture Organization (FAO)
5 World Health Organization (WHO)
6 United Nations Development Programme (UNDP)
7 International Organization for Migration (IOM)
8 International Seabed Authority (ISA)

File an applilcation for confirmation of tax exemption with the BIR's International Tax Affairs Div
to avail of the confirmation certificate of exemption.

Consulate Office - Filipinos working here are considered resident citizens even in foreign countri
They are taxable as resident citizens.

3 Required by nature of, or necessary to, the trade, business, or conduct of profession of th
Furnished by the employer to enable employees to appropriately and effectively execute their dut
Necessity of the Employer Rule
Considered as expenses of the business or profession that are incurred or paid through the empl
1 Necessary traveling, transportation, representation, or entertainment expenses subject to a
2 Allowances/Reimbursements to government personnel for expenses incurred in the perform
3 Representation and Transportation Allowance (RATA) of publif officers and employes unde
4 Personal Economic Relief Allowance (PERA)
5 Reimbursements or advances to employees for travelling and representation pre-computed

4 For the convenience or advantage of the employer

Convenience of the Employer Rule
Intended for the furtherance of the interest of the employer's business or to ensure its smooth ope
1 Mobile Phone Allowance
2 Transportation Allowance
3 Outstation Allowance (out for at least 8 hours)
4 Housing Privileges of distant employees
5 Car Incentives to employed on-call medical doctors
6 Scholarship grants under contract to remain in service for specified period after
7 Housing Privileges of millitary officials of the AFP
If the expense is unreasonably excessive, the portion of the expense representing a provision o
to the employee is a taxable fringe benefit (hybrid expenses).

5 Remuneration for agricultural labor paid entirely in the production of the farm (in the form
sharing fruits of the farm)
6 Remuneration for domestic services
7 Damages paid by the employer to the employee
 8 Tips from the customer:
Directly given to you (not accounted by employer) - other income, not benefit
9 Remuneration for casual labor not in the course of the employer's business - other income

EXAMPLE:
GOVERNMENT EMPLOYEE Regular Compensation:
Mandatory Deductions
Gross compensation income 1,044,000 Regular Compensation (1.0
Less: Employee payroll deductions Supplemental Compensa
Mandatory Deductions 80,000 RATA
Employee Deduction for Withholding T 64,000 (144,000) PERA
Net Regulary Payroll 900,000 Honoraria
Add: RATA 18,000 13th month pay and other
PERA 24,000 Christmas Bonus
Christmas Bonus 87,000 Christmas Gift
Uniform Allowance 12,000 Uniform Allowance
Christmas Gift 5,000 Total
Honoraria 15,000 Exclusion Threshold
Total Compensation 1,061,000 Total
Total Non-Taxable Compen
Presentation in ITR of Employee: Taxable excess 13th month
Gross Compensation Income Taxable compensation inco
Total Compensation 1,061,000
Add: Payroll Deductions 144,000 1,205,000
Less: Non-Taxable Compensation Income (218,000)
Taxable Compensation Income 987,000

PRIVATE EMPLOYEE RANK AND FILE:

Basic compensaton, net of P32k mandatory deductions & 533,000 Rice Subsidy
Overtime pay 21,000 Uniform Allowance
Vacation expenses of the employee paid by employer 24,000 Vacation leave credits
Cost of living allowance (COLA) 12,000 Sick leave credits
Pre-computed daily transportation allowance 16,000 De Minimis Benefits
Rice subsidy (12 cavans worth P2,600 each) 31,200
13th month pay 50,000 Vacation Expenses
Monetized unused leave credit (10 VL and 8 SL) 18,000 13th month pay
Uniform allowance 9,000 Excess De Minimis Benefits
Total compensation income 714,200 Total
Less: Exclusion Threshold
Presentation in ITR of Employee: Taxable 13th and Other Be
Gross Compensation Income
Total Compensation 714,200 Mandatory Deductions
Add: Payroll Deductions 67,000 781,200 Exempt Benefits:
Less: Non-Taxable Compensation Income (178,000) Daily Transport Allowanc
Taxable Compensation Income 603,200 Exempt De Minimis
Exclusion Threshold
Total Non-Taxable Income

Regular Compensation Inco

Supplemental Compensatio
COLA
Overtime Pay
Taxable 13th and Other Be
Taxable Compensation Inco

WITHHOLDING TAX ON COMPENSATIONReference Illustration 6, Requirement 3 for a different approach

Collecting the income tax at source upon receipt of the income.
Applies to all employed individuals.
Agent = Employer
Payroll Periods:
Gross Compensation xxx Daily
Less: Mandatory Contribution (xxx) Weekly
Non-Taxable Benefits (xxx) Semi-Monthly
Taxable Income xxx Determine what payroll period it is. Monthly
Less: Base Amount @ Perio (xxx)
Excess xxx
Multiply by: Incremental Tax xx%
Add: Prescribed Minimum T xxx
Total Withholding Tax xxx This is deducted from taxable income to determine the net payroll due

COMPLIANCE
 WITHHOLDING TAX ON COMPENSATION (SUBSTITUTED FILING S
FILED BY EMPLOYER MONTHLY ANNUALLY
BIR Form 1601-Cyear if
succeeding 1604-CF
canlendar
Deadline
Compensation December
Payment or Income Tax year
Withheld) on or before
January 31 of the succeeding year.
BIR Form 2316: deemed substitute to BIR Form 1700 of the employee under substitu

ILLUSTRATION 1
Regular Compensation Income: Amount
Salary (618k + 30k WT) 648,000 Productivity Incentive Bonus 14,000
Supplementary Compensation: Rice Subsidy 30,000
Profit Sharing Bonus 10,000 Uniform and clothing allowan 10,000
Commission Income 32,000 Vacation Leave Credits 18,000
Taxable 13th and OB 34,400 Actual Medical Benefits 35,000
Taxable Compensation Inc 724,400 Laundry Allowance 12,000
Christmas Gift 15,000
Gross Compensation Income 134,000
Total Compensation 1,098,000
Add: Payroll Deductions 47,700 1,145,700 13th Month Pay
Less: Non-Taxable Compensation (421,300) Excess De Minimis Benefits
Taxable Compensation Income 724,400 Total
Less: Exclusion Threshold
Mandatory Deductions Taxable 13th and OB
SSS Contributions 7,200
PhilHealth Contributions 6,000
Union Dues 4,500 17,700
Exempt Benefits
Separation Pay 250,000
Exempt De Minimis Bene 63,600
Exclusion Threshold 90,000 403,600
Non-Taxable Compensation 421,300

ILLUSTRATION 2

Regular Compensation 1,123,000

Supplemental Compensation 80,000
Taxable 13th month and OB 14,000
Taxable Compensation Incom 1,217,000
Less: Base Amount (800,000)
Total 417,000
x Incremental Tax Rate 30.00%
Add: 130,000
Income Tax Due 255,100
Less: Withholding Tax on Co (197,500)
Income Tax Payable 57,600

ILLUSTRATION 3 - MINIMUM WAGE EARNER

Regular Compensation 24,000 Exempt basic pay
Supplemental Compensation 20,000 Exempt overtime pay and night-shift differential pay
Taxable 13th month and OB 0
Taxable Compensation Incom 44,000
Add: Tips from customers 30,000 Other Income
Taxable Income 74,000

ILLUSTRATION 4
Regular Compensation 271,500 (200k + 16.5k + 30k + 25k) Gross Compensation Income
Supplemental Compensation 0 (26k + (10k - 5k) + 26k) - 90kMandatory Deductions
Taxable Compensation Incom 271,500 Exempt Benefits
Less: (250,000) Taxable Compensation Inco
Total 21,500 Less:
x Incremental Tax Rate 20.00% Total
Income Tax Due 4,300 x Incremental Tax Rate
Less: Withholding Tax (16,500) Income Tax Due
Income Tax Refund (12,200) Less: Withholding Tax
Income Tax Refund

ILLUSTRATION 5
CLERK SUPERVISOR
Regular Compensation 105,000
Supplemental Compensation 60,000 210,000 (180K + 30K)
Taxable 13th month pay and 0 (13k - 90k) 0 (13k - 90k)
Taxable Compensation Incom 60,000 315,000 375,000

ILLUSTRATION 6 - WITHHOLDING TAX ON COMPENSATION

REQUIREMENT 1 REQUIREMENT 2:
Net Pay before Withholding T 19,142 Weekly Salary 10,000
Less: Semi-Monthly Base (16,667) Mandatory Deductions (500)
Excess 2,475 Exempt Benefits (1,000)
x Incrmental Tax Rate 25.00% Taxable Compensation Inco 8,500
Add: 1,250 Less: Semi-Monthly Base (7,692)
Withholding Tax on Compensa 1,869 Excess 808
x Incrmental Tax Rate 25.00%
REQUIREMENT 1 Add: 577
Net Pay before Withholding T 19,142 Withholding Tax on Compens 779
Withholding Tax on Compensa (1,869)
Net Payroll due to employee 17,273
d of the DOLE

mployer's T,B, or P
ith/without regard to period.

r performance bonus

on income.

tock price of the company.

-detemined price fixed on a grant date

hheld by the broker

% if more than 1 year, 100% if less than 1 year

r value of stocks > exercise price

UITY-SETTLED OPTION:

n of the employer, they should be considered

factors of production. Usually enjoyed

able even if at a net loss.
security, USVA, SSS, GSIS

ation to those who contracted covid

alth, goodwill, contentment or efficiency of employees.

nimis even if not in the following list:

ATORY LIMITS

oyee per semester

1,500/6)
of 50kg rice
m
um

um
oyee per annum
minimum wage on a per

000 - enitre amount is

13th month pay and other benefits

efit subject to final fringe benefit tax

ry + P5,000 cash gift

FORMANCE-BASED):
her benefits
ot include those of M and S employees)
he employer

regulatory limits)

or the year.

tion earned BEFORE

nimum wage

except to employees of the following:

national Tax Affairs Division (ITAD)

ns even in foreign countries.

duct of profession of the employer

ectively execute their duties.

or paid through the employee.

nt expenses subject to accounting or liquidation
es incurred in the performance of their duties
cers and employes under the General Appropriation Act

esentation pre-computed on a daily basis

to ensure its smooth operations

d period after

epresenting a provision or a privilege

of the farm (in the form of

business - other income

De Minimis Non-Taxable Other Taxable

gular Compensation: 80,000
andatory Deductions
gular Compensation (1.044M - 80k) 964,000
pplemental Compensation:
18,000
24,000
15,000
th month pay and other benefits:
ristmas Bonus 87,000
ristmas Gift 5,000
iform Allowance 12,000 6,000 6,000
12,000 48,000 98,000
clusion Threshold 90,000 (90,000)
138,000 8,000
tal Non-Taxable Compensation (add the deductions) 218,000
xable excess 13th month pay and other benefits (8,000) 8,000
xable compensation income 987,000

ANK AND FILE: Amount Limit Excess MANAGERIAL/SUPERVISO

31,200 24,000 7,200 Rice Subsidy
iform Allowance 9,000 6,000 3,000 Uniform Allowance
cation leave credits 10,000 10,000 0 Vacation leave credits
k leave credits 8,000 0 8,000 Sick leave credits
 Minimis Benefits 58,200 40,000 18,200 De Minimis Benefits

cation Expenses 24,000

th month pay 50,000 13th month pay
cess De Minimis Benefits 18,200 Less: Exclusion Threshold
92,200 Taxable 13th and Other Benef
ss: Exclusion Threshold (90,000)
xable 13th and Other Benef 2,200 Mandatory Deductions
Exempt Benefits
andatory Deductions 32,000 Daily Transport Allowance
empt Benefits: Exempt De Minimis
Daily Transport Allowance 16,000 subject to accounting/liquidation Exclusion Threshold
Exempt De Minimis 40,000 Total Non-Taxable Income
Exclusion Threshold 90,000
tal Non-Taxable Income 178,000 Vacation Expenses
Excess De Minimis Benefits
gular Compensation Inco 568,000 (533k + 35k) Fringe Benefit - FBT
pplemental Compensation:
12,000 Regular Compensation Inco
Overtime Pay 21,000 Supplemental Compensation:
xable 13th and Other Benef 2,200 COLA
xable Compensation Inco 603,200 Overtime Pay
Taxable 13th and Other Benef
Taxable Compensation Inco

different approach

yroll Periods: Each of the payroll periods have a compensation range

and a specified tax rate in accordance with the range
to compute for the prescribed withholding tax.

mine the net payroll due to the employee.

employee under substituted filing system

Limit Excess
0 14,000 It exceeds 10,000 so the whole amount is included in taxable other benefits
24,000 6,000
6,000 4,000
15,000 3,000
10,000 25,000
3,600 8,400
5,000 10,000
63,600 70,400

54,000
70,400
124,400
(90,000)
34,400
 349,500
(16,000)
(62,000)
271,500
(250,000)
21,500
20.00%
4,300
(16,500)
(12,200)

REQUIREMENT 3:
Semi-Monthly Salary 35,000
Mandatory Deductions (4,100)
Taxable Compensation Inco 30,900
Less: Semi-Monthly Base (16,667)
Excess 14,233
Add: Overtime Pay 12,000
Total 26,233
x Incremental Tax Rate 25.00%
Add: 1,250
Withholding Tax on Compens 7,808
Alternative Approach (Simpler):
What are we trying to determine?
1. Total De Minimis 12,000
2. Total Non-Taxable Compensation Income 218,000
3. Taxable excess 13th month pay and other 8,000
4. Total compensation income 987,000

Uniform Allowance 12,000

Christmas Bonus 87,000

Christmas Gift 5,000
Excess Uniform Allowance 6,000 (12k - 6k limit)
Total Other Benefits 98,000
Less: Exclusion Threshold (90,000)
Taxable Excess 13th and OB 8,000

Mandatory Deductions 80,000

Exempt Benefits
RATA 18,000
PERA 24,000
Limit of Uniform Allowance 6,000
Excluded from OB 90,000
Total Non-Taxable Compensat 218,000

Regular Compensation 1,044,000

Less: Mandatory Deductions (80,000)
Net Regular Compensation 964,000
Supplemental Compensation:
Honoraria 15,000
Taxable Excess 13th and OB 8,000
Taxable Compensation Incom 987,000

Amount Limit Excess

31,200 24,000 7,200
9,000 6,000 3,000
10,000 10,000 0
8,000 0 8,000
 58,200 40,000 18,200

50,000 Determining FRINGE BENEFITS TAX:

(50,000) Fringe Benefit - FBT 42,200
0 Divide by: Gross-up Rate 65.00%
Grossed up Monetary Value 64,923
32000 Multiply by: Tax Rate 35.00%
Fringe Benefits Tax 22,723
16,000
40,000 Final Tax paid by the employer to the government.
50,000 Presumed withheld out of the fringe benefits of employee.
138,000

24,000
18,200
42,200

568,000 (533k + 35k)

mpensation:
12,000
21,000
0
601,000
e other benefits
FRINGE BENEFITS all other benefits or other incentives of employees other than basic pay
1 REGULAR COMPENSATION - fixed every payroll period
2 SUPPLEMENTAL COMPENSATION - variable and performance-based
3 13TH MONTH PAY AND OTHER BENEFITS - in the form of incentives
4 EXEMPT - furnished for employer's convenience or necessity

For rank and file employees - included as other benefits under 13th month pay and other benefits
For managerial and supervisory employees - excluded in compensation income and subject to final FBT

TAX TREATMENT:
Deductible expense of the employer against his gross income in the computation of his taxable income.

