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TAX ON REAL ESTATE TRANSACTIONS (AND POSESSION)


Tax impositions on Philippine real estate transactions and possession are covered
principally by the National Internal Revenue Code (NIRC) and Local Government Code
(section on local taxation) under the states power of taxation.
NATIONAL TAXATION (PER NIRC)
A. TAX ON INCOME (Title II)
1. Income Tax is a tax on a person's income, emoluments, profits arising from property,
practice of profession, conduct of trade or business or on the pertinent items of gross
income specified in the Tax Code of
2. Minimum Corporate Income Tax (MCIT) RA No. 9337, Sec. 1 (E)
(MCIT is not an additional tax. An MCIT of 2% of the gross income as of the end of
taxable year.
3. Tax on improperly accumulated earnings: 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.
B. CAPITAL GAINS TAX (final tax) (Sec.1 (D)(5), RA 9337, amending NIRC of 1997)
Tax Rate: For real property - 6%
Capital Gains Tax is a tax imposed on the gains presumed to have been realized by the
seller from the sale, exchange, or other disposition of capital assets located in the
Philippines, including pacto de retro sales and other forms of conditional sale.
Final Capital Gains Tax for Onerous Transfer of Real Property Classified as Capital Assets
(Taxable and Exempt)
Tax Form: BIR Form 1706 Final Capital Gains Tax Return (For Onerous Transfer
of Real Property Classified as Capital Assets -Taxable and Exempt)
(What is ONEROUS? A contract, lease, share, or other right is said to be onerous when the obligations
attaching to it counter-balance or exceed the advantage to be derived from it, either absolutely or with reference
to the particular possessor. Sweet. As used in the civil law and In the systems derived from it, (French, Scotch,
Spanish, Mexican.) the term also means based upon, supported by, or relating to a good and valuable - ONEROUS
- consideration, i. e., one which imposes a burden or charge in return for the benefit conferred.)
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Documentary Requirements:
1) One original copy and one photocopy of the Notarized Deed of Sale or Exchange
2) Photocopy of the TCT; Original Certificate of Title; or Condominium CT)
3) Certified True Copy of the tax declaration on the lot and/or improvement during
nearest time of sale
4) Certificate of No Improvement issued by the Assessors office where the property
has no declared improvement, if applicable or Sworn Declaration/Affidavit of No
Improvement by at least one (1) of the transferees
5) Copy of BIR Ruling for tax exemption confirmed by BIR, if applicable
6) Duly approved Tax Debit Memo, if applicable
7) Sworn Declaration of Interest as prescribed under Revenue Regulations 13-99, if
the transaction is tax-exempt
8) Documents supporting the exemption.
Procedures:
File the Capital Gains Tax return in triplicate (two copies for the BIR and one copy for
the taxpayer) with the Authorized Agent Bank (AAB) in the Revenue District where the
property is located. In places where there are no AAB, the return will be filed directly
with the Revenue Collection Officer or Authorized City or Municipal Treasurer.
.
Deadline: Within 30 days after each sale, exchange, transfer or other disposition of real
property.
Frequently Asked Questions
1) What is meant by capital asset? - Capital asset means property held by the taxpayer
(whether or not connected with his trade or business), but does not include:
a) stock in trade of the taxpayer or other property of a kind which would properly be
included in the inventory of the taxpayer if on hand at the close of the taxable year; or
b) property held by the taxpayer primarily for sale to customers in the ordinary course
of his trade or business; or
c) property used in the trade or business of a character which is subject to the
allowance for depreciation provided in subsection (F) of Sec. 34 of the Code; or
d) real property used in trade or business of the taxpayer
2) What is meant by ordinary asset?
Ordinary asset refers to all properties specifically excluded from the definition of capital
assets under Sec. 39 (A)(1) of the NIRC.
3) What is meant by real property? - Real property shall have the same meaning
attributed to that term under Article 415 of Republic Act No. 386, otherwise known as
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the Civil Code of the Philippines.


4) What does a real estate dealer refer to? - A real estate dealer refers to any person
engaged in the business of buying and selling or exchanging real properties on his own
account as a principal and holding himself out as a full or part-time dealer in real estate.
5) What does a real estate developer refer to? - Real estate developer refers to any
person engaged in the business of developing real properties into subdivisions, or
building houses on subdivided lots, or constructing residential or commercial units,
townhouses and other similar units for his own account and offering them for sale or
lease.
6) What does a real estate lessor refer to? - Real estate lessor refers to any person
engaged in the business of leasing or renting real properties on his own account as a
principal and holding himself out as a lessor of real properties being rented out or
offered for rent.
7) Who are considered engaged in the real estate business? - Taxpayers who are
considered engaged in the real estate business refer collectively to real estate dealers,
real estate developers and/or real estate lessors. A taxpayer whose primary purpose of
engaging in business, or whose Articles of Incorporation states that its primary purpose
is to engage in the real estate business shall be deemed to be engaged in the real estate
business.
