Tax Rate

A. For Individuals Earning Purely Compensation Income and Individuals Engaged in Business
and Practice of Profession

Amount of Net Taxable Income Rate

Over But Not Over

P10,000 5%

P10,000 P30,000 P500 + 10% of the Excess over P10,000

P30,000 P70,000 P2,500 + 15% of the Excess over P30,000

P70,000 P140,000 P8,500 + 20% of the Excess over P70,000

P140,000 P250,000 P22,500 + 25% of the Excess over P140,000

P250,000 P500,000 P50,000 + 30% of the Excess over P250,000

P500,000 P125,000 + 32% of the Excess over P500,000 in 2000 and onward

Tax Rate Taxable Base

1. Domestic Corporations:

a. In General 30% (effective Jan. 1, Net taxable income from all sources
2009)

b. Minimum Corporate Income Tax* 2% Gross Income

c. Improperly Accumulated Earnings 10% Improperly Accumulated Taxable Income

2. Proprietary Educational Institution 10% Net taxable income provided that the gross
income from unrelated trade, business or
other activity does not exceed 50% of the
total gross income

3. Non-stock, Non-profit Hospitals 10% Net taxable income provided that the gross
income from unrelated trade, business or
other activity does not exceed 50% of the
total gross income

4. GOCC, Agencies & Instrumentalities

a. In General 30% Net taxable income from all sources

b. Minimum Corporate Income Tax* 2% Gross Income

c. Improperly Accumulated Earnings 10% Improperly Accumulated Taxable Income

5. National Gov't. & LGUs

a. In General 30% Net taxable income from all sources

b. Minimum Corporate Income Tax* 2% Gross Income

c. Improperly Accumulated Earnings 10% Improperly Accumulated Taxable Income

6. Taxable Partnerships
a. In General 30% Net taxable income from all sources

b. Minimum Corporate Income Tax* 2% Gross Income

c. Improperly Accumulated Earnings 10% Improperly Accumulated Taxable Income

7. Exempt Corporation

a. On Exempt Activities 0%

b. On Taxable Activities 30% Net taxable income from all sources

8. General Professional Partnerships 0%

9. Corporation covered by Special Laws Rate specified under

the respective special
laws

10. International Carriers 2.5% Gross Philippine Billings

11. Regional Operating Head 10% Taxable Income

12. Offshore Banking Units (OBUs) 10% Gross Taxable Income On Foreign Currency
Transaction

30% On Taxable Income other than Foreign

Currency Transaction

13. Foreign Currency Deposit Units (FCDU) 10% Gross Taxable Income On Foreign Currency
Transaction

30% On Taxable Income other than Foreign

Currency Transaction

Passive Income

1. Interest from currency deposits, trust funds and deposit substitutes 20%

2. Royalties (on books as well as literary & musical composition) 10%

- In general 20%
3. Prizes (P10,000 or less ) 5%

- In excess of P10,000 20%

4. Winnings (except from PCSO and lotto) 20%

5. Interest Income of Foreign Currency Deposit 7.5%

6. Cash and Property Dividends

- To individuals from Domestic Corporations 10 %

- To Domestic Corporations from Another Domestic Corporations 0%

7. On capital gains presumed to have been realized from sale, exchange or other disposition
6%
of real property (capital asset)

8. On capital gains for shares of stock not traded in the stock exchange
- Not over P100,000 5%
- Any amount in excess of P100,000 10%

9. Interest Income from long-term deposit or investment in the form of savings, common or
individual trust funds, deposit substitutes, investment management accounts and other
investments evidenced by certificates
Exempt
Upon pretermination before the fifth year , there should be imposed on the entire income
from the proceeds of the long-term deposit based on the remaining maturity thereof:
Holding Period

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

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

- Less than three (3) years 20%

1) What is income?

Income means all wealth, which flows into the taxpayer other than as a mere return of capital.

2) What is Taxable Income?