GENERAL CATEGORIES:
1 Management Perquisitie Benefits (Management Perks)
Non-performance based so not compesnsation income
They are given to managers as incentives.

2 Employee personal expenses shouldered by the employer

Entire amount is a fringe benefit even if the expense is in the name of the employer.
Provided: There should not be any proximate business necessity.

Actual Amount of FB Given by Employer xxx

Less: Actual Personal Expense (Fringe Benefit) (xxx)
Excess (Taxable Additional Compensation) xxx

What about hybrid expenses (partly for business and partly for employee incentive)?
Total Hybrid Expense If the employer contributes to the payment of the 50%
x 50% = Business Expense Fringe Benefit, only the portion contributed by the
x 50% = Fringe Benefit employer is taxable as a fringe benefit.

3 Taxable De Minimis Benefits

1 Excess de minimiss over their limits
2 Benefits not included in the de minimis list (considered other benefits)

EXEMPT FRINGE BENEFITS

1 Authorized and exempted from tax under special laws (ex. Employer's contributions)
XPN: Any excess contributed by employer over the mandatory amounts set by law is taxable.

2 Benefits necessary to the trade, business, or profession of the employer = ordinary business ex
3 Benefits furnished principally for the employer's convenience or advantage = ordinary business
4 Retirement, Insurance, Hospitalization benefit plans contributed to by the employer
 5 Benefits given to rank and file employees - not subject to FBT but part of compensation income
6 De minimis benefits within their legal limits

CHARACTERISTICS
1 Final Tax - withheld by the employer at source.
2 Tax upon the FB of employees, not to the employer = applies regardless of employer's identity.
3 Paid by the employer - remitted to the government
4 Grossed-up tax - monetary value given to employees is already net of the final tax
5 Due quarterly - BIR Form 1603Q, due on or before the last day of the month after the quarter withholding wa

STEPS:
1 Determine the monetary value Monetary Value xxx
2 Determine the gross-up rate and fringe benefit tax raDivide by: Gross-up rate xxx
Gross-up Rate = 100% - FBT rate Grossed-up Monetary Valu xxx
FBT Rate = 100% - Gross-up rate Multiply by: FBT Rate xxx
3 Gross up = Monetary Value/Gross-up rate Fringe Benefit Tax xxx
4 Fringe benefit tax = Gross up x FBT Rate

RULES ON VALUATION OF MONETARY VALUE:

1 PAID IN CASH Amount paid for in cash
### XPN: Employer pays for the rent.
MV = Rental Payment x 50%

2 PAID IN KIND The higher between:

### 1 Fair value of the thing given
2 Book value of the thing given (cost - provision for depreciation)
This holds true even if the property is partially used in the business of the employer.

3 FREE USE OF THE EMPLOYER'S PROPERTY

1 MV = Rental Value x 50%
2 MV = Depreciation Value x 50%

Useful Lives:
1 20 years for real properties DV = Value of Property x 1/20 or 5%
2 5 years for movable properties
DV = Value of Property x 1/5 or 20%

Reporting of monetary value ceases from the month the free use is discontinued.
In quarterly reporting, use the quarterly monetary value (depreciation value/4)

SPECIAL GUIDELINES
1 HOUSING PRIVILEGE
 1 Leases - Use of the Employee Rental Payment x 50%
2 Owns - Use
Purchase byofInstallment
the Employee
- Use of the Higher of FMV or Zonal Value x 5% x 50%
Acquisition Cost less interest x 5% x
3 Employee 50%
Higher of acquisition cost or zonal value
4 Purchase
Purchase -- Transfer
Transfer of
of Ownership
Ownership (sale (100%)
Higher of FMV or Zonal Value, less
5 through insufficient consideration) payment by employee (100%)

2 MOTOR VEHICLES Reported in the quarter of theAcquisition

purchase cost MOVABLE (5vehicles
of all motor YEARS not/ 1/5 / 20%)
Owns - Use of the Business and the
1 Employees normally used for business divided by 5
Leases - Use of the Business and the Rental
years xPayments
50% for motor vehicle not
2 Employees normally used for buinsess x 50%
3 Purchases - In the Name of the Employee Acquisition Cost (100%)
Amount of Cash received by the employee
4 Provides Cash for the Purchase - In the (100%)
Name of the Employee XPN: When subject to withholding tax on
Shoulders a Portion - In the Name of the compensation,
Amount shoulderedit is subject to regular tax.
by the employer
5 Employee
Purchase by Installment - In the Name of (100%) Acquisition Cost less interest divided by
6 the Employee
Use of Yacht (presumed not for business 5 years (100%)
Depreciation of a yacht at an estimated
7 use) useful life of 20 years
Note: Depreciation of Yacht qualifies as entertainment, amusement, and recreation expense if used
Note: Notice that there is no zonal value. Zonal Value is mostly used for land, not movable properties lik
Note: Aircragts are deemed solely used for business, hence, they are not subject to FBT.

3 OTHERS
1. Incurred by Employee; Paid by Employer Amount paid or given by the employer
1 2. Incurred and Paid by Employee; (100%)
Amount paid or given by the employer
2 Household Expenses (100%)
the extent of the difference between the Annual Monetary Value = (12% - Actual
3 market rate and actual rate granted (12% Rate) x Principal Amount of Loan
borne by the employer for his employees in Amount paid or given by the employer
4 social and athletic clubs or other similar (100%)
5 -Expenses
70% of theforcost
Foreign Travel ticket (30% is considered
of a first-class Amount shouldered by the employer:
fringe benefit)
Substantiation Requirement:
- For Business
6 Holiday Mettings
and Vacation - supported by officialAmount
Expenses
shouldered
communication bybusiness
from the employer
associates abroad indica
T,B, or P; (100%)
Amount shouldered by the employer
7 Life or health
- there insurance
is a written and other non-life
contract/employee bond of Basically
(100%) insurance premiums paid by the
8 insurance premiums or similar amounts in employer where neither the company nor
excess of what the law allows the employee are beneficiarires.
FRINGE BENEFIT TAX RATE EMPLOYEES
R or C NRA
Fringe benefit tax rates 35% 25%
Grossed-up rates 65% 75%
bject to final FBT

able income.

Examples of benefits under 2 and 3:

Scholarship program for an employee for future use of business
Car incentives to medical doctors so they can be on call anytime
Car incentives to travelling company salesman
Free transportation services to employees working at distant facilities
Mobile phone allowance to secretaries required to handle inquiries
Sleeping quarters to field engineers and staffs working on remote facilities
 Sleeping quarters to military personnel so they can be on call anytime
Housing units for an empoyer and his family to ensure availability anytime
Helicopters to fishing employees for locating schools of fish
Helicopters to mining engineers for mineral exploration purposes
Personal aircraft to CEO if travelling across different countries for business relations
yer's identity.

e quarter withholding was made

of the employer.
 FREE USE OF PROPERTY Exempt Housing Privileges:
FREE USE OF PROPERTY 1. Military Officials of the AFP, PAF, Philippine Army and Philippine Nav
FREE USE OF PROPERTY 2. Housing unit within a maximum of 50 meters from business premises
PAID IN KIND XPN: Can be located further for health or safety requirements
PAID IN KIND 3. Temporary housing for an employee for 3 months or less

EARS / 1/5 / 20%)

FREE USE OF PROPERTY
FREE USE OF PROPERTY
PAID IN KIND

PAID IN CASH

PAID IN CASH
PAID IN KIND
PAID IN KIND
reation expense if used solely for entertainment of guests or clients.
not movable properties like motor vehicles.

PAID IN CASH
PAID IN CASH
PAID IN CASH
PAID IN CASH
PAID IN CASH

associates abroadPAID
indicating purpose
IN CASH
PAID IN CASH
PAID IN CASH
 Army and Philippine Navy
s from business premises
ty requirements
months or less
DEALINGS IN PROPERTIES
Dealings with ordinary assets and capital assets other than domestic stocks and real properties.

Selling Price or Amount Realized from Sale xxx

Less: Tax Basis or Adjusted Basis of Asset D (xxx)
Gain or Loss xxx

EXPANDED
1 SELLING PRICE OR AMOUNT REALIZED FROM SALE
1 Amount of Cash Received xxx
2 Fair Value of Non-Cash Properties Received xxx
3 Excess of Liability Assumed over Tax Basis xxx
Total Realized Amount xxx

2 TAX BASIS
1 For Assets acquired by Purchase
1 Acquisition Cost (for capital assets, non-depreciable OA, if purchased for inadequate consideratio
1 Purchase Price
2 Tax Assumed
3 Acquisition-related Costs

2 Depreciated Cost or Book Value (for depreciable OA)

2 For assets received by exchange - FAIR VALUE of asset received

3 For assets received by way of gratuitous title

1 Donation - whichever is lower of:
1 Tax Basis on the hand of the donor or the last preceding owner by whom it was not acquired
2 Fair market value at the date of gift.
2 Inheritance - fair value of the property on the date of death

4 For assets received by way of tax-free exchanges

1 UNDER INITIAL ACQUISITION OF CONTROL
Tax Substituted Basis
Tax Basis of Old Shares Exchanged xxx
Add: Gain recognized on the transfer xxx
Less: Cash or other properties received (xxx)
Tax Basis of New Shares Received xxx

Note: 1 When gain <<<< value of cash + property, Tax Basis of NEW = Fair Value of NEW
2 When gain >>>> value of cash + property, Tax Basis of NEW = Tax Basis of OLD
2 Share-for-Share SWAP pursuant to a merger/consolidation
Merger a corporation acquires all or substantially all (at least 80% of the assets, including c
Consolidation when two or more corporations merged to form one corporation

The gains or losses through this are not recognized. In effect, it is merely a replacement of shares o
absorbed corporation with them being integrated as shareholders of the acquiring corporation. Ther

Tax Basis for NEW = Tax Basis for OLD

Share Acquisitions Shares GIVEN in Exchange

Issuance of OWN Shares
ACQUIRED CONTROL
Investment in XX Shares
DID NOT ACQUIRE Issuance of OWN Shares
CONTROL Investment in XX Shares
INCREASE IN Issuance of OWN Shares
CONTROLLING INTEREST Investment in XX Shares
Issuance of OWN Shares
STEP-UP ACQUISITIONS
Investment in XX Shares
NET ASSETS OF XX Issuance of OWN Shares
(SUBSTANTIALLY ALL
ASSETS) Investment in XX Shares
ACQUISITION OF NOT Issuance of OWN Shares
SUBSTANTIALLY ALL
ASSETS Investment in XX Shares

Recapitalization Schemes:
1 Reducing par value of stock
2 Conversion of debt to equity by issuance of common stocks

Reincorporation - literally the transfer of net assets and issuance of par values to become a new c

Tax Basis for the Transferee:

Original basis in the hands of the transfer xxx
Add: Gain recognized to transferor xxx
Tax Basis of new shares acquired xxx

Alternatively:
Lower of FV of shares or property exchanged and the basis of the transfe
Add: Cash or other properties exchanged
Tax Basis of new shares acquired
 3 GAINS OR LOSSES
1 Ordinary Gain included in gross income subject to RIT; taxable in full
Ordinary Loss item of deductions from gross income; deductibe in full

Reminder: 1 Bonds, debentures, notes are OA if owned by banks or trust companies.

