Income Tax (Gain, gain realized not excluded by law from taxation)
- cash dividends are taxed but stock dividends are not as they are inchoate
- Increase in land without actual realization is not taxable
Essentially, only Resident Citizens and Domestic Corporations are taxable worldwide. The rest are only taxable in income in the
PH
Situs of Taxation
- Test of Source of Income
- Interests from sources within the PH (loan was used here in PH or residence of debtor since here is where the interest
accrues)
- Dividends from a domestic corp & foreign corp (as long as 50%+ of gross income of the foreign corp was derived here — if
less than 50% outside PH)
- Service income
- Place of performance
- Rent income
- Location of property
- Royalty
- Place of use of intangible
- Ex. If copyright is located here, income accrues here
- Gain on Sale of real property
- Location of property
- Gain on Sale of personal property
- Place of sale
- Gain from shares of domestic stock
- Income within PH
- Treated as derived entirely from PH regardless of where shares are sold (ex. SMC sells shares to Trump. Here, SMC gained)
- everyone can be taxed from sources within the PH
For income that comes from within and outside the PH, you can deduct the expenses, losses, that can be properly allocated to the
income from both sources.
A portion of other expenses, losses, and deductions that cannot be directly assigned to a speci c item of gross income can also be
deducted. Any remaining amount after these deductions will be fully considered taxable income from sources within the Philippines.
Gross income - deductions = taxable income x tax rate = tax due
Income tax on individuals
- Resident citizens
- Non-resident citizens
- Elements
- Physical presence abroad
- Leaves the PH during taxable year as an immigrant
- Works abroad
- A citizen who was a non-resident who arrives in the PH to reside here, is treated as a non-resident alien for the taxable year
- Immigrants, Permanent Employees, Contract workers (abroad not less than 183 days)
- BUT, if you’re working abroad for at least 183 days but with a Filipino employer, you’re not a non-resident citizen
- Resident aliens
- Resident but not a citizen
- Mere physical or body presence is enough, no need to intend to live here
- Floating intention with no de nite time to return to a country = resident alien
- Badges of intent to be a resident alien (special resident retiree visa, acquired real property here and present most of the time,
registered with BIR)
- If you acquire title of resident alien, there must be intent to leave here so you’re not a resident alien
- Non-resident aliens
- Engaged in trade and business
- Derives income here or stays here for more than 180 days
- Non engaged in trade and business
- 25% gross income from income here
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Senior citizen
- Not exempt from income tax unless they earn MW
- 20% discount
- VAT exempt
- These discounts are tax deductions
PWD
- 20% discount
- These discounts are tax deductions
National athletes and coaches
- national pool
- Recognized by POC & PSC
- 20%
- Deductions
OSD instead of itemized deduction (can be claimed except by non-resident alien)
- does not exceed 40% of gross sales for indivs
- Does not exceed 40% of gross income for corp
Tax rates
- P250k below — 0%
- Over P250-400K — 15% excess over 250
- Over 400K-800K — 22.5k + 20% excess of 400
- Over 800-2M — 102.5k + 25% excess of 800
- Over 2M-8M — 402.5k + 30% excess of 2M
- Over 8M — 2,202,500M + 35% excess of 8M
For married peeps — compute income separately based on their respective totals — if income cannot be identi ed exclusively
earned, divide it equally between the 2 to determine their taxable income. MWE who gets excess of minimum wage will be taxed on
the excess BUT will keep MWE status
Individuals earning purely compensation income — Graduated rate
- salaries, wages, directors fees if he is an employee — basta comes from EER
Individuals self employed, income from self employment/profession
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- if gross sales do not exceed P3M (vat threshold) either use graduated tax OR 8% on gross sales in excess of P250k instead of
the graduated tax and percentage tax ( rst 250k not taxed, what is taxed is excess of the P250k) —gross sales minus P250K
- Tell BIR in the rst qtr to else grad tax rate
- 8% not allowed for purely compensation earners, VAT and nonvat (exceeding 3M) taxpayers, those subject to percentage tax
and partners in GPP