Taxable income means the pertinent items of gross income specified in the Tax Code as
amended, less the deductions and/or personal and additional exemptions, if any, authorized for
such types of income, by the Tax Code or other special laws.

3) What is Gross Income?

Gross income means all income derived from whatever source.

4) What comprises gross income?

Gross income includes, but is not limited to the following:

 Compensation for services, in whatever form paid, including but not limited to
fees, salaries, wages, commissions and similar item
 Gross income derived from the conduct of trade or business or the exercise of
profession
 Gains derived from dealings in property
 Interest
 Rents
 Royalties
 Dividends
 Annuities
 Prizes and winnings
 Pensions
  Partner's distributive share from the net income of the general professional
partnerships

5) What are some of the exclusions from gross income?

o
 Life insurance
 Amount received by insured as return of premium
 Gifts, bequests and devises
 Compensation for injuries or sickness
 Income exempt under treaty
 Retirement benefits, pensions, gratuities, etc.
 Miscellaneous items
o
o income derived by foreign government
o income derived by the government or its political subdivision
o prizes and awards in sport competition
o prizes and awards which met the conditions set in the Tax Code
o 13th month pay and other benefits
o GSIS, SSS, Medicare and other contributions
o gain from the sale of bonds, debentures or other certificate of
indebtedness
o gain from redemption of shares in mutual fund

6) What are the allowable deductions from gross income?

Except for taxpayers earning compensation income arising from personal services rendered
under an employer-employee relationships where the only deduction provided that the gross
family income does not exceed P250,000 per family is the premium payment on health and/or
hospitalization insurance, a taxpayer may opt to avail any of the following allowable deductions
from gross income:

a)Optional Standard Deduction - an amount not exceeding 40% of the net sales for individuals
and gross income for corporations; or

b) Itemized Deductions which include the following:

 Expenses
 Interest
 Taxes
 Losses
 Bad Debts
 Depreciation
 Depletion of Oil and Gas Wells and Mines
  Charitable Contributions and Other Contributions
 Research and Development
 Pension Trusts

In addition, individuals who are either earning compensation income, engaged in business or
deriving income from the practice of profession are entitled to personal and additional
exemptions as follows:

Personal Exemptions:

For single individual or married individual judicially decreed as legally separated with no
qualified dependents………………………………………P 50,000.00

For head of family……………………………P 50,000.00

For each married individual *…………P 50,000.00

Note: In case of married individuals where only one of the spouses is deriving gross income,
only such spouse will be allowed to claim the personal exemption.

Additional Exemptions:

 For each qualified dependent, an P25,000 additional exemption can be claimed

but only up to 4 qualified dependents

The additional exemption can be claimed by the following:

 The husband who is deemed the head of the family unless he explicitly waives
his right in favor of his wife
 The spouse who has custody of the child or children in case of legally separated
spouses. Provided, that the total amount of additional exemptions that may be
claimed by both shall not exceed the maximum additional exemptions allowed
by the Tax Code.
 The individuals considered as Head of the Family supporting a qualified
dependent

The maximum amount of P 2,400 premium payments on health and/or hospitalization

insurance can be claimed if:

 Family gross income yearly should not be more than P 250,000

 For married individuals, the spouse claiming the additional exemptions for the
qualified dependents shall be entitled to this deduction
7) Who are required to file the Income Tax returns?