2 ROPA by banks are considered OA

2 Net Capital Gaiincluded in gross income subject to RIT

Net Capital Lo not a deduction; unnecessary business expenses

DETERMINATION OF NET CAPITAL GAIN OR LOSS

1 INDIVIDUAL subject to holding period rule
1 held for < 1 year (short-term) - 100% of the capital gain or loss is recognized
2 held for > 1 year (long-term) - 50% of the capital gain or loss is recognized

Example Format:
ITEMS SOLD ACQUIRED DATE SOLD GAIN(LOSS)
Car, Laptop, etc. 8/14/2022 2/14/2024 100,000
Home appliances, Books, etc. 12/28/2023 11/26/2024 (160,000)

2 CORPORATIONalways 100% of the capital gain or loss is recognized

PRESENTATION IN THE INCOME TAX RETURN NET CAPITAL LOSS CARRY OVER
Net Sales/Revenues/Receipts/Fees xxx Deduction against net capital gain of t
Add: Other taxable income from operation xxx LIMIT 1 - Net income before dealings in
Total Sales/Revenues/Receipts/Fees xxx LIMIT 2 - Available net capital gain in th
Less: Cost of Sales or Services (xxx) LIMIT 3 - Actual net capital loss
Gross Income from Operations xxx It may be used for one year only and a
Less: Allowable Deductions Any unused net capital loss can no long
1 Business Expenses xxx
2 Ordinary Loss xxx (xxx) Net income before dealings in properties
Net Income xxx Add/Less: Dealings in ordinary assets
Add: Non-Operating Taxable Income Net income before dealings in capital as
1 Ordinary Gain xxx Add/Less: Dealings in capital assets
2 Net Capital Gain xxx xxx Net Capital Gain (Loss)
Taxable Income xxx Carry-over: Lowest of the 3 Limits
Net Capital Gain
RATIONALE OF THE LIMITS:
LIMIT 1 - Tax Benefit Rule: The taxpayer only benefits up to the amount of Limit
the 1 - Net income before dealings in
net income which the capital loss will erase and save from taxation. Limit 2 - Net Capital Gain in the followin
Limit 3 - Actual Net Capital Loss
LIMIT 2 - If the net capital loss carry-over exceeds this, it would create
another capital loss in the following year which breachers the one-year Effect on Net Income:
carry-over rule under the NIRC (since effectively, the net capital loss Net income before dealings in capital as
carry-over can be carried over once again to the succeeding year). Add: Net Capital Gain
Net Income
cks and real properties.

urchased for inadequate consideration)

owner by whom it was not acquired by donation.

Alternatively:
Tax Basis of Old Shares Exchanged xxx
Add: Tax Basis of Other Properties Exchan xxx
Less: Return of Capital (xxx)
Tax Basis of New Shares Received xxx

s of NEW = Fair Value of NEW

s of NEW = Tax Basis of OLD
at least 80% of the assets, including cash) of the properties of another corporation.
m one corporation

it is merely a replacement of shares of stocks of the shareholders of the

ers of the acquiring corporation. There is no disposal of stocks.

Status
EXEMPT
EXEMPT
EXEMPT
CGT
EXEMPT
EXEMPT
EXEMPT
EXEMPT
EXEMPT
CGT
EXEMPT
CGT

ance of par values to become a new corporation

xxx
xxx
xxx
s or trust companies.

Rationale: In accordance with the ability to pay theory, unrealized capital gains
are taxable only when realized or severed from the capital through disposal.
The one-time lump sum taxation of the capital gains will be too heavy for individuals
who have held onto these gains for a long time (since they build up overtime).

H-PERIOD % GAIN(LOSS)
long-term 100% 100,000
short-term 50% (80,000)
20,000 Net Capital Gains

T CAPITAL LOSS CARRY OVER

duction against net capital gain of the following year subject to the following limits:
MIT 1 - Net income before dealings in capital assets in the year the net capital loss was sustained
MIT 2 - Available net capital gain in the following year
MIT 3 - Actual net capital loss
may be used for one year only and applicable only to individuals.
y unused net capital loss can no longer be used in future periods.

t income before dealings in properties xxx xxx

d/Less: Dealings in ordinary assets xxx/(xxx) xxx/(xxx)
t income before dealings in capital asset xxx/(xxx) xxx/(xxx)
d/Less: Dealings in capital assets xxx/(xxx) xxx/(xxx)
t Capital Gain (Loss) xxx/(xxx) xxx/(xxx)
rry-over: Lowest of the 3 Limits xxx (xxx)
t Capital Gain xxx

mit 1 - Net income before dealings in capital assets

mit 2 - Net Capital Gain in the following year
mit 3 - Actual Net Capital Loss

ect on Net Income:

t income before dealings in capital asset xxx/(xxx) xxx/(xxx)
d: Net Capital Gain ZERO xxx
xxx xxx
DEDUCTIONS FROM GROSS INCOME
1 Business expenses incurred by a taxpayer engaged in business or in the practice of a profession.
They benefit only the current accounting period since they are costs of generating income or gains for the c
1 Matching Principle - only business expenses which are incurred to generate income, gains, or profits s
2 Related Party Rule - gains are taxable; losses are not deductible; subject to transfer pricing rule
1 Members of a family (brothers and sisters, spouse, lineal ascendants and descendants)
2 Direct or indirect controlling individual of a corporation (ownership of more than 1/2 of the voting s
3 Corporation under direct or indirect control by or for the same individual
4 Grantor and fiduciary of any trust
5 Fiduciaries of trusts with the same grantor
6 Ficudiary of a trust, and the beneficiary of such trust
Except for liquidation losses incurred from a related party -> DEDUCTIBLE
3 Withholding Rule - no deduction is allowed unless the withholding tax is withheld and remitted by the t
XPN: Expenses will still be deductible even if the withholding tax and the penalties are paid at the
or reinvestigation and not at the due date.

1 Withholding Tax on Compensation - BIR Form 1601-C

2 Final Withholding Tax - BIR Form 0619-F
3 Expanded Withholding Tax - BIR Form 0619-E
1 Payments to suppliers of goods - 1% (applied to top withholding agents only)
2 Payments to suppliers of services - 2% (applied to top withholding agents only)
Exceptions:
1 Rentals of properties or films/Toll fees to refineries - 5%
2 Professional services to:
1 Individual professionals, brokers, agents, entertainers
5% if with sworn declaration that his gross receipts < P3M in a year
10% if no sworn declaration or if a VAT taxpayer
2 Corporations
10% if with sworn declaration that their gross incomes < P720k in a year
15% if no sworn declaration
3 General Professional Partnerships - 0%
3 Embalmers by funeral companies - 1%
4 Additional payments to government personnel from importers, shipping and airline com
agents for overtime services - 15%
3 Income distribution by:
1 Estates and trusts to heirs and beneficiaries - 15%
2 GPPs to partners - 10%
4 Payments made by credit card companies - 50% x 1%

If VAT Supplier: Withholding tax is based on the gros

Gross Amount Due xxx gross amount due (which includes
 Less: Output VAT (Gross x 12/1 (xxx) Output VAT should not be considere
Gross Income xxx because it is a tax that should be offs
x Withholding Tax Rate xx% and then remitted to the government
Withholding Tax xxx

4 LEGITIMATE
1 incurred in and for the current taxable period
2 Not a capital expenditure
3 Pertains to the business or profession of the taxpayer.
4 Not contrary to law, public policy, or morals (bribes, kickbacks, protection fees, revolutionary taxes
5 Substantiated with receipts or other documents
5 ORDINARY AND NECESSARY
Necessary = reasonable and essential to the development, management, operation, and conduct
Ordinary = normally incurred by other taxpayers und er the same line of business.
XPN: Extraordinary expense can be deductible if its connection and necessity to the busines
6 ACTUAL
Paid or resulted to an incurrence of an obligation to the taxpayer.
If LOSS, it must be sustained or realized by the taxpayer in a closed and completed transaction (n
for indemnification or reimbursement from other parties exist).
ex. loss on lawsuit is sustained when final judgment is rendered without expectation of further app
ex. fire loss on insured property is sustinaed when final reimbursement is received from the insure

2 Personal expenses are not deductibe but rather already the P250,000 annual income exemption in the tax ta
3 Capital expenditures are expenses that benefit future accounting periods. Initially recorded as assets and
1 Property, Plant, and Equipment
1 Land used currently or intended to be used in the business
Tax Basis: COST
Deducted when? WHEN SOLD
2 Depreciable properties (land improvements, buildings, building improvements, machineries, furnitu
Tax Basis: DEPRECIABLE COST = Acquisition Cost - Expected Salvage Value
Deducted when? ALLOCATED OVER THE USEFUL LIFE OF THE PROPERTY

Allocation/Depreciation Methods:
1 Straight-line method
2 SYD Method
3 Declining Balance Method (150% or 200%)
4 Methods prescribed by the Secretary of Finance upon recommendation of the Com

Note: The taxpayer and the CIR can enter into a written agreement on the estimated usefu
Any change in the agreed rate and useful life is applied prospectively starting on the
or registered mail is rendered by the initiating party to the other party
 2 Intangible Assets
Those that lose their value over time should be expensed over whichever is LOWER between:
1 LEGAL life
2 Expected USAGE life

3 Inventory
Tax Basis: COST
Deducted when? WHEN SOLD or USED IN BUSINESS
Presentation: Deducted outright from gross sales in the measurement of gross income from

For goods, use Cost of Goods Sold:

Beginning Inventory xxx
Add: Net Purchases xxx
Less: Ending Inventory (xxx)
Cost of Goods Sold xxx

For supplies and tools, use Supplies Expense (same computation as COGS).

4 Prepaid Expenses
Tax Basis: COST
Deducted when? AS THEY EXPIRE or AS THEY ARE USED IN BUSINESS OR PROFESSION
Presentation under:
1 Cash Basis
Cash Basis Income, unadjusted xxx
Less: Prepayments, beginning (xxx) Deducted because they are assumed
Add: Prepayments, ending xxx Added back because they are only d
Cash Basis Income, adjusted xxx

2 Accrual Basis - no problem with prepayments as they are only expensed when actually inc

SPECIAL CONSIDERATIONS
1 Property Repairs and Improvements
1 When they significantly increase the value or prolong the useful life of properties, they are deemed ca
With their capitalization, there is a need to determine the adjusted tax basis of the property.
Adjusted Tax Basis = Original Tax Basis + Cost of Repairs and/or Improvements

2 FV of property increases due to repairs, improvements, or additions.

Capitalized to the extent of the appreciation in fair value
Adjusted Tax Basis = Original Tax Basis + Cost of Repairs and/or Improvements
 3 FV of Property is unknown after repairs.
Adjusted Tax Basis = Original Tax Basis + (Actual Repair Cost > Original Tax Basis)
The repair cost up to the original tax basis is deductible as repair expense or loss (in case of repairs due

4 Restores the value or functionality of the property without causing increase in FV or useful life
DEDUCTED AS OUTRIGHT EXPENSE.

5 Replacements of Old or Destroyed Properties

Tax basis of OLD property = Deductible as a LOSS
Cost of the REPLACEMENT property = NEW TAX BASIS

6 Cost of demolishing old buildings

Should be net of any salvage scrap
Treated as additional cost of acquisition capitalized as part of the new building.

2 Asset-Acquisition Related Costs

1 In-transit insurance If directly related to the acquisition, they are
2 Title guarantee insurance capitalized to the GOGS and are expensed
3 Freight through COGS when sold.
4 Finder's fee
5 Commissions Cost of financing treatment is at the option of the taxpayer.
6 Import Duties
7 Other Taxes (Excluding VAT for VAT Taxpayers)

3 Security Issue Costs

1 Cost of registering shares to SEC
2 Cost of printing bond or stock certificates
3 Brokers' commission on selling stocks or bonds
NOT DEDUCTIBLE. They are instead deducted against the proceeds of such securities.

4 Manufacturing Expenses Non-Manufacturing Costs - Admin

1 Cost of Raw Materials and Supplies Used Expensed as incurred or paid.
2 Labor
3 Overhead (utilities, maintenance, security, supplies and depreciation)
Capitalized as part of the COGS.
Expensed through COGS when sold.
Presentation: Deducted agains sales in determining the reportable gross income from operations.

Raw materials, beginning xxx

Add: Net Purchases xxx
Raw materials available for use xxx
 Less: Raw materials, ending (xxx)
Raw materials used xxx
Direct Labor xxx
Factory overhead xxx
Total manufacturing costs xxx
Add: WIP, beg xxx
Total cost of goods placed into process xxx
Less: WIP, end (xxx)
Cost of goods manufactured xxx
Add: Finished goods, beginning xxx
Total cost of goods available for sale xxx
Less: Finished goods, ending (xxx)
Cost of goods sold xxx

ACCOUNTING METHODS
1 CASH BASIS DEDUCTIONS
Cash expenses xxx expenses are deductible when paid, regardless of when they accr
Amortization of prepayments xxx Deducted in the period they expire or are used in business or prof
Depreciation of properties xxx Deducted over the useful life of the property
xxx

2 ACCRUAL BASIS DEDUCTIONS

Accrued Expenses xxx expenses are deductible when accrued, regardless of when they
Amortization of prepayments xxx Deducted in the period they expire or are used in business or prof
Depreciation of properties xxx Deducted over the useful life of the property
xxx

VALUE-ADDED TAX
1 VAT TAXPAYER
Has output VAT which can offset any input VAT from the purchase from any VAT supplier.
Therefore, input VAT is not claimable as a deduction.

2 NON-VAT TAXPAYER
The input VAT is capitalized as part of costs of the purchase.
It is claimable as a deduction.

TAX REPORTING CLASSIFICATIONS

1 Cost of Sales or Cost of Services - deducted outright against sales/revenues/receipts/fees
2 Ordinary/Regular allowable itemized deductions - necessary and ordinary expenses pair or incurred
3 Special allowable itemized deductions - other deductions under the NIRC or special laws not arising from norm
4 Net Operating Loss Carry-OVer (NOLCO) - excess of expense deduction over gross income during a taxable
MODE OF CLAIMING DEDUCTIONS
1 Itemized Deductions - list every item of business expense they claim as deductions subject to appliccable ded
2 Optional Standard Deductions - in lieu of the itemized deductions, regular or special, including NOLCO. Fixed

EXPANDED:
1 ORDINARY ALLOWABLE ITEMIZED DEDUCTIONS
Not directly connected with the selling of goods or services.

