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pay, overtime pay, night shift differential pay, and hazard pay are exempt from income tax(sec. 24 (A) NIRC)
2. NRC, OCW/SEAMEN INCOME TAXATION IN GENERAL Income - all wealth which flows into the hand of the Taxpayer (TP) other than a mere return of capital – taxable only for income derived from sources within the Philippines -Who are non-resident citizens? (Sec 22 (E) NIRC) They are citizens of the Philippines who: a) establishes to the satisfaction of the Commissioner the fact of his physical presence abroad with a definite intention to reside therein
b) leaves the Philippines during the taxable year to reside abroad, either as an immigrant or for employment on a permanent basis c) 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) has been previously considered as nonresident citizen and who arrives in the Philippines at any time during the taxable year to reside permanently in the Philippines shall likewise be treated as a nonresident citizen for 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. *Additional requirement: The taxpayer shall submit proof to the Commissioner to show his intention of
Net income/ Taxable Income (sec. 31) - the pertinent items of gross income specified in this Code, less the deductions and/or personal and additional exemptions, if any, authorized for such types of income by this Code or other special laws.
*According to Sababan, know first the kinds of Income TPs and Income Taxes I. Kinds of Income TPs A. Individual 1. RC -taxable for all income derived from sources within and without the Philippines True or false: all resident citizens are taxable for income derived from sources within the Philippines. A: false, income received by minimum wage earners including their holiday
if such nonresident alien shall come to the Philippines and stay for an aggregate period of more than 180 days during one calendar year . 6.NRFC (deemed not engaged in trade or business in the Philippines) – taxable only for income derived from sources within the Philippines C. NIRC) 2. ALIENS EMPLOYED in MC. (sec. NRANETBP – taxable only for income derived from sources within the Philippines -Who are SEAMEN? They are citizen of the Philippines. Other Income TPs 1. . RA – taxable only for income derived from sources within the Philippines -taxable for all income derived from sources within and without the philippines 4. Notwithstanding the definition of NRA in sec 22(G). DC 3. who receives compensation for services rendered abroad as a member of the complement of a vessel engaged exclusively in international trade shall be treated as an overseas contract worker. Estate and Trust (Sec 60 of the NIRC) .Who are OCW? They work and derive income from abroad as on OCW. 5. shall be deemed a 'nonresident alien doing business in the Philippines'. NRAETBP – taxable only for income derived from sources within the Philippines Q: Is it legally feasible that a NRA will be subject to tax as engaged in trade or business or in the exercise of his profession when he is not actually engaged in such? A: Yes.leaving the Philippines to reside permanently abroad or to return to and reside in the Philippines as the case may be. 25 (A)(1).RFC (deemed engaged) – taxable only for income derived from sources within the Philippines 3. Corporation 1.OBU.PSCS – taxable only for income derived from sources within the Philippines B.
Improperly accumulated earnings tax (IAET) -10% on improperly accumulated earnings 7. secret formula or process.2. any such property or right as is mentioned in paragraph (a). GROSS INCOME FROM WITHIN THE PHILIPPINES RIDS 1. NIRC) (e) The supply of services by a nonresident person or his employee in connection with the use of property or rights belonging to. (b) The use of. Final Income tax (FIT) 4. Rentals -the property(either real or personal) is located in the Philippines. 22 (b) NIRC) A. (d) The supply of any assistance that is ancillary and subsidiary to. design or model. 1avvphil. commercial or scientific equipment. 2. plan. Royalties .ñet SITUS OF TAXATION/ SOURCES OF INCOME (sec. Kinds of Income Taxes 1. * all kinds of income taxes MAY apply to a corporate TP. II. . (c) The supply of scientific. trademark.place of use of intangibles must be in the Philippines . patent. trade brand or other like property or right. Other entities including partnerships (sec. Optional corporate income tax (OPCIT) – 15% on the gross income *(refer to part 2 of these notes for the table comparing the above income taxes) * first 4 kinds of income taxes MAY apply to an individual TP. Capital gains tax 5. goodwill. and isfurnished as a means of enabling the application or enjoyment of. Minimum Corporate Income tax (MCIT) . or the installation or operation of any brand.Gross income tax (GIT) 3. technical. or the right to use in the Philippines any industrial. any such equipment as is mentioned in paragraph (b) or any such knowledge or information as is mentioned in paragraph (c). industrial or commercial knowledge or information. machinery or other apparatus purchased from such nonresident person.2% on gross income 6. 42 .including rentals and royalties for (a) The use of or the right or privilege to use in the Philippines any copyright. Net income tax (NIT) 2.
