Income Taxation Reviewer (CHAPTER 2)
INCOME TAXES FOR INDIVIDUALS
Individual Taxpayers – natural persons with income
derived from within the territorial jurisdiction of the
taxing authority.
Classification of Individual Taxpayer




Resident Citizen (RC)
Non-resident Citizen (NRC)
Resident Alien (RA)
Non-Resident Alien (NRA)
o NRA Engaged in Trade/Business (ETB)
o NRA Not Engaged in Trade/Business
(NETB)
Classification of Taxpayers
Resident Citizen – a Filipino citizen residing within the
Philippines
Section I, Article III of Philippine Constitution
A Filipino Citizen is a natural person who is/has:
1. Born (by birth) with father and/or mother as
Filipino citizens
2. Born before January 17, 1973 of Filipino mother
who elects Philippine citizenship upon reaching
age of majority
a. The 1973 Constitution gives different
meaning of “citizens”
b. The 1973 Constitution favor men over
women therefore a child born by a
Filipino mother and a father of different
race must elect citizenship upon
reaching age of majority.
3. Acquired Philippine citizenship after birth
(naturalized) in accordance with Philippine
Laws
Non-Resident Citizens
1. Definite Intention to reside abroad
2. Leaves the Philippines during taxable year to
reside abroad as:
a. An Immigrant
b. For employment on permanent basis
c. Derives income from abroad and
employment requires physical
appearance abroad during taxable year
3. A Filipino citizen who shall have stayed outside
the Philippine for 183 days or more
aggregately.
a. Meaning that the days a person stay
outside the Philippines is aggregated.
4. A non-resident citizen coming back to
Philippines for good at any time of the taxable
year shall only be considered non-resident on
the taxable year wherein his/her income is
derived from abroad until his arrival on the
Philippines.
a. This means that non-resident lang ang
isang tao dun sa part ng taxable year na
kumikita pa siya sa ibang bansa.
b. Example: Mr. A arrived in the
Philippines on July 01, 2018 for good
i. January-June 2018 – Nonresident
ii. July 01, 2018 onwards –
resident
c. The same principle applies for those
who decided to migrate abroad for
good anytime of the taxable year.
5. OFW’s are considered as non-resident
Resident Alien
It is an individual who resides within the Philippines, but
is not considered as a citizen.
If an alien actually present in the Philippines are not
mere “transients”, he/she is considered as a resident
alien
If the intention to stay of an alien in the Philippines is
clear or not clear, he/she is considered a resident alien.
Non-resident Alien – ETB
If aggregated residence is equivalent to 180 or more
days AND the intention not to stay is definite, but has
an intention to earn by running a business in the
Philippines, then he/she is considered as NRA-ETB.
KIRA
Income Taxation Reviewer (CHAPTER 2)
*FIRST LOOK ON THE INTENTION TO EARN AND NOT TO
STAY BEFORE LOOKING ON THE AGGREGATED STAY IN
THE PHIL.*
Non-Resident Alien – NETB
NRA-NETB is subject to a consistent 25% tax rate to
gross income from all sources within the premises of
the Philippines.
HAS NO INTENTION TO EARN, BUT EARNED ANYWAYS,
THESE EARNINGS WILL BE SUBJECT TO 25% TAX BASED
ON GROSS.
CITIZENS
NONRESIDENT
INTENTION
NOT TO
STAY CLEAR
TAXPAYER
TAX BASE
RC
NRC, NRAETB
NRA-NETB
NET INCOME
NET INCOME
GROSS INCOME
SOURCE OF TAXABLE
INCOME
Within & Without Phil.
Within Philippines
Only
Within Phil. Only
As discussed, OFW’s income from abroad are exempted
to income tax, However, OFW’s income from
Philippines through an existing business venture is
subject to income tax in Philippines.
SUMMATIVE EXAMPLE:
TAXPAYER
RESIDENT
Sources of Income
Business Income Philippines
Business Income Thailand
Business Expenses Philippines
Business Expenses Thailand
ALIENS
Resident Citizen:
Taxable Income = 5M+7.5M-2.1M-3.4M = 7,000,000
NONRESIDENT
RESIDENT
Php 5,000,000
Php 7,500,000
Php 2,100,000
Php 3,400,000
Non-resident Citizen:
Taxable income = 5M-2.1M = 2,900,000
INTENTION
TO STAY
CLEAR/NOT
CLEAR
Resident Alien:
Taxable income = 5M-2.1M = 2,900,000
ETB
INTENTION NOT
TO STAY CLEAR
INTENTION TO
EARN BY
OWNING
BUSINESS IS
CLEAR
NETB
INTENTION NOT
TO STAY CLEAR
NO INTENTION
TO EARN
ALL
UNINTENTIONAL
GROSS INCOME
SUBJECT TO 25%
Applicable Taxes and Tax Rates
Classification of Taxpayers
Taxpayers classified as NRA-NETB are taxed 25% based
on their gross income, while other classifications of
taxpayers are taxed based on their net income.