1 INTEREST EXPENSE
Requisities for deductibility:
1 Valid indebtedness
2 The indebtedness is that of the taxpayer
3 The indebtedness is connected with the taxpayer's T, B, or P
4 Interest expense has been paid or incurred during the year
5 This interest was stipulated in writing
6 This interest is legally due
7 The interest payments are not between related taxpayers
8 It is not incurred to finance petroleum corporations
9 Must not have been capitalized
10 Must not be expressly disallowed by law to be deducted
11 For taxpayers who are only subject to income tax on income earned within the PH, interest accrue
indebtedness actually incurred to provide funds for use in connection with the conduct of T, B, or P
12 Reduced by 20% of interest income subject to final tax
Application:
1 Individuals - subject to tax table - ALWAYS APPLIED 20%
2 DC:
1 25% Corporate Income Tax Rata - apply the 20% reduction
2 20% Corporate Income Tax Rate = not applicable, deduct the full interest expen
3 RFC - 25% Corporate Income Tax Rate - apply the 20% reduction
4 NRFC - not applicable
5 THRIFT BANKS - exempt/not applicable

Determination of the 20% Arbitrage Limit = (Corporate Income Tax Rate: 25% - Final Tax on

Rationale: Intended to recover the tax savings of taxpayers who take advantage of higher regular
interest expense deduction and a lower final tax on deposit interest income.

Gross Interest Expense xxx

Less: Arbitrage Limit (xxx) (Gross Interest Income subject to FIT x 20%)
Deductible Interest Expense xxx aka Net Interest Income
 x Regular Corporate Tax 25%
Tax Savings from allowable int.e xxx

Net Interest Income xxx

Less: Payment of Interest Expense (xxx)
Add: Tax savings from allowable interest expe xxx
Overall net tax savings ZERO

What are not deductible interest expense?

1 Discount of pre-deducted interest (prepayment) applicable to future periods for individual taxpaye
Note: If the borrower is a corporation, the pre-deducted interest on indebtedness can be claimed
2 Interest payments with related parties
3 Indebtedness is incurred to finance petroleum operations
4 Interest on preferred stock - these are dividends, not deductible on interest
5 Interest on personal loans
6 Interest on redeemable preferred shares
7 Imputed interest

2 TAXES Paid or incurred within the taxable year in connection with the taxpayer's T, B or P.
Not Deductible:
1 Philippine income taxes except fringe benefit tax - not costs of earning income buet are imposition
2 Foreign income tax, if claimed as tax credit - not a cost of earning income; you can only choose
3 Estate tax and donor's tax
4 Special assessment - not a tax expense, it is capitalized to the cost of the land
5 Business Taxes
1 VAT - generally recognized by businesses as liability upon making sales, not a cost
2 Percentage Tax - deductible by current regulatory development standards
3 Excise Tax - this is normally included already in the selling price, so it is natural to deduct it
These form part of the cost of purchases, so they are deductible through cost of sales. They are n

Deductible Taxes:
1 Percentage Tax
2 Excise Tax
3 Documentary Stamp Tax
4 Occupational Tax
5 License Tax
6 Fringe Benefit Tax
7 Local Taxes except special assessment
8 Community Tax
9 Municipal Tax
10 Foreign income tax if not claimed as tax credit
 11 Interest for late payment of tax as interest expense

FOREIGN TAXES only taxpayers taxable on world income can claim deduction or tax credit for fo
1 Deduction Approach 2
Taxable Income from PH xxx
Taxable Income from Country 1 xxx
Taxable Income from Country 2 xxx
Total Taxable Income xxx
Less: Foreign Income Tax Expense (xxx)
Taxable Income - World xxx
x Corporate Tax Rate xx%
Corporate world income tax due xxx
Less: PH Quarterly Estimated Tax Payments (xxx)
Income Tax Payable xxx

Determination of Foreign Tax Credit:

1 One Foreign Country: LOWER between the following:
1 Actual Foreign Income Tax PAID
2 (Foreign Taxable Income/World Taxable Income) x Philippine Income Tax Due or Corporate

2 Multiple Foreign Countries: LOWER between the following:

1 Per Country Tax Credit
1 Actual Foreign Income Tax PAID
2 (Foreign Taxable Income/World Taxable Income) x Philippine Income Tax Due or Cor
2 World Tax Credit:
(Total Foreign Taxable Income/World Taxable Income) x Philippine Income Tax Due

3 LOSSES actually sustained and not compensated by insurance or other indemnity

Requisites for Deductibility:
1 Loss must be a business expense, rose from trade, business or profession, and must not be comp
2 A declaration of loss must have been filed by the taxpayer within 45 days from the date of dis
3 The loss must not have been claimed as a deduction for estate tax purposes (double deducti
4 If loss of income, it must already be recognized.

Types of Losses:
1 Ordinary LossesDeductible in full
1 Loss on disposal or destruction of any ordinary asset
1 Total Destruction:
1 Old Property TB = claimed as a loss
2 Replacement Cost is capitalized to New Property TB
2 Partial Destruction
 1 Restoration Cost = Expensed up to the extent of the TB before the casualty
2 Restoration Cost > TB before casualty = Excess to be capitalized to property
2 Loss due to voluntary removal of building incident to renewal or replacement
3 Permanent or irreversible loss in value of assets, only to the extent actually realized
4 Abandonment loss

2 Capital Losses Deductible only up to the extent of capital gains

Special Considerations:
1 Loss of Value of Assets
GR: Not deductible since it's temporary and can be reversed in the future.
XPN: If actually sustained, it is deductible.
1 If asset is mandatorily retired, the impairment loss (cost - fair value), is deductible upon disp
2 Prohibition of use and requiring submission/destruction of assets by the government would r
in value of the assets. They are deductible upon confiscation or submission to the authoritie

2 Loss on Insured Property

Tax Basis of the Property > Insurance Reimbursement = Excess deductible in the year of insuran

3 Abandonment Losses
Accumulated Exploration and Development Expenditures + Tax Basis of Equipment Directl
Notice of Abandonment must be filed with the CIR.
If restored into service, the amount of abandonment loss previously claimed shall be reveresed
in the year of resumption or restoration.

4 Losses from wagering transactions or passive activities

Deductible only up to the extent of the gains from the same transaction.

4 BAD DEBTS actually ascertained worthless and were charged off within the taxable year
1 Bad Debts representing loss of income - deductible only under accrual basis.
Example: Accrued Interest in an investment becoming worthless
2 Bad Debts reprenting loss of capital - deductible under both cash and accrual basis
Example: Principal loaned to another entity becoming worthless due to bankruptcy.

Special Consideration: Domestic Banks and Trust Companies

Securities becoming worthless is considered as bad debt expense for them.
Securities = bonds, debentures, notes, certificates, or other evidence of indebtedness with interes

Subsequent recovery: Include the previously allowed deduction as part of gross income in the ye
income tax benefit.
5 DEPRECIATION gradual exhaustion in the value of a tangible business property
1 Life tenancy to a property
Person A holds the property up to his death.
It is transferred to Person B upon A's death.
Deduction is computes as if the life tenant (Person A) was the absolute owner.

2 Properties held in trust

The deduction is apportioned between the income beneficiary and the trustee in accordance to
instrument creating the trust (contract), or on the basis of the trust income allowable to each.

Basically: 1 Depreciation Expense x Portion Agreed for Beneficiary/Trustee = Allowable Ded

2 Depreciation Expense x Gross Income allowable to Beneficiary/Trustee/Total Gr

3 Depreciation on revalued property

Amortization of the revaluation surplus is not an actual cost = not deductible
Impariment losses are only deductible upon disposal or retirement of the asset

4 Depreciation on Passenger Vehicles

To be considered depreciable:
1 There is substantiation of the purhcase such as official receipts bearing the total purchas
identification numbers.
2 There is substantiation of the direct connection or relation of the vehicle to the development
trade, business, or profession of the taxpayer.
3 Only one vehicle for land transport can be subjected to depreciation. Its value must not ex
4 Yachts, helicoters, airplanes or aircrafts and land vehicles which exceeded the thresh
XPN: The main line of business is transport operation or lease of transportation equipment a

6 AMORTIZATION OF INTANGIBLE ASSETS

Same concepts as depreciation.

7 DEPLETION provision for the periodic return of capital investments in wasting assets
Companies with depletion expenses are usually Mining and Oil Companies who are engeaged in was

Tax Treatment for their Expenditures

1 Tangible Development Costs (cost of acquisition and improvement):
Capitalized and deducted through allowance for depreciation subject to the following rules:
1 Petroleum Corporations
1 DIRECTLY USED - either straight-line or declining balance method; UL is lower
2 INDIRECTLY USED - only staright-line basis on an estimated useful life of 5 yea
2 Mining Corporations
1 EXPECTED LIFE < 10 YEARS OR LESS - use normal rate of depreciation
 2 EXPECTED LIFE > 10 YEARS - depreciate over between 5 years and 10 years

2 Intangible Exploration and Development Costs

1 Petroleum Corporations drilling wells, preparing wells for petroleum production
2 Mining Corporations diamond drilling, tunneling

1 Before commercial production - capitalized as cost of wasting asset

2 After commendement of commercial production, if incurred with:
1 Non-producting wells or mines = DEDUCTED in the period paid or incurred
LIMIT: 25% of the net income from mining operations
The expense not deducted in the current year is brough forward to the succeedi

2 Producing wells or mines, at the option of the taxpayer:

1 Capitalized and amortized using the cost-depletion method
2 Deducted in the year paid or incurred

Cost-Depletion Method
Depletion Expense = Year-End Tax Basis x (Units Extracted/Total Estimated Units)
Year-End Tax Basis = Last Year's Tax Basis - Annual Depletion Expense
Total Estimated Units = Units Extracted for the Year + Estimated Remaining Units

8 CHARITABLE AND OTHER CONTRIBUTIONS

Made to the government or non-government organizations.

Requisites for deductibility:

1 Donee should be a domestic institution.
2 Income of donee must not inure to the benefit of any private entity.
3 Donee must issue a Certificate of Donation (BIR Form 2322) including a donor's statement of v
4 Taxpayer must be engaged in trade or business
5 Contribution is valued at the tax basis of the propery donated
6 If donation > P50,000, the donor shall file a Notice of Donation to the RDO where he is registere
within 30 days upon receipt of the Certiciate of Donation.

Classification of Contributions:
1 FULLY DEDUCTIBLE (PTA) DONATIONS TO:
1 Priority Activities
Ex. Education, Health, Youth and Sports Development, Human Settlements, Culture and Sp
2 Treaties (exception to the rule that the donee institution must be a domestic institution)
3 Accredited Domestic Non-Government Organizations with certifications issued by the fol
1 DSWD - charitable and or social welfare organizations, foundations, and associations
2 DST - research and other scientific activities
 3 Philippine Sports Commission - for sports development
4 National Council for Culture and Arts - for cultural activities
5 Commission on Higher Education - for educational activities
The accredited donee will issue to the donor a Certificate of Donation. Further, for donatio
is required to notify the RDO with jurisdiction to his place of business within 30 days from t

Requisites for full deductibility:

1 NGO is organized and operated exclusively for said purposes, no income is inured to
2 They make use of the contribution not later than the 15th day of the third month afte
3 Administrative expenses do not exceed 30% of its total expenses.
4 Members of the Board of Trustees do not receive remunerations.
5 If to be liquidated, assets will be distributed to another non-profit domestic insitution
6 The amount of contribution must be valued at acquisition cost.

2 CONTRIBUTIONS SUBJECT TO LIMIT:

1 To the Government of the Philippines or political subdivisions exclusively for public purpo
2 Donation to non-accredited non-government organizations.

Limit: Based on the taxable income dergived from trade, business, or profession before the dedu
1 10% for individuals
2 5% for corporations

3 CONTRIBUTIONS TO PENSION TRUSTS

1 Defined Contribution Plan
Employer is obligated to make certain amoutns of contribution to the pension funds on a reg
Deductible Expense = Amount of Contributions made by employer to the fund

2 Defined Benefit Plan

Employer guarantees the amount of benefits to the employees.
Deductible Expense = Current Service Cost + (Excess/10 years)
1 Up to the extent of current service cost
2 Excess is presumed funding past service cost and is amortized over 10 years.
This must be followed even if funding of past service cost is expensed outright under F

9 RESEARCH AND DEVELOPMENT COSTS

1 Related to Capital Accounts - capitalized as part of the cost of PPE through Depreciation Expen
2 Related to Capital Accounts - treated as follows at the option of the taxpayer:
1 Outright Expense
2 Deferred Expense amortized over a period not less than 60 months beginning from the mo
taxpayer realizes benefits from the R&D expenditures
10 EXPENSES, IN GENERAL
As long as these are substantiated with official receipts or other pertinent records.
1 Salaries and allowances
2 Fringe benefits
3 SSS, GSIS, PhilHealth, HDMF and other contributions
4 Commissions
5 Outside services
6 Advertising
7 Rental
8 Insurance
9 Royalties
10 Repairs and Maintenance
11 Transportation and travel
12 Fuel and oil
13 Communication, light, and water
14 Supplies
15 Miscellaneous expenses
16 Entertainment, amusement, and recreation expenses (EAR)
Requisities of deductibility:
1 Paid or incurred during the taxable year
2 Connected to the T, B, or P of the taxpayer
3 Not contrary to law, morals, good customs, public policy, or public order
4 Must not have been paid, directly or indirectly, to an official or employee of the government
if it constitutes a bribe, kickback, or other similar payments.
5 Duly substantiated with adequate proof (documents in the name of the taxpayer claiming de
6 Appropriate amount of withholding tax should have been withheld and remitted

Ceiling on Deduction:
1 Sales of Goods or Properties - 0.5% of Net Sales (Gross Sales - SRAD)
2 Sales of Services - 1% of Net Revenues (Gross Revenue - Discounts)
3 Sales of Both - follow Apportionment Formula [(Net Sales or Net Revenue/Total Net Sales

17 Transfer to reserve fund and payments to policies and annuity contracts of insurance com
Not an actual ordinary business expense but a legal requirement. It is a special deduction that re
ordinary allowable itemized deductions.