- If gross sales exceed P3M graduated tax rate automatically
Mixed earners
- for compensation income — graduated tax
- For income from profession —if it exceeds P3M, graduated tax; if not 8% or graduated tax
- Not entitled to the automatic 250k reduction
Final Income tax
- Passive income always subject to this
- Table below = derived from PH — what if passive income is sourced from abroad? The only RC and DC liable (goes into income
tax return and taxed regularly, not with the subjected rates below)
<— Also taxed on non-resident aliens engaged in trade/business (what is not
here is income on cinematopgraphic lms 25%)
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Deposit Substitute (20% nal withholding)
- borrow money from 20 or more lenders
- Other than way of deposit with banks
- At any one time means — any transaction in the primary/secondary market
CGT (same with residents, NRAETB/NE & DC)
- applies only to shares of stock of DC NOT traded via local exchange and sale of real property held as capital asset
- Shares not traded via exchange = 15% net capital gains
- Shares traded and listed via stock exchange = 6/10 of 1% of gross selling price/gross value
- Sale of real prop = 6% of gross selling price/current market value whichever is higher (if sold to GOCC, taxpayers choice)
Who is liable for CGT
- individual taxpayer
- Corporate taxpayer
- Other taxpayers not under the above
Tax base of disposing stock (same with residents, NRAETB/NE & DC)
- listed and traded via exchange — selling price
- Listed but not traded — closing price
- Not listed not traded — book value
How to be exempt from CGT for sale of principal residence
- proceeds fully utilized in making a new residence within 18 mos
- Availed of only once in 10 yrs
- If proceeds not fully utilized, seller liable for the rest of CGT
- 6% shall be deposited in escrow to bank — returned to taxpayer if u show proof na it was utilized
Resident citizen, NRANETB/ETB same tax rates for CGT/Final tax ONLY!
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Note — special aliens are taxed regular income w/o prejudice to treaties
Tax on partnerships
- partnerships not subject to tax
- GPP (may avail of 40% OSD or itemized expenses for calculating distributable income) (cannot avail the 8%)
- JV or consortium for construction, petroleum, coal, service K w gov
- Subject to tax —> income derived from trade of business and considered as corporations
Corporations include (domestic and foreign)
- one person corps
- Joint accounts
- Joint stock co’s
- Associations
- Insurance companies
- Partnerships
Domestic Corporations — incorporated here
- taxed 25% on all income OR
- 1 of gross income if MCIT applies OR
- 15% of gross income — options to be taxed on gross income are allowed to rms w ratio of 55% cost of sales to gross sales
All corporations are taxed 25% RCIT except domestic corp MSMEs — all are taxed 2% MCIT except non-resident foreign corps
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MCIT — computed beginning the 4th year of operations. This amount shall be compared with RCIT — tax due whatever higher
Foreign Corporations
- resident foreign corps (exempt from MCIT for international carriers, o shore banking and regional HQ)
- Non-resident foreign corps (also exempt from MCIT)
Nonpro t Proprietary educational institutions and hospitals (10% corporate income tax. BUT if for pro t 20/25% RCIT)
- Non-pro t means no income is accrued to the bene t of any person
- If they have gross income of more than 50% of total gross income the tax rate is now 20/25%
- The conduct is unrelated to the main purpose
Government educational institutions are exempt under Sec. 30
For schools to avail of the 10% corporate income tax — must be non pro t and gross income from unrelated activities less than
50% (so, stock institutions as long as non pro t can get the 10% rate) BUT income from trade, business, etc. is still taxable (ex.
RPT)
For NSNP educational institutions, income should be ADE education purposes to be exempt from all tax. BUT, if an NSNP leases
property and not ADE educational purposes = 25% income tax from that lease
Passive income for domestic corps
Domestic corporations getting foreign dividends are taxable except when
- dividends received in the PH are reinvested in a domestic corporation
- Used for capital expenditures
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- Domestic corp holds 20% of the foreign corporations shares at least 2 years before dividend distribution
- ***If any is absent, taxable income