Some of these taxpayers may be taxed on their income
within or outside the Philippines and some may be
taxed on their income only within the Philippines
Non-Resident Alien ETB
Taxable income = 5M-2.1M = 2,900,000
Non-Resident Alien NETB
Taxable income = 5,000,000
A Filipino citizen with duly processed papers in POEA
headed Qatar last May 01, 2019
Business Income January – April
Business Income May – December
Business Expenses January – April
Business Expenses May – December
Php 400,000
Php 350,000
Php 210,000
Php 140,000
NOTE: OFW’s are considered as non-resident citizens
Taxable Income: 400,000 – 210,000 = 190,000
Types of Income
For purposes of income taxation there are three types
of income subject to income tax.
KIRA
Income Taxation Reviewer (CHAPTER 2)
1. Ordinary/Regular Income – these incomes are
taxed based on the graduated tax rates. Such
incomes includes: compensation income,
business income, income from practice of
profession, income from sale of property and
miscellaneous income. Further, passive income
other than those that are subject to final
withholding tax are also considered as ordinary
income.
IF PURELY SEP
-
250K < Gross Receipts <3M
3M< Gross Receipts
3. Capital gains subject to CGT – these are income
that arises from sale of capital assets that are
subject to capital gains tax
a. Capital gains from sale of shares of
stocks of a domestic corporation that is
not traded in local stock exchange
b. Capital gains from sales of real property
that is inside the Philippines.
8% in excess of 250,000
Basic tax / Graduated Tax
IF MIXED INCOME EARNER
-
2. Passive Income – these are income sourced
within the Philippines that are subject to final
withholding tax and tax rates for such income
are enumerated under Section 24(B) of the Tax
Code
These are taxpayers that are either SelfEmployed or earning Professional Income
These are taxpayers that are employed at the
same time earns Professional/Business Income
COMPENSATION
250K < Gross Gross Receipts
+
INCOME
Receipt < 3M
< 3M
Basic Tax OR
Basic
Basic
+
8% on Gross
Tax/Graduated
Tax/Graduated
Receipts
Tax
Tax
NOTE: The problem must say if the taxpayer elected the
8% option if the problem becomes silent assumed that
it is based on basic tax rates.
NOTE: The election of 8% must be made on the 1st
Quarter otherwise income will be taxed based on
graduated tax/basic tax rates
EXAMPLE:
GRADUATED TAX % for ORDINARY INCOME
INCOME
TAX%
Not over 250,000
Exempt
250,000< X <400,000
20% in excess of 250,000
30,000 + 25% in excess of
400,000< X <800,000
400,000
130,000 + 30% in excess of
800,000< X <2M
800,000
2M< X <8M
490,000 + 32% in excess of 2M
2,410,000 + 35% in excess of
8M < X
8M
Self-employed / Professionals (SEP)
Upon the effectivity of TRAIN Law, self-employed or
professionals may choose to elect that their
ordinary/regular income may be taxed based on 8% of
gross receipts (GROSS SALES not gross income) if their
income is higher than Php 250,000 but not greater than
3,000,000 in every taxable year.
Mr. A is classified as purely Self-employed taxpayer
earning solely on his business. The following is the list of
his quarterly gross income and expenses.
QUARTERLY INCOME
1,000,000
500,000
1,000,000
800,000
3,300,000
QUARTERLY EXPENSES
320,000
125,000
350,000
375,000
1,170,000
NOTE: THE PROBLEM IS SILENT THEREFORE ASSUME THAT INCOME
WILL BE BASED ON INCOME TAX
TAXABLE INCOME = 3,300,000 – 1,170,000 = 2,130,000
Total Income Tax Payable = 490,000 + ((2.13M –
2M)(32%)) = 531,600
WHAT IF: Mr. A elected 8% on the 1ST Quarter of the
Taxable year
TAXABLE INCOME = 3,300,000
KIRA
Income Taxation Reviewer (CHAPTER 2)
Tax Payable = [490k + ((3.3M – 2M)(32%))] –
[(1M+0.5M+1M)(8%)] = 706,000
OTHER WINNINGS
REGARDLESS OF
AMOUNT
LOTTO WINNINGS
X <= 10,000
X > 10,000
CASH/PROPERTY
DIVIDENDS
nd
2 Version 8%: If the given values are accumulating
QUARTERLY INCOME
1,000,000
1,500,000
2,500,000
3,300,000
QUARTERLY EXPENSES
320,000
445,000
795,000
1,170,000
NOTE: THAT THE 4TH QUARTER IS THE TOTAL ALREADY
20%
25%
20%
-
25%
25%
10%
20%
25%
Passive income are subject to Final Withholding Tax,
thus it is not included in the computation for the
income tax payable of an individual.