Required Reserves xxx For Non-Life Insurance = 40% of gross premium le

Less: Prior-Year Reserve (xxx)
Amount Payable (Receivable) xxx If it is positive, it is a deduction; If it is negative, it is

Computation of Taxable Net Income:

 Premium Revenue xxx
Less: Premiums Ceded (xxx)
Net Premiums xxx
Release from Reserve xxx
Gross Income xxx
Less: Ordinary Allowable Deductions
Claims Expense xxx
Commission Expense xxx
Administrative Expense xxx (xxx)
Special Allowable Deduction
Payment to Reserve (xxx)
Taxable Net Income xxx

2 SPECIAL ALLOWABLE ITEMIZED DEDUCTIONS

1 DEDUCTION INCENTIVES UNDER NIRC
Additonal or bonus deductions with no actual cash outlay given by law as rewards to taxpayers who com
with certain policies or support certain government programs.

SUMMARY:
DEDUCTION
Compensation INCENTIVE AMOUNT to
15% of compensation LIMIT
expense for senior senior citizen below poverty None
Compensation
citizen 25%
level of compensation to None
expense for
PWD facility PWDs PWDs below poverty level
50% of improvement costs None
improvement
Jewelry training
50% of training expense None
expense
Apprenticeship labor 50% of labor training
10% of direct labor wage
training expense
Adopt-a-School expense
50% of actual contributions None
contributiojn
Breastfeeding
100% of expense incurred None
promotion Value of actual free legal 10% of gross income from
Free legal assistance
service legal profession
Productivity bonus 50% of productivity bonus None
Manpower training or 50% of grant to rank-and-
None
special studies file employees

1 Additional Claimable Compensation Expense for Senior Citizen Employees

Applicable to: Private Establishments
Deduction: 15% of the Total Salary/Wage

Conditions for Deductibility:

1 Employment continues for at least 6 months.
2 Annual taxable income of the SC < poverty level determined by the NEDA
SC will submit to his employer a sworn certification of this fact.

2 Additional Claimable Compensation Expense for Persons with Disability (PWDs)

 Applilcable to: Private Establishments
Deduction: 25% of the Total Salary/Wage

Conditions for Deductibility:

1 Proof that the PWDs are under their employ, certified by the Department of Labor and Empl
2 The PWD is accredited with the DOLE and the DoH as to his disability, skills, and qualificatio

Presentation:
1 Actual Salaries/Wages = Ordinary Expense
2 25% Additional Salaries Expense = Special Itemized Allowable Deductions

3 Cost of Facilities Improvement for PWDs

Purpose: To provide reasonable accomodation for PWDs
Applilcable to: Private Establishments
Deduction: 50% of the Direct Costs of the Improvements or Modifications

4 Additional TRAINING EXPENSE under the Jewelry Industry Development Act of 1998
Applicable to: Qualified Jewelry Enterprise duly registered and acccredited with the Board of Inves
Deduction: 50% of the training expense incurred in training schemes approved by TESDA

5 Additional LABOR TRAINING EXPENSE under the CREATE Law

Applicable to: Private enterprises with apprenticeship agreements with the trainees pursuant to th
Deduction: 50% of the Labor Training Expenses

Conditions for Deductibility:

1 Certification from DepEd, TESDA, or CHED is secured
2 Deductions shall not exceed 10% of the direct labor wage

6 Adopt-A-School Act of 1998 (RA 8525)

Allows Private Entities to assist a public school in particular aspects of their educational program
The private entity may be an individual in business or practice of profession, a partnership
Assistance may be an adi, contribution or donation in cash or in kind.

Deduction: 50% of the Total Value of Donation

Qualifications of Participating Schools: ALL GOVERNMENT SCHOOLS IN ALL LEVELS

Priority to schools located in the poorest provinces, low income municipalities, and other local gov
severe clasroom shortages, insufficient budget, or having numerous poor but high performing lear

Qualifications of Adopting Private Entity:

1 With credible track record
 2 Existed for at least one year
3 Not yet prosecuted and found guilty of engaging in illegal activities

Conditions for deductibility:

1 Memorandum of Agreement (MOA) - specifies the details of the adoption (minimum of 2 yea
2 Expense is substantiated with sufficient evidence which shall set forth the following:
1 amount of expenses being claimed as deductions
2 direct connection or relation of the expenses to the entity's participation in the Adopt-a
3 proof or acknowledgment of receipt of the contributed or donated property by the recip
3 Apply for Certificate of Tax Incentive and Tax Exemption
4 Submit the following documents to the Secretariat:
1 Duly authorized or approved MOA
2 Duly notarized deed of donation
3 Official receipts and other documents showing the actual value of the contribution or d
4 Certificate of Title and Tax Declaration, if the donation is in the form of property
5 Other adequate records showing direct connection or correlation of the expense being

Valuation of deductions:
1 Cash = ACTUAL AMOUNT appearing in the official receipt issued by the donee
2 Assistance other than money
1 Personal Proeprty = ACQUISITION COST
2 Consumable Goods = WHICHEVER IS LOWER BETWEEN: (1) Acquisition Cost and
3 Services = WHICHEVER IS LOWER BETWEEN: (1) Value of services rendered fixed
4 Real Property = WHICHEVER IS LOWER BETWEEN: (1) Fair Value (higher of zonal

Reminder:
The contributions here are also deductible under Ordinary Allowable Itemized Deductions, either a

7 Expanded Breastfeeding Promotion ACt of 2009 (RA 10028)

Purpose: To encourage, protect, and support the practice of breast-feeding.
Deduction: Total Cost of Compliance with Requirements
Note: The same amount of cost is also part of an ordinary itemized deductions
Applicable to:
1 A taxable taxpayer
2 All health or non-health facilities, establishments and institutions shall comply within 6 month
3 Secure a "Working Mother-Baby-Friendly Certificate" from the DoH to be filed with the BIR

8 Free Legal Assistance

Applicable to: Lawyers or professional partnerships providing pro-bono legal services
Requirement for availment: Secure a certification from the Public Attorney's Office (PAO), the Dep
or association accredited by the Supreme Court indicating that the legal services to be provided a
 and that the agencies cannot provide the said legal services.

Deduction: Whichever is LOWER between:

1 Actual Free Services
2 10% of Gross Income derived from the actual performance of the legal profession

Reminder: The 60 hour mandatory free legal assistance rendered to indigent clients must be

9 Additional Productivity Incentive Bonus Expense

Applicable to: Business Enterprise which adopts a productivity incentive program
Deduction: 50% of the Total Productivy Bonuses

10 Local Trainings and Special Studies (granted for the convenience of the employer)
Applicable to: Business enterprises providing trainings and special studies to rank-and-file emplo
Deduction: 50% of the total grant for local trainings and special studies

2 SPECIAL DEDUCTIONS UNDER THE NIRC OR SPECIAL LAWS

Not actual expenses. Mandated by law as deductible against gross income as a matter of tax treatment

1 Income Distribution made by Taxable Estates or Trusts

Included by the recipient heir or beneficiary in his gross income.

Gross Income of the Estate/Trust xxx

Less: Ordinary Allowable Deductions (xxx)
Special Allowable Deductions
Income Distribution to Beneficia (xxx) 100% of distributed income subjec
Net Income xxx

2 Dividend Distribution of a Real Estate Investment Trust (REIT)

REIT = publicly listed corporation established principally for the purpose of owning income-genera
Mandated to distribute 90% of its distributable incoem as dividends to shareholders.
These dividends are treated as special deductions.
Considered as paid on the last day of such taxable year.
Net Income of REIT is always 10%.

3 Transfer to Reserve Fund of Cooperatives

Cooperatives are required to maintain reserves for their protection and stability.
Deduction: Amount transferred to reserve fund out of the net surplus from unrelated activities

4 Expanded Senior Citizen's Act of 2003 (RA 9257) Only purchase of these goods have d
20% discount in certain establishments. Only purchase of these services hav
 1 Gross Sales x 20% = SC Discount 5% discount has no vat exemption, b
2 (Gross Receipts from SC/80%) x 20% = SC Discount

Conditions for deductibility:

1 Gross sales to be discounted must be exclusively consumed, used, or enjoyed by the se
2 Gross selling price and the sales discount must be separately indicated in the official recei
3 Only the actual amout of the discount is deducted from gross income, net of VAT
4 Deduction only for the same taxable year that the discount is granted.
5 Business is required to keep a separate and accurate record of sales, including the name,
discounts granted, date of transaction, and invoice number for every sale transaction to sen

5 Discounts to Disabled PErsons (RA 7277)

20% discount in certain establishments.
1 Gross Sales x 20% = SC Discount
2 (Gross Receipts from SC/80%) x 20% = SC Discount

NET OPERATING LOSS CARRY-OVER

Net Operating Loss (NOL) - Allowable Deductions > Gross Income
Net Operating Loss Carry-Over (NOLCO) - Allowable by law to be carried over as a deduction against available
Without NOLCO, the tax would result from recoveries of lost capital, instead of actually earned and realized income

Who can claim NOLC All taxpayers subject to tax on taxable income.

Gross Income subject to Regular Tax xxx

Less: Ordinary Allowable Itemized Deductions (xxx)
Net Operating Loss Carry-Over (NOLCO) xxx

Treatment (KEEP THE DATES IN MIND!!!)

NOLCO Incurred in 2020 and 2021 - carried over a period of 5 years.
NOLCO incurred for fiscal year ending on or before June 30, 2021 and June 30, 2022 - carried over a period of 5 ye
After this 2 year period - Original 3-year carry-over period

Requisites for deductibility:

1 Taxpayer should be taxable during the taxable year when the NOLCO was incurred (following the tax benefit
2 There has been no substantial change (75% of either paid up capital or nominal value of OS) in the own
NOLCO is a privilege that is not transferrable. Since the owners for whom the loss recoupment is intended ar

Rules in Carry-Over of NOLCO:

1 Claimable using FIFO
2 Claimed only up to the extent of the business net income. It cannot be deducted against a subsequent net op
3 Any unused NOLCO after the 3 year carry over period will expire.
 4 Cannot be claimed as deduction for net income on Compensation Income if the Individual is a Mixed Income
5 For Mining Companies without benefit of incentives under the Omnibus Investment Code of 1987, any
in their first 10 years of operations is allowed to be carried over a period of 5 years.
6 NOLCO in Merger or Consolidation:
1 NOLCO of the Acquirer before the M/C = Continues to be deductible even after M/C subject to the rul
2 NOLCO of the Acquiree before the M/C = Not allowed as a deduction
Rationale: There is substantial change in ownership of the acquired corporation, thus NOLCO, which is
transferrable, cannot be transferred by law to the surviving corporation.

OPTIONAL STANDARD DEDUCTIONS (OSD)

In lieu of the allowable itemized deductions including NOLCO.

ITEM OF DEDUCTION INDIVIDUALS (40%) CORPORATIONS (40%)

Cost of Sales/Cost of Services? YES NO
Ordinary Allowable Itemized Deductions? YES YES
Special Allowable Itemized Deductions? YES YES
Net Operating Loss Carry-Over (NOLCO)? YES YES

Who can claim OSD? All taxpayers who are subject to tax on taxable net income except:
1 NRA-ETB
2 Taxpayers mandated to use itemized deductions:
1 Exempt taxpayers with no income subject to regular income tax
2 Taxpayers with income solely subject to special or preferential tax rates
3 Special Corporations subject to preferential rate on taxable income
4 Individuals enjoying preferential tax rates under special incentive laws

Things to Remember:
1 Signify the option to claim OSD in the first quarter ITR (otherwise, itemized deduction option is presumed)
This election is irrevocable in the taxable year the return is made.
2 If you opted for OSD, you are not required to submit FS with your ITR.
3 Individuals should keep reocrds pertaining to gross sales/receipts during the taxable year.
4 Corporations should keep records pertaining to their gross income during the taxable year.

For GPP:
Either the GPP or the Partner may avail of OSD.
However, partners in GPP cannot claim OSD against their share in net income.
This means that their share in GPP net income is still added to their taxable income after deducting the OSD.

For Partner using OSD:

Gross income from operation xxx
Less: OSD (xxx)
Net Income (Loss) xxx
Add: Non-Operating Income
Share in GPP Net Inc xxx This will be the case for the partner with either itemized deduction
Taxable Income xxx
practice of a profession.
enerating income or gains for the current period.
enerate income, gains, or profits subject to RIT are deductible.
bject to transfer pricing rule
dants and descendants)
ip of more than 1/2 of the voting stocks)

x is withheld and remitted by the taxpayer to the government

x and the penalties are paid at the time of audit investigaion

holding agents only)

thholding agents only)

entertainers
eipts < P3M in a year

ncomes < P720k in a year

importers, shipping and airline companies or their

thholding tax is based on the gross income not on the

oss amount due (which includes output VAT).
tput VAT should not be considered as an income
cause it is a tax that should be offset with Input VAT
d then remitted to the government.

protection fees, revolutionary taxes to rebels)

nagement, operation, and conduct of the T, B, or P.

e line of business.
ection and necessity to the business can be demonstrated.

osed and completed transaction (no right of recourse

without expectation of further appeal

sement is received from the insurer

ual income exemption in the tax table for individuals.

s. Initially recorded as assets and then either depreciated or amortized.

mprovements, machineries, furniture and fixtures, leasehold improvements)

pected Salvage Value
E OF THE PROPERTY

pon recommendation of the Commissioner of Internal Revenue

greement on the estimated useful life and depreciation rate of any property.
plied prospectively starting on the taxable period when notice by certified mail
y to the other party
 whichever is LOWER between:

asurement of gross income from operations

ion as COGS).

