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CORPORATION
TAX RATE

TAX BASE

BUSINESS INCOME
Domestic Corporation
1.
a. In General
b. Minimum Corporate Income Tax
c. Improperly Accumulated Earnings
2. Proprietary Educational Institution
a. In general
b. Gross Income from unrelated trade/business/ other
activity is more than 50% of the total gross income from
all sources
3. Non-stock, Non-profit Hospital
4. Non-stock Corporation/Association operated exclusively for
Charitable purposes
Income of whatever kind & character from any real/
personal property or any activity operated for profit
5. GOCC, Agencies & Instrumentalities
-Government Service Insurance System (GSIS)
-Social Security System (SSS)
-Philippine Health and Insurance Corporation (PHIC)
-Philippine Charity and Sweepstakes Office (PCSO)
-Local Water Districts
6. Power Sector Assets and Liabilities Management
Corporation
a. Sale of National Power Corporation generation assets &
real properties to winning bidders
b. Rental income from generation assets & real properties
before sale to winning bidders
c. Income from operations
7. National Government & LGUs
8. Mutual Life Insurance Companies
9. Homeowners Association
In general
Income and dues are used only for cleanliness, safety,
security, & other basic services
10. Recreational Clubs
11. Taxable Partnership
12. Exempt Corporation
13. General Professional Partnership
14. Corporation covered by Special Laws

30%
2%
10%

Taxable Income from all sources


Gross Income
Improperly Accumulated Taxable Income

10%
30%

Taxable Income from all sources

10%
Tax exempt
10%

Taxable Income from all sources

Tax Exempt

Tax Exempt
30%

Taxable Income from all sources

Tax Exempt
30%
30%
May be Tax Exempt if complied
all the conditions

Taxable Income from all sources

30%

Taxable Income from all sources

Tax Exempt
Rate specified under the special law

Resident Foreign Corporation


1.
a. In General
b. Minimum Corporate Income Tax
c. Improperly Accumulated Earnings
2. International Carriers
3. Regional Operating Headquarters (ROH)
4. Branch Remittances except those registered with PEZA

30%
2%
10%
2.50%
10%
15%

5. Corporation Covered by Special Laws


6. Offshore Banking Units (OBUs)
a. Foreign Currency Transactions
b. Other than foreign currency transaction
7. Foreign Currency Deposit Units (FCDU)
a. Foreign Currency Transactions
b. Other than foreign currency transaction

Taxable Income from WITHIN the Philippines


Gross Income
Improperly Accumulated Taxable Income
Gross Philippine Billings
Taxable Income
Total Profits Applied/Earmarked for
remittance without deduction for tax
component
Rate specified under the special law

10%FT
30%

Gross Taxable Income


Taxable Income

10%
30%

Gross Taxable Income


Taxable Income

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Non-Resident Foreign Corporation


1.
2.
3.
4.

In General
Cinematographic Film Owner, Lessor, Distributor
Owner or Lessor of Vessels chartered by Philippine Nationals
Owner or Lessor of Aircraft, Machinery, & other Equipment

PASSIVE INCOME (final tax on gross)


1. Interest from
a. Deposits and yield
b. Any monetary benefit from deposit substitutes and trust
funds
c. Depository bank under expanded Foreign Currency
Deposit System (FCDS)
d. Long-term deposit or Investment
e. Long-term deposit NOT issued by banks or Investment
certificates NOT considered as deposit substitute
f. Foreign Loans
-In General
-from US Corporation to domestic Corporation
-from Korea
-from Singapore
-from Thailand
-from Belgian Corporation
2. Income
derived by a depository bank under the expanded Foreign
Currency Deposit System (FCDS)
a. From Foreign Currency Transactions with Local Banks and
branches of foreign banks
b. Interest income from foreign currency loans
Derived by a bank from its FCDUs/EFCDUs or OBUs with
respect to foreign currency transactions
3. Royalties
Paid By PEZA-registered enterprise to non-resident Japanese
Corporation subject to:
a. Payor-company is registered with Board of
Investments (BOI)
b. Payment for Cinematographic films, radio/television
broadcasting
c. All other cases
Paid by domestic corporation to non-resident corp:
a. UK
b. US
c. French Corporation
4. Dividends
-received from:
a. Domestic Corporation
in General
paid to resident of Netherlands
paid to Singaporean Company
paid to German Company
paid to Australian and Hong Kong Company
paid to Switzerland citizen
paid to Swiss Foundation
b. Foreign Corporation