8) Who are considered not engaged in the real estate business? -Taxpayers who are
considered not engaged in the real estate business refer to persons other than real
estate dealers, real estate developers and/or real estate lessors.
9) Who are considered habitually engaged in the real estate business? - Real estate
dealers or real estate developers who are registered with the Housing and Land Use
Regulatory Board (HULRB) or HUDCC
10) How can you determine whether a particular real property is a capital asset or an
ordinary asset?
a) Real properties shall be classified with respect to taxpayers engaged in the real estate
business as follows:
i) All real properties acquired by the real estate dealer shall be considered as ordinary
assets.
ii) All real properties acquired by the real estate developer, whether developed or
undeveloped as of the time of acquisition, and all real properties which are held by the
real estate developer primarily for sale or for lease to customers in the ordinary course
of his trade or business or which would properly be included in the inventory of the
taxpayer if on hand at the close of the taxable year and all real properties used in the
trade or business, whether in the form of land, building, or other improvements, shall
be considered as ordinary assets.
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iii) All real properties of the real estate lessor, whether land, building and/or
improvements, which are for lease/rent or being offered for lease/rent, or otherwise for
use or being used in the trade or business shall likewise be considered as ordinary
assets.
iv) All real properties acquired in the course of trade or business by a taxpayer
habitually engaged in the sale of real property shall be considered as ordinary assets.
Note: Registration with the HLURB or HUDCC as a real estate dealer or developer shall
be sufficient for a taxpayer to be considered as habitually engaged in the sale of real
estate.
If the taxpayer is not registered with the HLURB or HUDCC as a real estate dealer or
developer, he/it may nevertheless be deemed to be engaged in the real estate business
through the establishment of substantial relevant evidence (such as consummation
during the preceding year of at least six (6) taxable real estate sale transactions,
regardless of amount; registration as habitually engaged in real estate business with the
Local Government Unit or the Bureau of Internal Revenue, etc.)
b) In the case of taxpayer not engaged in the real estate business, real properties,
whether land, building, or other improvements, which are used or being used or have
been previously used in trade or business of the taxpayer shall be considered as
ordinary assets.
c) In the case of taxpayers who changed its real estate business to a non-real estate
business, real properties held by these taxpayer shall remain to be treated as ordinary
assets.
d) In the case of taxpayers who originally registered to be engaged in the real estate
business but failed to subsequently operate, all real properties acquired by them shall
continue to be treated as ordinary assets.
e) Real properties formerly forming part of the stock in trade of a taxpayer engaged in
the real estate business, or formerly being used in the trade or business of a taxpayer
engaged or not engaged in the real estate business, which were later on abandoned and
became idle, shall continue to be treated as ordinary assets. Provided however, that
properties classified as ordinary assets for being used in business by a taxpayer engaged
in business other than real estate business are automatically converted into capital
assets upon showing proof that the same have not been used in business for more than
two years prior to the consummation of the taxable transactions involving said
properties
f) Real properties classified as capital or ordinary asset in the hands of the
seller/transferor may change their character in the hands of the buyer/transferee. The
classification of such property in the hands of the buyer/transferee shall be determined
in accordance with the following rules:
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i) Real property transferred through succession or donation to the heir or donee who is
not engaged in the real estate business with respect to the real property inherited or
donated, and who does not subsequently use such property in trade or business, shall
be considered as a capital asset in the hands of the heir or donee.
ii) Real property received as dividend by the stockholders who are not engaged in the
real estate business and who do not subsequently use such property in trade or
business, shall be considered as a capital asset in the hands of the recipients even if the
corporation which declared the real property dividends is engaged in real estate
business.
iii) The real property received in an exchange shall be treated as ordinary asset in the
hands of the case of a tax-free exchange by taxpayer not engaged in real estate business
to a taxpayer who is engaged in real estate business, or to a taxpayer who, even if not
engaged in real estate business, will use in business the property received in exchange.
g) In the case of involuntary transfers of real properties, including expropriations or
foreclosure sale, the involuntariness of such sale shall have no effect on the
classification of such real property in the hands of the involuntary seller, either as
capital asset or ordinary asset as the case may be.
11. What is the basis in the valuation of property?
The value of the real property will be based on the selling price, fair market value as
determined by the Commissioner (zonal value) or the fair market value as shown in the
Assessors schedule of values, whichever is higher. If there is no zonal value, the taxable
base is whichever is higher of the gross selling price per sales documents or the fair
market value that appears in the latest tax declaration.