 Individuals
 Resident citizens receiving income from sources within or outside the Philippines

o employees deriving purely compensation income from 2 or more

employers, concurrently or successively at anytime during the taxable year
o employees deriving purely compensation income regardless of the amount,
whether from a single or several employers during the calendar year, the
income tax of which has not been withheld correctly (i.e. tax due is not
equal to the tax withheld) resulting to collectible or refundable return
o self-employed individuals receiving income from the conduct of trade or
business and/or practice of profession
o individuals deriving mixed income, i.e., compensation income and income
from the conduct of trade or business and/or practice of profession
o individuals deriving other non-business, non-professional related income in
addition to compensation income not otherwise subject to a final tax
o individuals receiving purely compensation income from a single employer,
although the income of which has been correctly withheld, but whose
spouse is not entitled to substituted filing
o marginal income earners

 Non-resident citizens receiving income from sources within the Philippines

 Aliens, whether resident or not, receiving income from sources within the
Philippines
 Corporations no matter how created or organized including partnerships

o domestic corporations receiving income from sources within and outside

the Philippines
o foreign corporations receiving income from sources within the Philippines
o taxable partnerships

 Estates and trusts engaged in trade or business

8) Who are not required to file Income Tax returns?

a. An individual who is a minimum wage earner

b. An individual whose gross income does not exceed his total personal and additional
exemptions

c. An individual whose compensation income derived from one employer does not exceed P
60,000 and the income tax on which has been correctly withheld
d. An individual whose income has been subjected to final withholding tax (alien employee as
well as Filipino employee occupying the same position as that of the alien employee of regional
headquarters and regional operating headquarters of multinational companies, petroleum
service contractors and sub-contractors and offshore-banking units, non-resident aliens not
engaged in trade or business)

e. Those who are qualified under “substituted filing”. However, substituted filing applies only if
all of the following requirements are present :

 the employee received purely compensation income (regardless of amount)

during the taxable year
 the employee received the income from only one employer in the Philippines
during the taxable year
 the amount of tax due from the employee at the end of the year equals the
amount of tax withheld by the employer
 the employee’s spouse also complies with all 3 conditions stated above
 the employer files the annual information return (BIR Form No. 1604-CF)
 the employer issues BIR Form No. 2316 (Oct 2002 ENCS version ) to each
employee.

9) Who are exempt from Income Tax?

 Non-resident citizen who is:

a) A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact
of his physical presence abroad with a definite intention to reside therein

b) A citizen of the Philippines who leaves the Philippines during the taxable year to reside
abroad, either as an immigrant or for employment on a permanent basis

c) A citizen of the Philippines who works and derives income from abroad and whose
employment thereat requires him to be physically present abroad most of the time during the
taxable year

d) A citizen who has been previously considered as a non-resident citizen and who arrives in the
Philippines at any time during the year to reside permanently in the Philippines will likewise be
treated as a non-resident citizen during the taxable year in which he arrives in the Philippines,
with respect to his income derived from sources abroad until the date of his arrival in the
Philippines.

 Overseas Filipino Worker, including overseas seaman

An individual citizen of the Philippines who is working and deriving income from abroad as an
overseas Filipino worker is taxable only on income from sources within the Philippines;
provided, that a seaman who is a citizen of the Philippines and who receives compensation for
services rendered abroad as a member of the complement of a vessel engaged exclusively in
international trade will be treated as an overseas Filipino worker.

NOTE: A Filipino employed as Philippine Embassy/Consulate service personnel of the Philippine

Embassy/consulate is not treated as a non-resident citizen, hence his income is taxable.

11) How is Income Tax payable of individuals (resident citizens and non-resident citizens)
computed?

Gross Income P ___________

Less: Allowable Deductions (Itemized or Optional) ___________

Net Income P ___________

Less: Personal & Additional Exemptions ___________

Net Taxable Income P ___________

Multiply by Tax Rate (5 to 32%) ____________

Income Tax Due: Tax withheld (per BIR From 2316/2304) P ___________

Income tax payable P____________

12) How is Income Tax paid?

 Through withholding

o Generally 10% or 15% if the gross annual business or professional income

exceeds P720,000 per year
o 20% - Fees paid to directors who are not employees and 20% of
professional fees paid to non-individuals
o Other withholding tax rates

 Pay the balance as you file the tax return, computed as follows:

Income Tax Due P ___________

Less: Withholding Tax ___________

Net Income Tax Due P ___________