Sale of personal property . project or scheme. Dividends -It depends as to who issued it. was derived from sources within the Philippines.bank is located in the Philippines b) Interest (on loans) on bonds. assistance or services rendered in connection with technical management or administration of any scientific. Interest .2 kinds: a) earned from bank deposits . venture.(f) Technical advice.Purchased within and sold without (vice versa). and (g) The use of or the right to use: (i) Motion picture films.place of performance should be in the Philippines 6. partly within and without . a) from DC – derived within the Philippines b) from FC -Income within if 50% or more of the gross income of the FC for the preceding 3 years prior to the declaration of dividend. -Income without if less than 50% xxxx 5. entirely within the Philippines. Services . industrial or commercial undertaking. (ii) Films or video tapes for use in connection with television. (but only to the . notes.Produced within and sold without (vice versa). or other interest bearing obligations -residence of the obligor/debtor 4. amount that bears with the percentage). GR: entirely derived from the country where it was sold Except: sale of shares of stock by a DC.Location of property in the Philippines 7. 3. Sale of Real property . and (iii) Tapes for use in connection with radio broadcasting.
NIT. (8) Annuities. salaries. NIT * the formula to compute NIT is Gross income Less: deductions and/or personal exemptions if any. but not limited to fees. A. = net income x tax rate = tax due (4) Interests. (3) Gains derived from dealings in property. RC.so that in practice it would be more easy to understand. OCW and Seamen. gross income means all income derived from whatever source. RA Their tax liability are as follows. (9) Prizes and winnings. And what are excluded from gross income. including (but not limited to) the following items: . Exclusions from Gross Income The following items shall not be included in gross income and shall be exempt from taxation under this title: (1) Life Insurance Requisites: a) The proceeds of life insurance policies b) paid to the heirs or beneficiaries c) upon the death of the insured.CG-IRDAP (1) Compensation for services in whatever form paid. (5) Rents. Capital gains tax. (2) Gross income derived from the conduct of trade or business or the exercise of a profession. B. and (11) Partner's distributive share from the net income of the general professional partnership. wages. (10) Pensions. I. including. commissions. 32 (A) nirc) Except when otherwise provided in this Title. (7) Dividends. FIT. TAX ON INDIVIDUAL *I will discuss this in accordance to the formula of each tax liability. and similar items. (6) Royalties. Gross Income (sec. 1. * know what are gross income. NRC.
devise. or descent: Except: Provided. -Beneficiary must not be the insured himself. b) compensation for personal injuries or sickness. Except: but if such amounts are held by the insurer under an agreement to pay interest thereon. whether by suit or agreement. endowment. either during the term or at the maturity of the term mentioned in the contract or upon surrender of the contract. c) plus damages received. It is an indemnity in favor of another by reason of loss of life. That income from such property. 7641 and those received by officials and employees of private firms. (6) Retirement Benefits. in cases of transfers of divided interest. the interest payments shall be included in gross income. or annuity contracts. (5) Income Exempt under Treaty. Bequests.(a) Retirement benefits received under Republic Act No. 32) (2) Amount Received by Insured as Return of Premium. etc. shall be included in gross income.d) whether in a single sum or otherwise. bequest. Gratuities. (3) Gifts. (b) Separation Pay Requisites: a) Any amount received by an official or employee or by his heirs from the employer as a consequence of separation of such official or employee from the service of the . a) The amount received by the insured. a) The value of property acquired by gift. bequest. -rationale for the exclusion is proceeds from life insurance do not constitute an income. whether individual or corporate Requisites: a) in accordance with a reasonable private benefit plan maintained by the employer b) retiring official or employee has been in the service of the same employer for at least ten (10) years c) he is not less than fifty (50) years of age at the time of his retirement: d) the benefits granted under this subparagraph shall be availed of by an official or employee only once Define 'reasonable private benefit plan' (sec. to the extent required by any treaty obligation binding upon the Government of the Philippines. on account of such injuries or sickness. Pensions. as well as gift. through Accident or Health Insurance or under Workmen's Compensation Acts. (4) Compensation for Injuries or Sickness Requisites: a) amounts received. as a return of premiums paid by him under life insurance. however. devise or descent of income from any property. .Income of any kind. and Devises.