30%
25%
4.50%
7.50%

Gross Income
Gross Rentals/Lease/Charter Fees/Other Fees

Domestic/Resident Foreign

Non-Resident Foreign

20%FT
7.5%FT
30%FWT
20%CWT
-Part of Taxable Income and subject to 30% regular
tax
20%FT
Tax exempt
Tax exempt
15%FT
15%FT
10%FT

10%FT
Tax exempt
20%FT

10%FT
15%FT
10%FT (2009)
15%FT
10%FT
15%FT

Exempt

15%FT
Rate not exceeding 10%
Rate not exceeding 15%
Rate not exceeding 10%
15%FWT
Rate not exceeding 10%
15%FWT

Taxable as Income

CAPITAL GAINS (final tax on gross)


1) Sale of shares of stock not traded in stock exchange
2) Sale of shares of stock traded in stock exchange
3) Sale of real property

5%FT- P100,000 (Selling Price-Cost)


10%FT- Excess of P100,000
0.50% (Stock Transaction Tax)
6%FT on Gross Selling Price/Current Fair Market
Value (higher)

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TAXATION ON CORPORATIONS
TERMS:
Corporation- taxable partnerships
-joint-stock companies
-joint accounts
-associations
-insurance companies
Except: (tax exempt)
-general professional partnership
-joint venture/consortium formed for:
=Construction projects
=engage in Petroleum, Coal, Geothermal and other
energy operations under a service contract with the
government
Requisites for exemption:
1) For construction project
2) Involve in joining or pooling of resources by licensed local
contracts
-licensed as general contractor by PCAB
3) Local contractors are engaged in construction business
4) Joint Venture must be licensed by the Philippine Contractors
Accreditation Board (PCAB) of Department of Trade and
Industry (DTI)
*Joint Venture involving Foreign Contractors are non-taxable if:
1) foreign contractor is covered by a special license as contractor
by PCAB
2) Construction project is certified by the appropriate Tendering
Agency (government office)
3) Project is foreign-financed/internationally-funded and allowed
under Bilateral agreement
*Shall not include those who are mere suppliers of goods, services or
capital to a construction project
Domestic Corporation- created/organized in the Philippines
Foreign Corporation- not domestic
Resident Foreign Corporation- engaged in trade or business in the
Philippines
doing business
- soliciting orders, service contracts, opening offices, appointing
representatives or distributors domiciled in the Philippines
-stayed in the country for 180 days or more
-more than 180 days (Japan)
-more than 183 days (Thailand)
Does not include:
-investment by foreign entity in domestic corporation
-exercise of rights by the foreign investor
-foreign entity having a nominee director or officer to represent
its interest in domestic corporation
-appointing a representative/distributor domiciled in the
Philippines
Non-Resident Foreign Corporation- not engaged in trade or business
within the Philippines
Real Estate Investment Trust (REIT)- considered as a taxpayer engaged
in the real estate business
Cooperative- refers to autonomous and duly registered association of
persons, with a common bond of interest, who have voluntarily joined
together- to achieve their social, economic, and cultural needs and
aspirations by making equitable contributions to the capital required,
patronizing their products and services and accepting a fair share of the
risks and benefits, of the undertaking in accordance with universally
accepted cooperative principles.

IN GENERAL
Sales/Revenues/Receipts/
Fees
Cost of Sales/Services
GROSS INCOME
Other taxable income
TOTAL GROSS INCOME
Allowable Deductions:
OSD or Itemized

xx
(xx)
xx
xx
xx

TAXABLE NET INCOME

xx

(xx)

REIT
Sales/Revenues/Receipts/
Fees
Cost of Sales/Services
GROSS INCOME
Other taxable income
TOTAL GROSS INCOME
Allowable Deductions:
OSD or Itemized
Dividends Paid/Declared
TAXABLE NET INCOME

xx
(xx)
xx
xx
xx
(xx)
(xx)
xx

*To be deductible in REITs income, the dividends distributed should be at


least 90% of the distributable income for the taxable year.
*Dividends should be paid to shareholders not later than the last day of
th
the 5 month from the close of the taxable year.