N BUSINESS OR PROFESSION

ducted because they are assumed to be expensed this year despite being paid for last year
ded back because they are only deductible next year despite being paid for this year

e only expensed when actually incurred

of properties, they are deemed capital expenditures.

ax basis of the property.
r Improvements

r Improvements
Original Tax Basis)
ense or loss (in case of repairs due to partial destruction).

ncrease in FV or useful life

new building.

on, they are

are expensed

at the option of the taxpayer.

ch securities.

n-Manufacturing Costs - Administrative and Selling Expense

pensed as incurred or paid.

ncome from operations.

paid, regardless of when they accrue
ire or are used in business or profession
the property

accrued, regardless of when they are paid

ire or are used in business or profession
the property

y VAT supplier.

s/receipts/fees
xpenses pair or incurred
r special laws not arising from normal business
ver gross income during a taxable year (special deduction incentive)
ductions subject to appliccable deduction ceilings set by the law
r special, including NOLCO. Fixed % of gross income (for corporations) and gross sales/receipts (for individuals)

rned within the PH, interest accrued must be from

ection with the conduct of T, B, or P.

0% reduction
able, deduct the full interest expense
20% reduction

me Tax Rate: 25% - Final Tax on Interest Income: 20%) / Corporate Income Tax Rate: 25%

take advantage of higher regular tax savings created from

est income.

ncome subject to FIT x 20%)

ure periods for individual taxpayers
t on indebtedness can be claimed as deduction in the year of granting the loan.

the taxpayer's T, B or P.

arning income buet are impositions on net income accruing only after income is earned
ning income; you can only choose either claiming it as a deduction or as a tax credit

cost of the land

n making sales, not a cost

pment standards
g price, so it is natural to deduct it
e through cost of sales. They are not tax expenses.
 claim deduction or tax credit for foreign taxes paid
Tax Credit Approach
Taxable Income from PH xxx
Taxable Income from Country 1 xxx
Taxable Income from Country 2 xxx
Taxable Income - World xxx
x Corporate Tax Rate xx%
Corporate world income tax due xxx
Less: Tax Credits
Philippine Income Tax Credit (xxx)
Foreign Tax Credit (xxx) (xxx)
Income Tax Payable xxx

pine Income Tax Due or Corporate World Income Tax Due (if taxable within and without)

Philippine Income Tax Due or Corporate World Income Tax Due (if taxable within and without)

Philippine Income Tax Due

other indemnity

profession, and must not be compensated.

hin 45 days from the date of discovery of the cause of the loss.
ate tax purposes (double deduction is not allowed).
 of the TB before the casualty
ss to be capitalized to property
wal or replacement
he extent actually realized

air value), is deductible upon disposal of the asset.

assets by the government would result to total impairment
ion or submission to the authorities.

s deductible in the year of insurance settlement

Tax Basis of Equipment Directly Used are allowed as deductions.

iously claimed shall be reveresed and included in gross income

within the taxable year

accrual basis.

ash and accrual basis

thless due to bankruptcy.

se for them.
dence of indebtedness with interest coupons or in registered form

n as part of gross income in the year of recovery to the extent of the

ss property

absolute owner.

and the trustee in accordance to the provisions of the

ust income allowable to each.

neficiary/Trustee = Allowable Deduction to them

ble to Beneficiary/Trustee/Total Gross Income = Allowable Deduction to them

ot deductible
ent of the asset

eceipts bearing the total purchase price with the specific motor vehicle

of the vehicle to the development, operation and/or conduct of the

preciation. Its value must not exceed P2,400,000.

icles which exceeded the threshold cannot be depreciated.
ease of transportation equipment and such vehicles are used in said operations.

ts in wasting assets
panies who are engeaged in wastinga assets.

ion subject to the following rules:

ning balance method; UL is lower between 10 years and life permitted by CIR
on an estimated useful life of 5 years

e normal rate of depreciation

ver between 5 years and 10 years

petroleum production

period paid or incurred

is brough forward to the succeeding years until fully deducted.

letion method

ed/Total Estimated Units)

pletion Expense
imated Remaining Units

including a donor's statement of values

n to the RDO where he is registered

uman Settlements, Culture and Sports, Economic Developments

ust be a domestic institution)
certifications issued by the following:
ns, foundations, and associations
 of Donation. Further, for donations exceeding P1M, the donor
of business within 30 days from the receipt of the Certificate.

purposes, no income is inured to private individuals.

15th day of the third month after the close of the taxable period.
total expenses.
emunerations.
other non-profit domestic insitution organized for a similar purpose.

ons exclusively for public purpose

ss, or profession before the deduction of any contributions:

ution to the pension funds on a regular basis.

employer to the fund

s amortized over 10 years.

e cost is expensed outright under Financial Accounting.

PPE through Depreciation Expense

of the taxpayer:

60 months beginning from the month the

 ent records.

or public order
al or employee of the government or to its GOCCs

name of the taxpayer claiming deductions)

withheld and remitted

Sales - SRAD)
e - Discounts)
es or Net Revenue/Total Net Sales and Net Revenue) x Actual EAR]

uity contracts of insurance companies

nt. It is a special deduction that regulations expressly includes as part of

rance = 40% of gross premium less returns and cancellations; For Marine Cargo Risks = amount of premium on insurance dur

s a deduction; If it is negative, it is a release from reserve treated as an income in the year of release
w as rewards to taxpayers who comply

izen Employees

ed by the NEDA
n of this fact.

with Disability (PWDs)

he Department of Labor and Employment (DOLE)
his disability, skills, and qualifications.

wable Deductions

Modifications

Development Act of 1998

acccredited with the Board of Investments (BOI)
schemes approved by TESDA

ts with the trainees pursuant to the Labor Code of the Philippines

spects of their educational program within an agreed period of time.

ice of profession, a partnership, or a corporation, teaming up with DepED, CHED, or TESDA.

HOOLS IN ALL LEVELS

municipalities, and other local government units experiencing
rous poor but high performing learners.
 of the adoption (minimum of 2 years, pre-terminable only when the adopting private entity is dssolved)
hall set forth the following:

entity's participation in the Adopt-a-School Program

d or donated property by the recipient public school

ctual value of the contribution or donation

on is in the form of property
or correlation of the expense being claimed as deduction ot the adopting entity's participation in the program

pt issued by the donee

TWEEN: (1) Acquisition Cost and (2) Value at Date of Donation

) Value of services rendered fixed in the MOA (2) Actual Expense incurred by the Donor
EN: (1) Fair Value (higher of zonal or assessed value) at the time of contribution or (2) Depreciated Cost of Property

able Itemized Deductions, either as fully deductible or subject to limit.

ast-feeding.

zed deductions

utions shall comply within 6 months after its approval

the DoH to be filed with the BIR

o-bono legal services

c Attorney's Office (PAO), the Department of Justice (DOJ),
he legal services to be provided are within those defined by the SC
e of the legal profession

dered to indigent clients must be done first before this.

ncentive program

nience of the employer)

ial studies to rank-and-file employees and accredited by TESDA
cial studies

come as a matter of tax treatment.

0% of distributed income subject to regular income tax

purpose of owning income-generating real estate assets.

ividends to shareholders.

on and stability.
surplus from unrelated activities (taxable)

ly purchase of these goods have discount: medicines, medical supplies, medical equipment
ly purchase of these services have discount: restaurants, lodging, transportation, places of leisure, health services, funeral
% discount has no vat exemption, but applicable on basic necessities and prime commodities (hardware materials)

med, used, or enjoyed by the senior citizen.

ately indicated in the official receipt or sales invoice
gross income, net of VAT
t is granted.
ord of sales, including the name, TIN, ID, gross sales/receipts,
r for every sale transaction to senior citizens

as a deduction against available net income.

tually earned and realized income.

2022 - carried over a period of 5 years

incurred (following the tax benefit rule)

nominal value of OS) in the ownership of the business or enterprise.
he loss recoupment is intended are no longer in the business, NOLCO is no longer allowed.

ucted against a subsequent net operating loss.

 the Individual is a Mixed Income Earner.
s Investment Code of 1987, any operating loss

e even after M/C subject to the rules above.

orporation, thus NOLCO, which is not

CORPORATIONS (40%)
NO Can be claimed as an itemized deduction even under option for OSD.
YES
YES
YES

1. FOR INDIVIDUALS
- Goods: Accrual - 40% of gross sales (from operating income)
- Services: Cash - 40% of gross receipts (from operating income)
egular income tax - Services: Accrual - 40% of gross revenue (from operating income)
al or preferential tax rates
axable income GROSS SALES = Sales - SRAD
cial incentive laws GROSS RECEIPTS:
= Amounts actually or constructively received during the taxable year
= For sellers of service under the accrual basis of accounting, it is their gross revenue during the taxa
deduction option is presumed)
2. FOR CORPORATIONS - 40% of gross income (operating income + non-operating income)
GROSS INCOME:
e taxable year. For Sellers of GOODS = Gross Sales - SRAD - Cost of Sales + Other Taxable Income
e taxable year. For Sellers of SERVICES = Gross Receipts - SRAD - Cost of Services + Other Taxable Income

income after deducting the OSD.

ner with either itemized deduction or OSD
individuals)
premium on insurance during the last two months last year
ost of Property
ealth services, funeral
re materials)
ss revenue during the taxable year

-operating income)

able Income
Other Taxable Income
INDIVIDUAL INCOME TAXATION

YEAR 2018 TO YEAR 2022

RANGE OF TAXABLE INCOME TAX DUE = A + (B X C)
BASIC ADDITIONAL OF EXCESS
OVER NOT OVER AMOUNT (A) RATE (B) OVER (C)
- 250,000 -
250,000 400,000 - 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

YEAR 2023 ONWARDS

RANGE OF TAXABLE INCOME TAX DUE = A + (B X C)
BASIC ADDITIONAL OF EXCESS
OVER NOT OVER AMOUNT (A) RATE (B) OVER (C)
- 250,000 -
250,000 400,000 - 15% 250,000
400,000 800,000 22,500 20% 400,000
800,000 2,000,000 102,500 25% 800,000
2,000,000 8,000,000 402,500 30% 2,000,000
8,000,000 - 2,202,500 35% 8,000,000

COVERS: 1 Citizens
1 Resident Citizen
2 Non-Resident Citizen
2 Aliens
1 Resident Alien
2 NRA-ETB
3 Taxable Estate
4 Taxable Trust

CLASSIFICATION OF INDIVIDUAL INCOME TAXPAYERS:

1 PURE COMPENSATION EARNER
Subject to withholding tax on compensation deducted by employer from their compensation income.
1 Employee may avail of substituted filing system if he has no other taxable income.
Withholding tax on compensation is considered enough evidence of tax compliance, provided th

Conditions:
1 Employee is a pure compensation earner.
2 Employee received income from only one employer in the Philippines during the taxable y
3 Correct tax is withheld by the employer.
 4 Employee's spouse also complies with all 3 conditions stated above.
5 Employer files the annual information return (BIR Form 1604-CF).
6 Employer issues BIR Form 2316 to each employee.

2 Otherwise, file the Consolidated or Adjustment Return not later than April 15 of the following year.
1 Adjustment Return - required if correct tax due is not withheld by the employer.
Claim Form 2316 as Tax Credit.
Pay residual tax due or claim excess withheld amount as tax credit or tax refund.

Case 1: Concurrent Employment (Employee is employed in multiple companies under different em

Most Likely Problem: Income Tax Due, per table =/= Tax Withheld by Employers

Case 2: Successive Employment (Employee changed employes in the middle of the year)
XPN: File a Consolidated Return covering his total income from both employments.
Most Likely Problem: Income Tax Due, per table =/= Tax Withheld by Employers

Case 3: Employer Error (Tax withheld is erroneous)

Use BIR Form 1700 (no other taxable income) to file an adjustment return.

2 Consolidated Return - required if the employee has other taxable income, either from casual so
1 BIR Form 1700 - for pure compensation earners
2 BIR Form 1701 - for mixed income earners
Claim the BIR Form 2316 given by the employer as tax credit.

Example Format:
Gross Compensation Income xxx
Less: Mandatory Deductions xxx
Exempt Benefits xxx (xxx)
Taxable Compensation Income xxx
Add: Other Income Subject to Regular Tax xxx
Taxable Income xxx
Less: Lower limit of applicable bracket as per tax table (xxx)
x Additional Tax Rate as per tax table xx%
Add: Basic Amount Taxable under bracket xxx
Income Tax Due xxx
Less: Tax Credits
BIR Form 2316 - WT Compensatio xxx
BIR Form 2307 - Creditable/Final xxx (xxx)
Income Tax STILL Due xxx

2 PURE BUSINESS AND/OR PROFESSIONAL INCOME EARNER

 Quarterly Tax Returns Deadline
1st Quarter ITR - 1701Q May 15 of the same calendar year
2nd Quarter ITR - 1701Q August 15 of the same calendar year
3rd Quarter ITR - 1701Q November 15 of the same calendar year
Annual ITR - 1701A April 15, next year

Option to REFUND
Quartery Estimated Tax Payments > Quarterly Tax Due = Excess
At the option of the taxpayer, can be:
1 carried forward to quarters of the succeeding taxable year - irrevocable once selected
2 claimed through tax refund - irrevocable once selected; either cash or tax credit certificate

3 MIXED INCOME EARNER

1 Compensation Income - subject to withholding tax on compensation by their employers
2 Business/Professional Income - reported on a quarterly basis under Form 1701Q
Both incomes are included in the annual Consolidated Return - BIR Form 1701.

Example Format:
Income Tax Due xxx
Less: Tax Credits
1 WT Compensation (Form 2316) (xxx)
2 Expanded WT (Form 2307s) (xxx)
3 Estimated Tax Payments (Form 17 (xxx)
Income Tax Still Due xxx

8% INCOME TAX OPTION

1 Bundled Tax in lieu of:
1 Regular income tax
2 3% general percentage tax

2 Annual Option
1 Indicated in the first quarter ITR or in the first quarter percentage tax return. Irrevocable for the taxa
2 It is valid for as long as the taxpayer remains as a non-VAT taxpayer during the year.
Becomes a VAT taxpayer if their annual sales exceed P3M or when they voluntary register.