Tax Payable per quarter:
1st Quarter = 1,000,000 x 8% = 80,000
These taxes from the aforementioned passive incomes
are analogous as an advance tax payment of an
individual because it is the bank, publishing, PCSO or etc
that would remit these taxes to BIR not the individual.
2nd Quarter = 1,500,000 x 8% = 120,000
120,000 – 80,000 = 40,000
3rd Quarter = 2,500,000 x 8% = 200,000
EXAMPLE:
200,000 – 80,000 – 40,000 = 80,000
or 200,000 – 120,000 = 80,000
4th Quarter = [490k + ((3.3M – 2M)(32%))] – 200,000
= 706,000
PASSIVE INCOME WITHIN PHILIPPINES
RC &
NRANRC
ETB
INTEREST INCOME
From:
Bank Deposits; any
20%
20%
currency
Deposit substitutes
20%
20%
Trust Funds
20%
20%
Depository Banks under
RC =
FCDU/FCDS
15%
Long Term Deposits
(above 5yrs)
PRETERMINATED
4 yrs to less than 5yrs
5%
5%
3 yrs to less than 4yrs
12%
12%
Less than 3yrs
20%
20%
ROYALTIES
In General
20%
20%
on Books, literary works
10%
10%
and compositions
PRIZES
More than 10,000
20%
20%
Less than 10,000
-
20%
NRANETB
25%
25%
25%
-
25%
25%
25%
25%
25%
25%
-
Interest Income from
personal loans
Interest Income from
bank deposits
Interest Income from
FCDU bank
Interest Income from
Pre-terminated Long term deposit held for
4.5 years out of 8yrs
Int. Income from a 6
year Time deposit
Royalty income
Raffle draw winning
Dividend income
ABROAD
PHILIPPINES
1,000
2,000
3,500
3,000
11,000
10,000
-
5,000
7,0000
9,000
9,500
5,000
2,000
10,500
9,500
10,200
NOTE: PASSIVE INCOME subject to Final Withholding are those
income that only came from Philippines
Interest Income from personal loans is subject to basic tax
because wala naming intermediary na siya na mismo magbibigay
ng income tax other than yourself.
RC
Passive Income Tax Payable (FWT) =
(3,000 + 10,500 + 9,500)20% = 4,600
(10,000)(15%) = 1,500
(5,000)(5%) = 250
(10,200)(10%) = 1,020
TOTAL: 7,370
KIRA
Income Taxation Reviewer (CHAPTER 2)
NRC
CAPITAL GAINS TAX
(3,000 + 10,500 + 9,500)20% = 4,600
(5,000)(5%) = 250
(10,200)(10%) = 1,020
TOTAL: 5,870
ORDINARY
ASSETS
REAL P.
6% of
Selling
Price or
Fair MV
(whichever
is higher)
NRA-ETB
(3,000 + 10,500 + 9,500 + 10,200)20% = 6,640
(5,000)(5%) = 250
TOTAL: 6,890
Deposit Substitutes – alternative form of obtaining
funds from public, other than deposits, through the
issuance, endorsements, or acceptance of debt
instruments for the purpose of re-lending or purchasing
receivables or other obligations or financing their own
needs.
BASIC TAX

Requisites for Tax Exemption
o The depositor is a RC, NRC, RA, NRA-ETB
o Deposit must be under the name of a
“natural person”
o Deposits/Investments must be in the
form of savings, individual trust funds,
deposit substitutes, investments
management accounts or other
investments evidenced by certs
prescribed by BSP
o Deposits must be issued by a BANK
o Not less than 5yrs maturity
o In denominations of 10,000 and other
denominations prescribed by BSP
o Must be terminated or held by the
depositor for not less than 5yrs
o Gains from trading, foreign exchange is
not covered by the exemption.
Non-resident foreign corporations’ interest
income from long-term deposit is subject to
30% Final Withholding Tax (FWT)
READ INFORMER’S REWARD on page 85-86
Maybe
exempt if
sale of
principal
residence
6% or
basic tax if
it is sold to
gov’t
Long-term deposits – deposits or investments in the
form of savings with maturity value of not less than 5
years.