CORPORATIONS EXEMPT FROM INCOME TAX:


1. Labor, agricultural, horticultural organization
2. Mutual Savings Bank and Cooperative Bank without capital stock
organized & operated for mutual purposes and without profit
3. Beneficiary Society/ Order/ Association operated EXCLUSIVELY for
the benefit of its members
4. Cemetery Company owned and operated EXCLUSIVELY for the
benefit of its members
5. Non-stock Corporation/Association organized and operated
exclusively for religious, charitable, scientific, athletic, or cultural
purposes, or for rehabilitation of veterans
6. Business league, chamber of commerce, or board of trade
7. Civic league/organization
8. Non-stock & non-profit educational institution
9. Government educational institution
10. Farmers/other mutual typhoon/fire insurance company, mutual
ditch/irrigation company, mutual/cooperative telephone company
11. Farmers, fruit growers operated as sales agent
12. Philippine National Red Cross
13. Child-caring/child-placing institution licensed and accredited by
DSWD
*all shall be not organized for profit & no part of the net income of
which inures to the benefit of any private stockholder or individual

TAXATION ON COOPERATIVES
Duly registered cooperatives which transact business:
1. With members only- exempt from paying taxes and fees
2. With both members and non-members
a. Cooperatives with accumulated reserves and undivided net
savings of not more than P10M
-EXEMPT from paying taxes and fees
b. Cooperatives with accumulated reserves and undivided net
savings of more than P10M
Business transactions w/members- tax exempt
Business transactions w/non-members- liable for:
i. Income tax
ii. Value Added Tax
iii. Percentage Tax- except sales by agricultural
cooperatives
Entitled to:
i. Limited/full deductibility of donations to duly
accredited charitable, research and educational
institutions and reinvestment to socio-economic
projects within the area of operation of such
cooperative

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ii.

Tax exempt on transactions with insurance companies


and banks
Unrelated Income of Cooperatives
Subject to:
1. Capital Gains Tax
2. Documentary Stamp Tax- except transactions with banks and
insurance companies
3. VAT-except on importation by agricultural cooperatives
4. Withholding Tax on Compensation/Wages
5. Other taxes that cooperatives are directly liable
Members/Shareholders of Cooperative
-liable to pay all internal revenue taxes except:
1. Any tax and fee on members deposits or fixed deposits (share
capital) with cooperatives
2. Documentary tax on transactions of members with the
cooperative
3. Patronage Refund- all refunds, returns, rebates of net savings
generated from the operation of the cooperative

PAL AND OTHER FRANCHISE GRANTEES


Liable for the lower amount between:
Basic Corporate Income Tax
2% Franchise Tax
Gross revenue:

Passenger revenue

Cargo revenue

Other transport Revenue


Cost of Services:

Salaries

Wages

Other employee benefits directly engaged in transport of


passenger, cargo, or mail

Commissions paid to sales agents

Fuel and oil used in transport

Insurance expense

Traffic, aircraft, passenger servicing expenses

Depreciation of and rental charges for aircraft, flight & ground


equipment

Maintenance and repairs

ENTERPRISES REGISTERED UNDER SUBIC BAY METROPOLITAN


AUTHORITY (SBMA), CLARK DEVELOPMENT AUTHORITY
(CDA), PHILIPPINE ECONOMIC ZONE (PEZA)
Registered Activities
Subject to as specified in the terms of registration:
1. 5% preferential tax rate
2. Income tax holiday (ITH)
3. Regular income tax rate
*no taxes shall be imposed on business establishment operating
within the ecozone except for real property taxes on land
*shall be subject to a tax of 5% on gross income earned (GIE):
3%- paid to National Government
2%- paid to treasurers office of the municipality/city
Gross Sales/Revenue
Sales Discount
Sales Return and Allowances
NET SALES
Cost of Sales or Direct Costs:
Direct salaries, wages
Production Supervision salaries
Raw materials used in manufacture of products
Decrease in goods in process account
Decrease in finished goods account
Supplies and fuels used in production
Depreciation of machinery , equipment, building
used in production
Financing Charges
Rent and utility expense
GROSS INCOME EARNED (GIE)

xx
(xx)
(xx)
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx

(xx)
xx

Unregistered Activities
-subject to the regular internal revenue taxes

MCIT, IAET, GIT Chapter 4


MINIMUM CORPORATE INCOME TAX
- 2% of the GROSS INCOME as of the end of the taxable year.
- Conceived to address the non-declaration & under-declaration of
corporate income & revenues.
Who may apply: Domestic Corporation & Resident Foreign Corporation
Rules in application of MCIT:
1. MCIT vs. Normal Income Tax. The income liability/due is equal to
whichever is higher.
th
2. Begins at the 4 taxable year whether fiscal/calendar year.
3. Applied on operations covered by the regular income tax system
(unregistered activity) and not the special income system
(registered activity).
4. Income exempt from income tax and passive income subject to FT
shall not form part of gross income.
5. Even if the operations result in a net loss, it will still be subject to
MCIT.