3 Paid quarterly and annually

4 Covered Businesses
1 Pure business or professional income earners - will deny him the P250,000 annual income exemption
Total Taxable Income xxx Sales + Other GI subject to RIT
Less: Annual Exempt Income (250,000)
 Net Total xxx
X 8% Optional Income Tax Rate 8%
Tax Due xxx
2 Mixed income earners - income tax from compensation income is separately computed
Taxable Compensation Income xxx
Less: Lower limit of applicable bracket as per t (xxx)
x Additional Tax Rate as per tax table xx%
Add: Basic Amount Taxable under bracket xxx xxx

Gross Sales or Gross Receipts xxx

Add: Other Non-Operating Income xxx
Total xxx
X 8% Optional Income Tax Rate 8% xxx
xxx

Not available to:

1 VAT-registered business taxpayers
2 VAT-exempt business taxpayers:
1 Exempt businesses
2 Businesses specifically subject to other percentage tax
3 Individuals receiving income not subject to business tax:
1 Partners receiving share in net income of a GPP (subject to regular tax)
2 Co-owners receiving share of income of co-owned properties (subject to RIT if for asset preserv
3 Venturers receiving share in net income of an exempt joint venture (subject to regular tax)
4 Heirs or beneficiaries of trust receiving income distribution from estates or trusts (subject to regu

INTERIM TRANSITION TO THE VALUE-ADDED TAX:

If you meet the VAT threshold during the year, you are mandatorily required to change registration from
You will pay VAT starting from the month you became a VAT taxpayer.
8% income tax payments are considered as tax credits against the RIT due.
You will pay 3% percentage tax from the start of the taxable year.
It will be considered a deduction for the taxable year.

TAXABLE ESTATES AND TRUSTS

ESTATE Taxable as an individual if under judicial settlement or administration.
Accounting period of the decedent i
Heirs will be taxable if extrajudicial.
TRUSTS Taxable as an individual if irrevocable (separate and distinct) Consolidated if same grantor, same
Grantor-Trustor is taxable if revocable. If grantor reserved power to revoke

What income is taxable?

1 Income accumulated in trust for the benefit of unborn or unascertained persons
 2 Income accumulated or held for future distribution under the terms of the will or trust
3 Income to be distributed currently by the fiduciary
4 Income collected by a guardian of an infant which is to be held or distributed as the court may direct
5 Income received by estates of deceased persons during the period of administration or settlement
6 Income which, in the discretion of the fiduciary, may be either distributed to the beneficiaries or accum

Income Distribution made by Taxable Estates or Trusts

Included by the recipient heir or beneficiary in his gross income.

Gross Income of the Estate/Trust xxx

Less: Ordinary Allowable Deductions (xxx)
Special Allowable Deductions
Income Distribution to Beneficiary (xxx) 100% of distributed income subject to regular i
Net Income xxx

RETURN OF MARRIED TAXPAYERS

Include income of both spouses, computing separately their individual income tax based on their respective total in
If impracticable, they can file separate returns.
If any income cannot be directly attributed to either of them, it shall be divided equally for the purpose of determini

Example Format: HUSBAND WIFE

Form 2307s (Expanded WT) xxx Income Tax Due of Each
Payments under 1701Qs xxx Less: Tax Credit
Form 2316s (WT Compensation) xxx Tax Still Due
Total Tax Credit xxx xxx

UNMARRIED MINORS - INCOME FROM PROPERTY RECEIVED FROM LIVING PARENTS

Included in the return of the parent.
XPN: 1 Donor's tax has been paid on such property
2 Transfer of property is exempt from donor's tax

PERSONAL EQUITY RETIREMENT ACCOUNTS TAX CREDIT (PERA-TCC)

= 5% of Contributions (excluding those made by the employer)
Contributor Classification PERA-TCC Treatment
Pure Compensation Earner Applied against withholding tax due
Purely in Business/Profession
Overseas or Mi Applied against individual income tax liability
Filipino deriving purely
from abroad Applied against any direct internal revenue tax liability

PERSONS UNDER DISABILITY

If unable to make own return = may be made by a duly authorized agent or representative
They shall be responsible for penalties provided for erroneous, false, or fraudulent returns.
COMPLIANCE
INDIVIDUAL TAXPAYERS
Form 1700 Purely employed taxpayer
Form 1701A Purely in business or profession using OSD or 8% Optional Income T
Form 1701A Mixed Income Earners, Estates and Trusts
CORPORATE TAXPAYERS
Form 1702-RT Corporations subject only to the 25% regular income tax
Fromo 1702-MX Corporations subject to special rate or combination of tax rates
Form 1702-EX Exempt corporations with not ax due
Deadline: 15th day of the fourth month following the taxable year of the taxpayer. Paid upon filing.
REQUIRED
Certificate ATTACHMENTS
of Independent CPA -IN THE ANNUAL
if annual INCOMEreceipts,
sales, earnings, TAX RETURN
or output exceed
1 P3M
2 Supplemental form for taxpayers with multiple activities per tax regime
5. Taxes and Licenses
3 6. Other information to be disclosed in the FS
4 Statement of Management Responsibility (SMR)
5 BIR Form 2304: Certificate of Income Payments not subjected to Withholding Tax
6 BIR Form 2307: Certificate of Creditable Withheld at Source
7 Duly approved Tax Debit Memo, if applicable
8 Proof of Prior Year's Excess Credits, if applicable
9 Proof of Foreign Tax Credits, if applicable
10 For Amended
Certificate Return,
of Tax Proof
Treaty of Tax Paymentissued
Relief/Entitlement and the
by Return Previously
the concerned Filed
Investment
11 Promotion Agency (IPA)
WHEN AND WHERE TO FILE AND PAY TAX
E-filed and Tax E-paid on or before April 15th of each
For eFPS Taxpayers: 1. Authorized Agent Banks (AAB) located within the
year.
For Non-eFPS Taxpayers: jurisdiction
For No Payment Returns (tax With the RDO of the RDO
where thewhere taxpayer
taxpayer is registered
is registered or has
returns with negative or zero 2. Revenue
his Collection
legal residence Officer
or place (RCO) under
of business, thethe
or with
taxable income) With the Office of the Commissioner or Revenue
For Non-Resident Taxpayers concerned RCO under the same RDO.
District Office No.39, South Quezon City.
r compensation income.
axable income.
e of tax compliance, provided the employer withheld the correct tax.

e Philippines during the taxable year.

s stated above.

n April 15 of the following year.

by the employer.

dit or tax refund.

iple companies under different employers):

held by Employers

in the middle of the year)

m both employments.
held by Employers

tment return.

ble income, either from casual sources or from business or profession.

whether from casual sources or from business or profession

cable once selected
or tax credit certificate

tion by their employers

der Form 1701Q
Form 1701.

ax return. Irrevocable for the taxable year when made.

during the year.
hen they voluntary register.

0,000 annual income exemption

subject to RIT
arately computed
If the compensation income does not exceed P250,000, the unutilized
deduction cannot be deducted against business income.

Tax Due - Compensation Income

Tax Due - Business Income

Total Tax Due

subject to RIT if for asset preservation only)

ture (subject to regular tax)
estates or trusts (subject to regular tax)

quired to change registration from non-VAT to VAT taxpayer before the end of the next month.

counting period of the decedent is terminated at the date of death.

nsolidated if same grantor, same beneficiary.

grantor reserved power to revoke on a part of the corpus, it shall be included in his taxable income.
Example Format:
Operating Income of Trusts xxx
Less: Special Itemized Deductions
 Income pertaining to grant (xxx)
Distribution to beneficiaries (xxx)
as the court may direct Taxable Net Income xxx
istration or settlement
he beneficiaries or accum Trusts does not include employee trust funds if the following requisites are met:
1. Contributions are made by the employer, employees or both for the purpose of distributing
the earnings and principal to the employees in accordance with such plan.
2. It is impossible to use any part of the corpus for purposes other than the exclusive benefit
of the employees before the satisfaction of all liabilities with respect to employees under trust.
3. Any amount actually distributed to any employee is taxable to him in the year distributed to
the extent that it exceeds the amount contributed by him.

ted income subject to regular income tax

based on their respective total income.

ually for the purpose of determining their respective taxable incomes.

HUSBAND WIFE
ome Tax Due of Each xxx xxx
ss: Tax Credit xxx xxx
xxx xxx xxx Aggregate Amount Payable

G PARENTS INSTALLMENT PAYMENT OF THE REGULAR INCOME TAX

Only two equal installments (if tax due is > P2,000).
First - Paid at the time the return is filed.
Second - Due on or before October 15 following the close of the calendar year.

If any installment is unpaid, the whole amount of tax becomes due and payable together
with delinquency penalties.
ose of distributing

exclusive benefit
loyees under trust.
year distributed to

able together
CORPORATION
INCLUDES:Partnerships, Joint-Stock Companies, Joint Accounts, Associations, or Insurance Companies
EXCLUDES:GPP and Joint Ventures for Construction or Enagement in Petroleum, Coal, Geothermal, and other Ene

GENERAL STRUCTURE:
1 Domestic Corporations (DC)
25% or 20% on World Taxable Income World Taxable Income x 20%/25% = RCIT
1 Exempt Domestic Corporations
1 Exempt Non-Profit Corporations under NIRC
2 Government agencies and instrumentalities
3 Certain government-owned and controlled corporations
4 Cooperatives
2 Special Domestic Corporations
1 Proprietary Educational Institutions and Non-Profit Hospitals
2 Foreign Currency Deposit Units (FCDUs) and Expanded FCDUs
3 PEZA or BOI-registered enterprises
3 Regular Domestic Corporations

2 Resident Foreign Corporation (RFC)

25% on Philippine Taxable Income Philippine Taxable Income x 25% = RCIT
1 Special Resident Foreign Corporations
1 Expanded FCDUs
2 Regional Area Headquarters (RAH) and Regional Operating Headquarters (ROH) of Multinationa
3 International Carrier
4 PEZA or BOI-registered enterprises
2 Regular Resident Foreign Corporation

3 Non-Resident Foreign Corporation (NRFC)

25% Final Tax on Philippine Gross Income Gross Revenues/Receipts + Income subject to FIT = Total Gross
1 Special Non-Resident Foreign Corporations
1 Non-resident Cinematographic Film Owner, Lessor, or Distributor
2 Non-resident Lessor of Vessels, chartered by Philippine Nationals
3 Non-resident Owner or Lessor of Aircraft, Machineries, and Other Equipment
2 Regular Non-Resident Foreign Corporation

LEASE OR CHARTER OF
LESSOR
CINEMA FILMS VESSELS AIRCRAFT EQUIPMENT
Domestic 25% WTI 25% WTI 25% WTI 25% WTI
Resident Foreign 25% PTI 2.5% GPB 2.5% GPB 25% PTI
Non-Resident Foreign 25% PGI 4.5% PGI 7.5% PGI 7.5% PGI
 WTI World Taxable Income
PTI Philippine Taxable Income
PGI Philippine Gross IncomeGross Receipts - Direct Cost of Services
GPB Gross Philippine BillingsGross Receipts

EXPANDED
1 Domestic Corporations (DC)
GR: 25% on World Taxable Income
XPN: 20% on World Taxable Income under BOTH of the following conditions:
1 Asset Test - Total Assets < P100M (excluding land on which their office, plant, and equipment ar
They are micro-, small, and medium-sized enterprises (MSMEs) by asset size.
Use book values for purposes of the asset test.
2 Income Test - Taxable Income subject to RIT < P5M

The land on which their office, plant, and equipment are situated must be separately accounted for in

1 Exempt Domestic Corporations

Reporting Requirements:
1 No Taxable Income - File BIR Form 1702-EX using itemized deductions
2 With Taxable Income - File BIR Form 1702-RT
3 With Income subject to Special Tax Rates - File BIR Form 1702-MX

Qualification of Tax Exemption:

1 Secure a Tax Exemption Ruling from the BIR, valid for 3 years unless sooner revoked or cance
Deemed revoked when:
1 Material changes in the character, purpose, or method of operation appear and they a
2 Non-renewal of the tax exemption ruling or non-revalidation of previously issued rulin
3 Failure to file an income tax return
2 Only income from related activities is exempt.

RELATED UNRELATED TOTAL

Gross Receipts/Sales xxx xxx xxx
Less: Cost of Services/Sales (xxx) (xxx) (xxx)
Gross Income xxx xxx xxx
Less: Expenses (xxx) (xxx) (xxx)
Net Surplus xxx xxx xxx
X Corporate Tax Rate xx%
Regular Corporate Income Tax xxx

Exemption to the Classification Rule: Non-Profit Educational Institutions

 Income from unrelated operations is still exempt from income tax if used for educational pu

1 Exempt Non-Profit Corporations under NIRC

1 Labor, agricultural, or horticultural organizations
2 Mutual savings bank without capital stock, and Cooperative Bank without capital stock and
3 A beneficiary society, order, or association operating for the exclusive benefit of the membe
4 Cemetery company owned and operated exclusively for the benefit of its members
5 Non-stock corporation or association organized and operated exclusively for R,C,S,A, or C
where no part of its income or asset inures to the benefit of any private person.
6 Business league chamber of commerce, or board of trade, not organized for profit, and no p
7 Civic league or organization not organized for profit, but operated exclusively for the promo
8 Non-stock and nonprofit education institution
9 Government educational institution
10 Organization of purely local character, the income of which consists solely of assessments,
11 Association organized and operated as a sales agent for the purpose of marketing the prod

Requisites for Exemption of Non-Stock, Non-Profit Corporations:

1 Non-stock corporation or association organized and operated exclusively for R,C,S,A, or C
2 All net income or assets must be devoted to its purposes no part of its net income or asset
3 It should not be a branch of a foreign non-stock, non-profit corporation (purely domestic).
4 Meet the following tests:
1 Organizational Test - Consistutive documents exclusively limit its purporses to one o
2 Operational Test - Regular activities must be exclusively devoted to the accomplishm

2 Government Agencies and Instrumentalities

Inherently non-profit because of their public service functions.
Only taxable on income from unrelated activities or income from their properties.