CAPITAL ASSETS
Basic tax if
situated
abroad
SHARES OF
STOCKS
15% of
Capital gain
from sale of
shares of
stock by a
closely held
corporation
if sales of
stock that is
publicly
listed/traded
it is not CGT
but Stock
Transaction
Tax
OTHER
ASSETS
BASIC
TAX
Basic tax is
shares of a
foreign
corporation
NOTE: The Fair MV includes the FMV given by the City/Municipal
or Provincial Assessors AND the Zonal Value given by CIR
If both given, whichever is higher will be used.
Capital Assets vs Ordinary Assets
Capital Assets – these are assets that are not intended
to be sold, for a business, these assets are not used in
trade or ordinary course of business. (BASTA HINDI
GINAGAMIT FOR BUSINESS PURPOSES)
Ordinary Assets – assets that are being used for
business purposes.
Tax Exemption for Sale of Principal Residence
Requisites:
-
Proceeds must be “fully utilized” in acquiring or
constructing new principal home
o If not fully utilized, the unutilized part
would be subject to CGTax. The formula
for the taxable amount is as follows
Taxable Amount = (Unutilized/Gross
KIRA
Income Taxation Reviewer (CHAPTER 2)
-
Selling Price) x (Gross Selling Price or
FMValue whichever is higher)
Historical Cost of the sold property will be
carried over to new principal residence
BIR must be duly notified for tax exemption
within 30 days after sale of property
Can only be availed once in every 10 years.
EXAMPLE:
The table below shows the summary of Mr. A’s sale of
properties
1.Sale of Shares of
Stock from a closely
held Corporation
2.Sale from Shares of
Stock from a
Corporation listed on
SEC
3.Sale of land used in
the operations of the
business abroad
No. of Stocks – 1,000
Acquisition Value – 100/stock
Selling Price – 130/stock
No. of Stocks – 1,200
Acquisition Value – 50/stock
Selling Price – 70/stock
Acquired @ – 1,000,000
Selling Price – 1,650,000
Market Value – 1,500,000
Zonal Value – 1,300,000
Acquired @ – 2,000,000
Selling Price – 2,550,000
Market Value – 2,800,000
Zonal Value – 2,700,000
Acquired @ – 3,000,000
Selling Price – 3,250,000
Market Value – 3,500,000
Zonal Value – 3,300,000
4.Sale of a house
located at Pasig City
deemed as capital
asset
5.Sales of a house
deemed as ordinary
asset (Meaning it is
the principal
residence)
Additional Information:
a. The proceeds from sale of principal residence were
not fully utilized only 2,000,000
What is the CGT of Mr. A?
1.) [(1000 Stocks x 130) – (1000 x 100)] x 15% =
4,500
4.) (2,800,000 x 6%) = 168,000
5.) [(3,250,000-2,000,000)/3,250,000)] x 3,500,000
= 1,346,154*
1,346,154 x 6% = 80, 769
TOTAL: 253,269
Final Tax vs Creditable Tax
Final Withholding Taxes – basta ito yung mga passive
income within the Philippines subject to tax that are
under Section 24B of the Tax Code. Hindi kasama or
nileless sa income tax payable/tax due of an individual
Creditable Withholding Tax – nileless sa income tax
payable/tax due of an individual.
Purchase/Payment
Professional Fees
Individual Payee
- Gross income <= 3M
- Gross income > 3M
Non-individual Payee
- Gross income <= 720k
- Gross income > 720k
Rentals
Goods
Services
Income payments to beneficiaries of trusts
Income payments to partners of GPP’s
- Gross income <= 720k
- Gross income > 720k
Income made by Credit Card Companies
CWT
5%
10
10%
15%
5%
1%
2%
15%
10%
15%
1%
Income Tax Due of Married Taxpayers
-
-
Income Tax shall be computed separately
provided that the income exclusive earned by
either of the couple
If in any case an income is attributed to both,
the income is divided equally between the
spouses.
Minimum Wage Earners (MWE)
Taxpayer
Purely MWE
MWE w/additional
benefits exceeding 90k
MWE w/business
income (B.I.)
Income Tax
EXEMPT
EXEMPT
CWT
EXEMPT
EXEMPT
Wage = Exempt
B.I = Basic Tax
W= Ex
B.I= CWT
Payment
Under RA 10963 (TRAIN Law), when tax due exceed
2,000 the taxpayer my elect to pay tax in 2 equal
installments: (1) at the time of filing at BIR, (2) on or
before October 15 of the same year.
Quarterly Payments
Income Tax Returns from income derived from business
and/or profession are required to be filed on a quarterly
basis.
KIRA