Exceptions:
The Secretary of Finance may suspend the imposition of MCIT upon
submission of proof by the applicant-corporation that sustained

Substantial losses on account of a prolonged labor dispute


arises from a strike staged by the employees w/c lasted for more
than 6 months w/c caused a temporary shutdown.
Force majeure due to an irresistible force as by Act of God
Legitimate
business
reverses

Fire,
robbery,
theft/embezzlement, or for other economic reason.

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For Trading/Merchandising & Manufacturing Concerns


Gross Sales

xx

Less: Sales Returns

Gross Sales

xx

Sales Discounts

xx

Sales Allowances

xx

Less: Sales Returns


xx

xx
xx

Sales Discounts

xx

Sales Allowances

xx

xx

Net Sales

xx

Net Sales

xx

Less: COGS/COGMS

xx

Less: COGS/COGMS

xx

Gross Profit from Sales

xx

Add: Other Income

xx

Gross Income

xx

Gross Income

xx

Less: Deductions

xx

Net Income

xx

Multiply by Tax Rate

30%

Multiply by

2%

Normal Tax

xxx

MCIT

xxx

For Sale of Service


Gross Receipts

xx

Less: Sales Returns

xx

Sales Discounts

xx

Sales Allowances

xx

Gross Receipts (Cash)


Less: Sales Returns

xx

xx
xx

Sales Discounts

xx

Sales Allowances

xx

xx

Net Receipts

xx

Net Sales

xx

Add: Other Gross Income

xx

Less: COGS/COGMS

xx

Gross Income

xx

Gross Income

xx

Less: Deductions

xx

Multiply by

2%

Net Income

xx

MCIT

xxx

Gross Receipts (Accrual)

xx

Multiply by Tax Rate

30%

Multiply by

2%

Normal Tax

xxx

MCIT

xxx

CORPORATIONS NOT SUBJECT TO MCIT


DOMESTIC CORPORATIONS
As Proprietary Educational
Institution
Engaged in Non-profit Hospital
Operations
As Depository Banks under the
Expanded Foreign Deposit
System (FCDUs)
Firms that are taxed under a
special income tax regime
RESIDENT FOREIGN
CORPORATIONS

Subject to

Income

10%

Taxable Income

10%

Taxable Income

Final Income
tax at 10%

Income from
Foreign Currency
Transactions

International Carrier

2.5%

Offshore Banking Units (OBUs)

Final Income
tax at 10%

Regional Operating
Headquarters
Firms that are taxed under a
special income tax regime

10%

Gross Philippine
Billings
Income from
Foreign Currency
Transactions
Taxable Income

Accounting Treatment of Excess MCIT Paid


Deferred Charges MCIT
- The amount paid as excess MCIT recorded in the corporations books
as asset.
- Shall be carried forward and may be credited against the normal
income tax due for a period not exceeding 3 taxable years immediately
succeeding the taxable year/s in w/c the same has been paid.
- any amount w/c has not/cannot be credited against normal income
taxes due for the 3-year reglementary period shall lose its creditability
with a debit to Retained Earnings.
Rules in application of excess MCIT:
1. On the next year, the corporation shall not be allowed to
deduct excess MCIT against income tax liability if MCIT > NIT.
2. If NIT > MCIT, the corporation shall deduct the cumulative
excess MCIT w/c has not been credited against income tax
liability provided that it did not exceed 3 years.
Journal Entries
To record income tax liability using the NIT:
Provision for Income Tax
xx
Income Tax Payable

xx

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To record excess MCIT:
Deferred Charges-MCIT
Income Tax Payable

xx

xx

To record application of excess MCIT against Normal Income Tax


Liability:
Income Tax Payable
xx
Deferred Charges-MCIT
xx

To record the expired portion of Deferred Charges-MCIT:


Retained Earnings
xx
Deferred Charges-MCIT

xx

Quarterly NIT vs MCIT


Illustration: Dynasty Corporation

1st
2nd
3rd
4th

NIT
100,000
120,000
250,000
200,000

MCIT
80,000
250,000
100,000
100,000

Taxes
W/held
20,000
30,000
40,000
35,000

Excess
MCIT
Prior
Years
30,000

Computation of Quarterly Income Tax Due:


NIT
MCIT
Higher Amount
1st
100,000
80,000
100,000
1st

100,000

120,000
220,000

250,000
330,000

330,000

MCIT

1st
2nd
3rd
Total

100,000
120,000
250,000
470,000

80,000
250,000
100,000
430,000

470,000

NIT

1st
2nd
3rd
4th
Total

100,000
120,000
250,000
200,000
670,000

80,000
250,000
100,000
100,000
530,000
ST
1
Quarter
100,000

670,000
nd
2
Quarter
330,000

3
Quarter
470,000

NIT
th
4
Quarter
670,000

10,000

10,000

10,000

10,000

20,000

20,000
30,000

20,000
30,000

20,000
30,000

40,000
40,000
230,000

40,000
35,000
40,000
230,000

30,000

70,000
30,000

400,000
70,000

505,000
165,000

xx

To record payment of income tax due for the year:


Income Tax Payable
xx
Cash in Bank

Quarter

2nd
Total

Excess
W/Tax
Prior
Year
10,000

NIT

Corporate Income
Tax Due
Less:
Taxes W/held
Prior Year
Taxes W/held 1st
Taxes W/held
2nd
Taxes W/held 3rd
Taxes W/held 4th
NIT Payments 1st
MCIT Payments
2nd
NT Payments 3rd
Excess MCIT Prior
Year
Total
Corporate Income
Tax Due

40,000

30,000
60,000
40,000

100,000
230,000

rd

80,000

IMPROPERLY ACCUMULATED EARNINGS TAX


- a tax of 10% of the improperly accumulated taxable income of
corporations formed/availed for the purpose of avoiding the income tax.
- a tax is being imposed in the nature of a penalty to the corporation for the
improper accumulation of its earnings.
It shall apply to: Closely-Held Domestic Corporations
At least 50% in value of the outstanding capital stock is owned
directly/indirectly by or for not more than 20 individuals.
Once the profit has been subjected to IAET, the same shall no
longer be subjected to IAET in later years even if not declared as
dividend.
Purpose behind the accumulation
Exception:
If failure to pay dividends is due to some other causes, such as the
use of undistributed earnings & profits for the reasonable needs of the
business, such purpose would not generally make the accumulated earnings
subject to tax.

Determination of Reasonable Needs of the Business


- Immediate needs of the business including reasonably anticipated needs.
- use of Immediacy Test
a. Allowance for the increase in the accumulation of earnings up to
100% of the paid-up capital
b. Earnings received for definite corporate expansion projects requiring
considerable capital expenditure
c. Earnings received for building, plants or equipment acquisition

d. Earnings reserved for compliance w/ any loan covenant


e. Earnings required by law/applicable regulations to be retained
Computation of IAET
1. Compute the Taxable Income & Tax Due using NIT & MCIT
2. Compute the IAET
Taxable Income
Add:
Income exempt from tax
Income excluded from Gross Income
Income subject to Final Tax
Amount of NOLCO deducted
Total
Less:
Income Tax paid/payable for the year
Dividends actually or constructively paid or
issued
Amount reserved for the Reasonable Needs
Final Tax
Improperly Accumulated Earnings
Multiply by
IAET

xx
xx
xx
Xx
xx

xx
xx

xx
xx
xx
xx

xx
xx
10%
xxx

Period for Payment of Dividend/Payment of IAET


The dividends must be declared & paid/issued not later than 1 year
following the close of the taxable year, otherwise, the IAET, if any should be
paid w/n 15 days thereafter.

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GROSS INCOME TAX
- The President may allow corporations to be taxed at 15% of Gross
Income after the ff conditions have been satisfied:
1. A tax effort ratio of 20% of GNP
2. A ratio of 40% of income tax collection to total revenues
3. A VAT tax effort of 4% of GNP
4. A 0.9% ratio of the Consolidated Public Sector Financial Position
to GNP

TAXATION OF AN ESTATE BEGINS WHEN:


begins from the time of death
any income received after death is part of the estates income
INCOME OF ESTATE NOT UNDER JUDICIAL SETTLEMENT
not taxable to the estate
co-ownership is then created in such cases

CO-OWNERS
Rules in Application of GIT:
liable to income tax after actual or constructive receipt of the
The option to be shall be available only to firms whose ratio of COS
income received from an estate that is not under any judicial
to Gross Sales/Receipts from all sources does not exceed 55%.
settlement
The gross income tax option by the corporation shall be irrevocable for 3
consecutive taxable years.
TRUST
agreement created by will
For Trading/Merchandising &
an agreement where title to property is passed to another (for
For Sale of Service
Manufacturing Concerns
conservation/investment with the income therefrom & ultimately
Gross Sales
xx
Gross Receipts
xx
the corpus/principal to be distributed in accordance with the
directives of the creator as expressed in the governing instrument)
Less: Sales Returns
xx
Less: Sales Returns
xx
an arrangement in which someones property/money is legally
Sales Discounts
xx
Sales Discounts
xx
held or managed by someone else
Sales Allowances

xx

xx

Net Sales

xx

Less: COGS/COGMS

xx

Gross Income

xx

Sales Allowances
Gross Income

xx

xx
xx

Multiply by

15%

Multiply by

15%

GIT Due

xxx

GIT Due

xxx

INCOME TAXATION ESTATES and TRUSTS

TRUSTOR/GRANTOR
a person who establishes trust
TRUSTEE
a person who manages the property for the benefit of the
son/daughter of the trustor
BENEFICIARY
a person who has equitable title to the property transferred to the
trust (including the possession and use of the property)