3 GOCCs: Government-Owned and Controlled Corporations

1 GSIS - Government Service Insurance System
2 SSS - Social Security System
3 PHIC - Philippine Health and Insurance Corporation
4 HDMF (RA 11534) - Home Development Mutual Fund
5 RA 10026 - Local Water Districts

4 Cooperatives
1 Cooperatives which transact business only with members
Fully exempt for the following: Taxable Income = Net Income from Unrelated Sou
1 Income Tax
2 VAT and Percentage Tax
3 Donor's Tax
 4 Excise Tax
5 Documentary Stamp Tax
6 Annual Registration Fee

2 Cooperatives which transact business with both members and non-members

1 Accumulated Reserve and Undivided Net Savings < P10M = Similar with Coopera
Taxable Income = Net Income from Unrelated Sources - Reserve Fund Require

2 Accumulated Reserve and Undivided Net Savings > P10M: Fully Taxable for the f
1 Income tax on the full amount allocated for interest on capital
2 VAT transactions with non-members
3 Percentage Tax on all sales of goods or services rendered to non-members.
4 All other internal revenue taxes unless otherwise provided by the law

Surplus: Operating Surplus - non-members

Unrelated Income
Total Taxable Surplus
Less: Reserve Fund Requirment

Operating Surplus - members

Less: Distributions
Reserve Fund
Education and Training Fund
Community Development Fund
Optional Building Fund

Taxable IncomNet Surplus after Reserve from Non-Membe

Net Surplus distributed as interest to membe
Taxable Income
x Corporate Tax Rate
RCIT

All cooperatives regardless of classification are subject to the following:

1 Applicable income tax on unrelated income.
2 CGT
3 DST
4 VAT on Purchases of Goods or Services except VAT exempt importations
5 Withholding tax on wages except for MWEmployees
6 All other taxes for which cooperatives are directly liable and not otherwise expressly e
 2 Special Domestic Corporations

1 Private Educational Insititution and Non-Profit Hospitals

1 Tax Rate:
1 1% between July 1, 2020 to June 30, 2023
2 10% effective July 1, 2023
3 During transition periods, pro-rate it. Example: (1% x 5 months + 10% x 7 months)/12
2 World Taxable Income - subject to pre-dominance test
Gross Unrelated Income > 50% of Total Gross Income from All Sources, net of c

OWNER EDUCATIONAL INSTITUTION HOSPITALS

Private 10% or 1% of taxable income25% or 20% of taxable income
Non-Profit EXEMPT 10% or 1% of taxable income
Government EXEMPT EXEMPT

2 Foreign Currency Deposit Units (FCDUs) and Expanded FCDUs (EFCDUs)

This is a unit or department of a local bank or a local branch of a foreign bank authorized by the B
foreign currency-denominated transactions.

FCDUs Limited to short-term foreign currency transactions

A division of a local bank
EFCDUs Allowed both short-term and longer-term foreign currency transactions
A division of a domestic bank or a resident foreign bank authorized to conduct ban
OBUs A division of a foreign bank
Treated as a regular foreign corporation subject to 25% RCIT.

Summary of Tax Rules FROM

On FCDUs and EFCDUs (E)FCDUsRESIDENTS
or Other Non-
NATURE OF INCOME OBUs Residents Residents
Income from Forex Transactions
Interest Income from:
1 Forex Loans & Receivable EXEMPT 10% FIT EXEMPT
2 Forex Deposits EXEMPT - EXEMPT
Other Forex Income EXEMPT RCIT EXEMPT
Income from Non-Forex Transa RCIT RCIT RCIT
Reminder that these are the income of the FCDUs and EFCDUs.
If the income is from transactions with depositary banks under the expanded system and the taxp
1 Non-Resident = EXEMPT
2 Residents = Interest Income is subject to 15% Final Tax

2 Resident Foreign Corporation (RFC)

1 Special Foreign Corporations

1 Expanded FCDUs
GR: Same tax rules as FCDUs and EFCDUs of domestic local banks.
XPN: All offshore income is EXEMPT. RFCs are only taxable within.

2 RAH and ROH Both are exempt from all kinds of local taxes, except real property tax on
RAH Branch in the Philippines which does not earn or derive income. It acts as a supervisory, co
Exempt from income tax.

ROH Branch in the Philippines which are engaged in business operations

Effective January 1, 2022, subject to 25% RCIT.

3 INTERNATIONAL CARRIERS Distinguished from Philippine Carriers - taxable at 25% of world

Entitites that transport passengers, mailes, and excess cargoes or baggage from the Philippin
1 International Air Carrier
Gross Philippine Billings = Gross Revenue from outbound flights in a continuous
regardless of place of sale or issue, and the place of payment of the ticket or pa
2 International Sea or Shipping Carrier
Gross Philippine Billings = Gross Revenue from outbound flights up to final desti
regardless of place of sale or issue, and the place of payment of the passage o

Tax Rate: GR: 2.5% of the Gross Philippine Billings

XPN: Preferential Rate or Exemption on the Basis of Reciprocity (use same rate they

Why Outbound Flights? These income from these flights originated from the Philippines.

INCOMING OUTBOUND TOTAL

Fares billed in the PH xxx xxx xxx
Fares billed abroad xxx xxx xxx
Total Billings xxx xxx xxx

Total Billings from Outbound Flig xxx

Less: Tickets Refunded (xxx)
Gross Philippine Billings xxx
x Income Tax Rate 2.50%
Income Tax Due xxx

Special Rules:
1 Revalidated, Exchanged, or Endorsed Tickets
 Included in the GPB of the carrying airline if the passenger boards a plane or port or point in

Example: Flight to A was endorsed to another Air Carrier B which airlifted them in the PH
The entire GPB is taxable to Air Carrier B.

2 Excluded from GPB:

1 Passengers who availed the free mileage programs
2 Refunded tickets

3 Transshipments or Interrupted Flights or Voyages

Transshipment - Unloading cargo from one vessel and loading them into another to compl
If it takes place at any port outside the Philippines on another airline, only include the port
corresponds to the flight from the Philippines to the point of transshipment.

Example:
1 Flight to A was transhipped to B to another plane of the same airline - GBP = Entire A
2 Flight to C was transhipped to D to another carrier which airlifted them in HK - GBP =
The rate used is based on the point where they were airlifted.

4 48 Hour Rule on Transient Passengers

Requirements:
1 Commenced from a foreign country
2 Flight will be interconnected in the Philippines to continue the flight
3 Continuance to a foreign destination
4 Same international carrier for both commencement and interconnection

GR: They are not considered as originating from the Philippines if actual departure is mad
from when they stopped in the Philippines before embarking.
XPN: Made by another airline carrier or an international sea carrier, include in GPB

5 Foreign Currency Translation

Whichever is HIGHER of the following conversion rates:
1 Monthly average Airline Rate in the Bank Settlement Plan (BSP) Monthly Sales Repo
2 Bankers Association of the Philippines (BAP) rate

4 BOI OR PEZA-REGISTERED ENTERPRISES

BOI-registered = Given tax holidays
PEZA-registered:
1 Tax holidays
2 5% gross income tax in lieu of all national and local taxes
 3 Non-Resident Foreign Corporation (NRFC)

1 Non-Resident Cinematographic Film Owner, Lessor, or Distributor

25% final tax on their gross income from all sources within the Philippines

2 Non-Resident Lessor of Vessels Chartered by Philippine Nationals

4.5% final tax on gross retnals, lease, or charter fees from leases or charters to Filipino residents.
25% final tax on other items of gross income earned within the Philippines

3 Non-Resident Owner or Lessor of Aircraft, Machineries, and Other Equipment

7.5% final tax on rentals, charters, and other fees.
25% final tax on other items of gross income earned within the Philippines

LEASE OR CHARTER OF
LESSOR CINEMA FILMS VESSELS AIRCRAFT EQUIPMENT
Domestic 25% WTI 25% WTI 25% WTI 25% WTI
Resident Foreign 25% PTI 2.5% GBP 2.5% GBP 25% PTI
Non-Resident Foreign 25% PGI 4.5% PGI 7.5% PGI 7.5% PGI

MINIMUM CORPORATE INCOME TAX (MCIT)

2% of Gross Income 1% between July 1, 2020 to June 30, 2023
Pro-rate any MCIT during transition periods like 2020 and 2023.
Payable when:
1 Zero or Negative Taxable Income Scope: Applicale to every corporqation taxable under RCIT (20%
2 MCIT > RCIT non-profit, exempt, and special corporations with their taxable inc

Timing of Imposition:
X + 4th year of operations

GROSS INCOME
1 Goods Gross Income = Gross Sales - SRAD - Cost of Goods Sold
1 Gross Sales = Cash Sales and Account Sales (accrued)
2 COGS
1 Trading or Merchandising Concern = Invoice Cost + Import Duties + Freight-in + Insurance in Tra
2 Manufacturing Concern = Manufacturing Costs + Freight Cost + Insurance Premiums + Other DA

2 Service Gross Income = Gross Receipts - SRAD - Cost of Services

1 Gross Receipts = Cash Collections (including reimbursement by client for out of pocket costs incurred)
2 COS = Direct costs and expenses incurred to provide the services required by end customers and clien
For banks, COS includes interest expense
EXCESS MCIT CARRY-OVE (MCIT > RCIT)
Tax Credit that is deductible against any RCIT tas due in the immediately succeeding three years.
Uses FIFO method when there are several Excess MCITs.

RELIEF FROM MCIT

1 Upon recommendation of the CIR
2 Upon submission of proof taht the corporation sustained substantial losses on account of:
1 prolonged labor dispute
2 force majeure
3 legitimate business reverses

BRANCH PROFIT REMITTANCE T15% on Total Profits Applied or Earmarked for Remittance (without deduc
Covers: 1 RFCs Do not include in Total Profits1. Interest, dividends, rents, royalties,
2 ROHQs 2. Remuneration for technical services
3 FCDUs or OBUs of foreign banks 3. Salaries, Wages
4 International Carriers 4. Premiums, Annuities, Emoluments
Insurance Companies
Coal, Geothermal, and other Energy Operations under a service contract with the government

dquarters (ROH) of Multinational Companies (MNC)

ome subject to FIT = Total Gross Income Within x 25% = Total FINAL TAX

r Equipment
ir office, plant, and equipment are situated)
MEs) by asset size.

be separately accounted for in their Annual FS.

unless sooner revoked or cancelled.

od of operation appear and they are inconsistent with the basis of exemption
idation of previously issued rulings

ional Institutions
me tax if used for educational purposes.

e Bank without capital stock and operated for mutual purpose

e exclusive benefit of the members
e benefit of its members
ed exclusively for R,C,S,A, or C purposes, or for the rehabilitation of veterans,
nefit of any private person.
not organized for profit, and no part of the net income of which inures to the benefit of any private person
erated exclusively for the promotion of social welfare

consists solely of assessments, dues, and fees collected from members to meet its expenses
e purpose of marketing the products of its members

ed exclusively for R,C,S,A, or C purposes, or for the rehabilitation of veterans,

o part of its net income or asset accrues to or benefits specific person.
corporation (purely domestic).

sively limit its purporses to one or more of those listed in 1.

ively devoted to the accomplishment of 1.

m their properties.

Net Income from Unrelated Sources - Reserve Fund Requirement

and non-members
s < P10M = Similar with Cooperatives which transact only with members
Sources - Reserve Fund Requirement

s > P10M: Fully Taxable for the following:

rest on capital

es rendered to non-members.
se provided by the law

xxx
xxx
xxx
(xxx) xxx Net Surplus after Reserve from Non-Members

xxx

(xxx) Minimum 10% of net surplus, XPN: First 5 years, minimum of 50%
(xxx) Max 10% of net surplus
(xxx) Minimum 3% of net surplus
(xxx) xxx Max 7% of net surplus
xxx Net Surplus Distributable (distributable per by laws of the cooperative)

xxx
xxx
xxx
xx%
xxx

o the following:

T exempt importations

ble and not otherwise expressly exempted by any law

 5 months + 10% x 7 months)/12 months = 5.5%

come from All Sources, net of cost = 25% RCIT applies

Us (EFCDUs)
foreign bank authorized by the BSPT to engage in

ency transactions
bank authorized to conduct banking under EFCDU system

Example Format:
Other Forex Income to Other Residents xxx
On-Shore income from Non-Forex xxx
Off-Shore income from Non-Forex xxx
Gross Income xxx

e expanded system and the taxpayer is a:

s, except real property tax on land impvoements and equipment.
ome. It acts as a supervisory, communication and coordinating center.

arriers - taxable at 25% of world taxable income

s or baggage from the Philippines to any destination abroad and vice versa.

utbound flights in a continuous and uninterrupted flight

ace of payment of the ticket or passage document

utbound flights up to final destination

ace of payment of the passage or freight documents.

Reciprocity (use same rate they use)

ated from the Philippines.

 boards a plane or port or point in the Philippines.

B which airlifted them in the PH.

ading them into another to complete a journey to the final destination.

her airline, only include the portion of the cost of the ticket that
oint of transshipment.

he same airline - GBP = Entire Amount

hich airlifted them in HK - GBP = HK rate x #passengers
y were airlifted.

inue the flight

nd interconnection

ppines if actual departure is made within 48 hours

a carrier, include in GPB

Plan (BSP) Monthly Sales Report

arters to Filipino residents.

Equipment

ion periods like 2020 and 2023.

rqation taxable under RCIT (20% or 25%) including

corporations with their taxable income subject to RCIT.

s + Freight-in + Insurance in Transit

nsurance Premiums + Other DACs

for out of pocket costs incurred)

uired by end customers and clients
ng three years.

s on account of:

for Remittance (without deductions)

nds, rents, royalties,
or technical services

uities, Emoluments
cooperative)