(d) Benefits under United States Veterans Administration Payments of benefits due or to become due to any person residing in the Philippines under the laws of the United States administered by the United States Veterans Administration. including retirement gratuity received by government officials and employees. literary. stocks. (ii) financing institutions owned. 8291. Requisites: 1) All prizes and awards granted to athletes in local and international . bonds or other domestic securities. or enjoying refinancing from foreign governments. retirement gratuities. (7) Miscellaneous Items.employer because of death sickness or other physical disability or for any cause beyond the control of the said official or employee.GOCCs exempt from income tax: 1) GSIS. pensions and other similar benefits Benefits received by resident or nonresident citizens of the Philippines or aliens who come to reside permanently in the Philippines from foreign government agencies and other institutions. artistic. controlled.SSS. . (a) Income Derived by Foreign Government . or from interest on deposits in banks in the Philippines by (i) foreign governments. and 3) The recipient is not required to render substantial future services as a condition to receiving the prize or award. (b) Income Derived by the Government or its Political Subdivisions. (c) social security benefits. private or public. & PAGCOR (c) Prizes and Awards. charitable. educational. Requisites: 1) Income derived from investments in the Philippines in loans. (d) Prizes and Awards in sports Competition. PHIL HEALTH INSURANCE CORPORATION (PHIC). Requisites: Income derived from any public utility or from the exercise of any essential governmental function accruing to the Government of the Philippines or to any political subdivision thereof. PCSO. or civic achievement but only if: 2) The recipient was selected without any action on his part to enter the contest or proceeding. and (iii) international or regional financial institutions established by foreign governments. 8282. scientific. (f) Benefits received from the GSIS under Republic Act No. Requisites: 1) Prizes and awards made primarily in recognition of religious. (e) Benefits received from the Social Security System in accordance with the provisions of Republic Act No.
upon recommendation of the Commissioner. Debentures or other Certificate of Indebtedness with a maturity of more than five (5) years. the effect on the same of the inflation rate at the end of the taxable year. as amended by Memorandum Order No. . na subject sa NIT. 1986. after considering among others. 28.they can only avail of the deduction under (M) Premium . and union dues of individuals. 34. taxpayers who are Purely compensation income earner under employer-employee relationship.000) which shall cover: (i) Benefits received by officials and employees of the national and local government pursuant to Republic Act No.000) may be increased through rules and regulations issued by the Secretary of Finance. 28. *kasi diba only those income that are subject to NIT allows deductions and/or personal exemptions. and (iv) Other benefits such as productivity incentives and Christmas bonus: Provided. (ii) Benefits received by employees pursuant to Presidential Decree No. (f) GSIS.avail ng NRANETBP and NRFC ang mga deductions under sec. however. With regard to. INCLUDING Pag-ibig contributions. Q: what deductions to avail? A: IT depends. 851. NIRC) Q: Who may avail? A: With respect to the RC/DC. 34. (e) 13th Month Pay and Other Benefits. (iii) Benefits received by officials and employees not covered by Presidential decree No. dated August 13. and GIT does not allow deductions. further. 6686. – Gross benefits received by officials and employees of public and private entities: Provided. With respect to the NRC/OCW/ seamen/ NRAETBP they may avail of these deductions with respect to their income from within.sports competitions and tournaments whether held in the Philippines or abroad and 2) sanctioned by their national sports associations. SSS. C. as amended by Memorandum Order No. That the ceiling of Thirty thousand pesos (P30. 851. That the total exclusion under this subparagraph shall not exceed Thirty thousand pesos (P30. *Hindi pwedeng i. they may avail of these deductions with respect to both their income from within and without basta subject to NIT. (h) Gains by the investor from Redemption of Shares in Mutual Fund. 1986.as defined in Section 22 (BB) of this Code. (g) Gains from the Sale or retirement of Bonds. dated August 13. kasi subject sila sa GIT. Allowable Deductions (sec. Medicare and Other Contributions.
they may avail of the itemized deductions (A-I) or of the optional standard deduction (L).payments on Health and/or Hospitalization Insurance of an individual TP. Expenses . With regard to Individual TPs who are mixed income earner (income from compensation and exercise in trade/business). How about corporations??? Itemized Deductions 1.