FIDUCIARY
the same rules in taxation of individuals apply
any person/corporation that holds in trust an estate of another
taxable income is computed similarly in the case of an individual
person/s (FOR TAX PURPOSES)
allowed a personal exemption of P50,000.00
persons/corporations that serve as trustees, executors, guardians,
income tax rates (GRADUATED TAX TABLE)
or administrators, receivers, or conservators
taxable year (CALENDAR YEAR)
required to file a declaration of estimated income (on/before April
PRE-TAX INCOME EARNED BY A TRUST
15)
may either be retained by the trust or distributed to the trusts
DEFINITION OF TERMS
beneficiary
ESTATE/INHERITANCE
IF RETAINED BY THE TRUST
properties, rights & obligations of a person (which are not
-income is taxed to the trust itself
extinguished by his death; and which have accrued since the
IF DISTRIBUTED TO THE BENEFICIARY
opening of the succession)
-trust is allowed a deduction in determining its taxable income
all things that a person owns
-the beneficiary includes the receipt of the distribution as taxable
things left by someone who has died
income(at individual level)
CURRENT INCOME EARNED BY TRUST
TAXABLE ESTATES
taxed on either the trust or the beneficiary (depends on which
WHEN AN INDIVIDUAL IS ALIVE
party has current possession of the income)
-income on his/her property (interest income on bonds, dividend income on
stocks, and rental income on an apartment complex) is taxed to that
individual

WHEN AN INDIVIDUAL DIES


-future income on his/her propertyis taxable to those who will
inherit it (only after they receive the property)
-RECEIPT OF THE PROPERTY (excluded from the income)
WHAT HAPPENS WHEN THERE IS A TIME LAG BETWEEN A PERSONs
DEATH & THE FINAL SETTLEMENT OF THE ESTATE?
The income realized from the decedents (diseased) property will
be taxed to the estate itself

GROSS INCOME OF ESTATES AND TRUSTS


includes the same items of an individuals gross income
INCOME accumulated in trust (for the benefit of unborn/persons
with contingent interest)
INCOME accumulated/held for future distribution under the
terms of the will/trust
INCOME which is to be distributed currently by the fiduciary to
the beneficiaries
INCOME collected by a guardian of an infant (to be
held/distributed as the court may direct)

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INCOME received by estates of deceased persons during the


period of administration/settlement of the estate
GENERAL PROFESSIONAL PARTNERSHIP
INCOME (in the discretion of the fiduciary) may either be
shall not be subject to income tax; but required to file annual
distributed to the beneficiaries or accumulated
income tax return/annual information return
do not pay national income taxes
ALLOWABLE DEDUCTIONS TO ESTATE AND TRUST
serves as conduit/pass-through entities (income is taxed to the
allowed a personal exemption of P50,000.00
partners only)
income may be deductible from gross income
PARTNERS IN GENERAL PROFESSIONAL PARTNERSHIP
INCOME DISTRIBUTED CURRENTLY BY THE FIDUCIARIES and
shall be liable for income tax in their separate individual
COLLECTED BY A GUARDIAN OF AN INFANT
capacities
deductiblefrom gross income of fiduciary
taxableto the beneficiary (distributed/not)
IF THE PARTNERSHIP OPERATION RESULTED TO LOSS
such loss will be divided based upon the partners agreement
INCOME RECEIVED BY ESTATES OF DECEASED PERSON (during
IF THERES NO AGREEMENT TO DIVISION OF LOSSES (but there is as
settlement) and INCOME IN THE DISCRETION OF THE FIDUCIARY
to profits)
Taxable to either fiduciary or beneficiary
-losses shall be distributed according to the profit sharing ratio
IF TAXABLE TO FIDUCIARY
SHARE IN THE LOSSES
-not deductible to the fiduciarys gross income
-may be taken by individual partners in their income tax returns
IF TAXABLE TO THE BENEFICIARY
-income shall form the part fiduciarys gross income & is NET INCOME OF GPP
deductible from such gross income
shall be computed in the same manner as a corporation
all expenses incurred/paid for the practice of profession are
WHEN TWO/MORE TRUST ARE CREATED BY THE SAME GRANTOR
allowed as deductions
WITH THE SAME BENEFICIARY
taxable income of all trusts & the tax computed from such ALLOWABLE DEDUCTIONS FOR GPP
income shall be consolidated
allowed for an itemized deductions or optional standard
deduction (not exceeding 40% of gross income)
Consolidated Gross Income
xx
Less: Consolidated Deductions xx
DISTRIBUTABLE NET INCOME
Consolidated Taxable Income
xx
net income determined by either claiming the itemized
Less: Personal Exemption
xx
deduction/OSD from GPPs gross income
Taxable Income
xx
ITEMIZED DEDUCTIONS or OSD
Multiply by: Tax Rate (tax table) x%
RULES IN CLAIMING DEDUCTIONS
Amount of Income on
Consolidated Taxable Income xx
(1) IF GPP AVAILED THE ITEMIZED DEDUCTION IN COMPUTING NET
INCOME
partners may still claim itemized deduction from the said share if
the partner is precluded (prevented) from claiming the same
expenses already claimed by the GPP
INCOME TAX SHARE OF EACH TRUSTEE ON THE CONSOLIDATED TAXABLE
partners may only claim itemized deductions which are in the
INCOME
nature of ordinary & necessary expenses which were not claimed
Taxable Income of
by the GPP
a trust before
EXAMPLES OF SUCH EXPENSES:
Income tax
exemption
x Income tax on
=
*representation expense (receipt is issued in his
payable by
Consolidated taxable
consolidated
name)
income of all trust taxable income
each trustee
*travelling expenses (not liquidated by the GPP)
before exemption
*depreciation of a car used(car is registered in
the partners name)
partners are not allowed to claim the OSD
anymore
INCOME TAXATION PARTNERSHIP AND

PARTNERS
CLASSIFICATIONS OF GENERAL PARTNERSHIP
GENERAL PROFESSIONAL PARTNERSHIP
-formed by persons for the sole purpose of
exercising their common profession
-no part of the income is derived from engaging
inany trade/business
GENERAL CO-PARTNERSHIP
- companiacolectiva
- considered as corporations (registered/not)
- partners are considered as stockholders

(2) IF GPP AVAILS OF OSD IN COMPUTING ITS NET INCOME


-partners can no longer claim further deduction
-OSD (40% of partners gross income)
(3) THE TYPE OF DEDUCTION CHOSEN BY THE GPP MUST BE THE SAME
TYPE OF DEDUCTION THAT CAN BE AVAILED BY THE PARTNERS

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COMPUTATION:
PARTNERSHIP

Sale of Services
Less: Cost of Services
Gross Income
Less: Deductions
40% OSD
Itemized
Distributable Net
Income

GPP
If OSD
xx
xx
xx
xx
--Pxx

GPP
If Itemized
xx
xx
xx
--xx
Pxx

PARTNER
Final Tax
Share of Partner in GCP (Net Income
after income tax of GCP x profit s
haring ratio)
Multiply by tax rate

xx

10%

INCOME TAX LIABILITY OF A PARTNER


Gross Income from Profession
Less: Expenses
Basic Personal Exemption xx
Total Allowable Deductions
Net Income

xx
xx
xx
xx

PARTNER

Share in the GPP


Less: Additional
Itemized Deduction
Traveling Expense
Representation Exp
Depreciation of Car
Net Share in the GPP
Add: Salaries (Profession)
TOTAL
Less: Personal Exemp.
TAXABLE INCOME

GPP
If OSD
xx

------xx
xx
xx
xx
Pxx

GPP
If Itemized
xx

xx
xx
xx
xx
xx
xx
xx
Pxx

TAX DUE (based on GRADUATED TAX TABLE)


CO-OWNERHSIP
shall not be subject to income tax (if activities of co-owners are
limited to the preservation of the property&the collection of
income)
co-owners are being taxed individually
IF CO-OWNERS INVEST THEIR INCOME IN BUSINESS FOR PROFIT
they would constitute themselves into a partnership (taxable as
corporation

FINAL TAX

WITHHOLDING TAX

Tax Credits refers to amounts allowed as deductions from the tax due.
Types of Withholding Taxes
INTEREST ON BANK DEPOSITS
20%
Withholding Tax
Tax withheld from individuals receiving PURELY
on Compensation compensation income.
BOOK ROYALTIES
10%
Expanded
Prescribed only for certain payors and is
Withholding Tax
creditable against the income tax of the payee
for the taxable year.
GENERAL CO-PARTNERSHIPS
Final Withholding This constitutes the full and final payment of
profits distributed to partners are considered as dividends
Tax
the Income Tax due from the payee on the said
share of an individual partner in a taxable partnership is subject to
income.
a final tax of 6% (1998); 8% (1999); and 10% (2000)
Withholding Tax
Withholding tax withheld by government
on Government
bureaus, offices and instrumentalities,
PARTNERS DISTRIBUTIVE SHARE ON NET INCOME
Money Payments including GOCCs and LGUs before making any
equal to the partners distributive share of the net income by the
payments to private individuals, etc.
partnership for a taxable year after deducting the corporate
income tax
Withholding of Tax at source
share is included in the individual returns of the partners
1. Final Withholding Tax
(distributed/not)
The amount of income tax withheld by the withholding agent is
constituted as a full and final payment of the income tax due
from the payee on the said income.
IF THE PARTNERSHIP SUSTAINS AN OPERATING LOSS
The liability for the payment of the tax rest primarily on the payor
partners shall deduct their respective shares in the net operating
as a withholding agent.
loss from their individual gross income
In case of under-withholding, the deficiency tax shall be collected
from the payor/withholding agent.
COMPUTATION
The payee is NOT required to file ITR for the particular income.
2. Creditable Withholding Tax
Gross Income of GCP
xx
Intended to equal or at least approximate the tax due of the
Less: Expenses of GCP
xx
payee on the said income.
Net Income before Income Tax
xx
The payee is STILL required to file an ITR and/or pay the
Less: Income Tax (30%)
xx
difference between the tax due and tax withheld.
Net Income after Income Tax xx
Expanded Withholding Tax and Compensation Income are
creditable.
LOTTO WINNINGS

tax exempt

10

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RR 6-200, the Top 20,000 Private Corporations and Top 5,000 Individual
Taxpayers.
Income payments to local/resident
2% EWT
Supplier of Services
1% EWT
Supplier of Goods

Person Required to Deduct and Withhold Creditable Tax on Income


Payments
1. In general, ant juridical person, whether or not engaged in trade or
business.
2. An individual, with respect to payments made in connection with his
trade.
3. All GOCCs and LGUs.

COMPUTATION OF WAGES
Monthly Minimum Wage= (SMW x Factor) 12 months
Factor of
Not paid on Saturdays and Sundays

261 days

Not paid on Sundays or rest days

313 days

Paid on rest days, special days and regular holidays

365 days

Required to work EVERYDAY

392.5 days

COMPUTATION WITHHOLDING TAX


Regular Compensation
Add: Supplementary Compensation
xxxx
Less: Compensation Level
(xxxx)
Excess

TIME OF WITHHOLDING
Arises at the time an income is paid or payable, whichever comes first.
Payable the date the obligation become due, demandable
Tax on Compensation Level
and legally enforceable.
Add: Tax on Excess
Withholding Tax
EXEMPTION FROM WITHHOLDING
1. NGOs except GOCCS.
2. Person enjoying exemption from payment of income taxes.
a. Sales of real property by HLURB OR HUDCC where selling price do
not exceed 180,000 in Metro Manila and other highly urbanized
areas and 150,000 for other areas.
b. Corporation registered with BoI, PEPZ and SBMA.
c. GSIS, SSS, PHIC, LWD AND PCSO. However, income from real or
personal property shall be subject to a withholding.
d. General Professional Partnerships.
e. Engaging in petroleum, coal, geothermal and other energy
operations.
f. Local or resident supplier of agricultural products in their original
state.
-

Withholding Tax on Compensation


It applies to all employed individuals whether citizens or aliens,
deriving income from the Philippines. Employer is the withholding agent.

1.
2.

KINDS OF COMPENSATION (Refer to other handout)


Regular Compensation
Supplemental Compensation
ITEMS EXEMPT FROM WITHHOLDING ON COMPENSATION

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.

Incident of employment
Retirement benefits received
Amount received due to death, sickness or physical disability.
SS benefits and other similar benefits.
Paid for agricultural labor
For domestic services
Casual labor not in the course business
Payment for damages
Proceed of life insurance
Return of premium
Compensation for injuries or sickness
Income exempt under treaty
th
13 month and other not exceeding 30,000
Income not exceeding the SMW
Additional pay receive by MWE.

xxxx
xxxx
xxxx

xxxx

xxxx

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