If there is an improvement, the FMV per latest tax declaration at the time of the sale or
disposition, duly certified by the City/Municipal Assessor shall be used. No adjustments
shall be added on the said value, provided that the tax declaration bears the upgraded
fair market value of the said property pursuant to Section 219 of R.A. No. 7160,
otherwise known as the Local Government Code of 1991 and the last paragraph of the
Local Assessment Regulations No. 1-92 dated October 6, 1992. In case the tax
declaration being presented was issued three (3) or more years prior to the date of sale
or disposition of the real property, the seller/transferor shall be required to submit a
certification from the City/Municipal Assessor whether or not the same is still the latest
tax declaration covering the said real property. Otherwise, the taxpayer shall secure its
latest tax declaration and shall submit a copy thereof duly certified by the said Assessor.
(RAMO 1-2001)
13. Who are required to file the Final Capital Gains Tax return?
Every person, whether natural or juridical, resident or non-resident, including estates
and trusts, who sells, transfers, exchanges or disposes real properties located in the
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Philippines classified as capital assets, including pacto de retro sales and other forms of
conditional sales or shares of stocks in domestic corporations not traded through the
local stock exchange classified as capital assets.
14) What is the procedure in the filing of Final Capital Gains Tax return?
File the Final Capital Gains Tax return in triplicate (two copies for the BIR and one copy
for the taxpayer) with the Authorized Agent Bank (AAB) in the Revenue District where
the seller or transferor is registered, for shares of stocks or where the property is
located, for real property. In places where there are no AAB, the return will be filed
directly with the Revenue Collection Officer or Authorized City or Municipal Treasurer.
15) Who/what are considered exempt from the payment of Final Capital Gains Tax?
An entity exempt from the payment of income tax under existing investment incentives
and other special laws.
An individual or non-individual exchanging real property solely for shares of stocks
resulting in corporate control
A government entity or government-owned or controlled corporation selling real
property
If the disposition of the real property is gratuitous in nature
Where the disposition is pursuant to the CARP law
Who are conditionally exempt from the payment of Final Capital Gains Tax?
Natural persons who dispose their principal residence, provided that the following
criteria are met:
a. The proceeds of the sale of the principal residence have been fully utilized in
acquiring or constructing new principal residence within eighteen (18) calendar months
from the date of sale or disposition;
b. The historical cost or adjusted basis of the real property sold or disposed will be
carried over to the new principal residence built or acquired;
c. The Commissioner has been duly notified, through a prescribed return, within thirty
(30) days from the date of sale or disposition of the persons intention to avail of the tax
exemption;
d. Exemption was availed only once every ten (10) years; and
e. There is no full utilization of the proceeds of sale or disposition. The portion of the
gain presumed to have been realized from the sale or disposition will be subject to
Capital Gains Tax.
In case of sale/transfer of principal residence, the Buyer/Transferee shall withhold from
the seller and shall deduct from the agreed selling price/consideration the 6% capital
gains tax which shall be deposited in cash or managers check in interest-bearing
account with an Authorized Agent Bank (AAB) under an Escrow Agreement between
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the concerned Revenue District Officer, the Seller and the Transferee, and the AAB to
the effect that the amount so deposited, including its interest yield, shall only be
released to such Transferor upon certification by the said RDO that the proceeds of the
sale/disposition thereof has, in fact, been utilized in the acquisition or construction of
the Seller/Transferors new principal residence within eighteen (18) calendar months
from date of the said sale or disposition. The date of sale or disposition of a property
refers to the date of notarization of the document evidencing the transfer of said
property. In general, the term Escrow means a scroll, writing or deed, delivered by
the grantor, promisor or obligor into the hands of a third person, to be held by the
latter until the happening of a contingency or performance of a condition, and then by
him delivered to the grantee, promise or obligee.
16. What is a Certificate Authorizing Registration (CAR)?
CAR is a certification issued by the Commissioner or his duly authorized representative
attesting that the transfer and conveyance of land, buildings/improvements or shares of
stock arising from sale, barter or exchange have been reported and the taxes due
inclusive of the documentary stamp tax, have been fully paid. CARs shall now have a
validity of one (1) year from date of issue. In case of failure to present the same to the
Registry of Deeds (RD) within the one (1) year period, the same shall be presented for
revalidation to the District Office where the CAR was issued. The revalidation, evidenced
by stamping the phrase "revalidated on __________ to expire on ___________" in a
conspicuous space in the CAR, shall be good for another one-year period, after which
the CAR losses its validity. (RMO 15-2003)

C. Estate Tax
(Observe that many estates still remain in the names of the deceased ancestors due to
the financial inability of the heirs to pay the estate taxes (inheritance taxes) which are
quite substantial.)
The current estate tax rates range from 5% to 20% of the net estate, per table .
The estate tax is payable upon the transfer of the net estate of every decedent,
whether a resident or nonresident of the Philippines. However, if the decedent was
neither a resident nor a citizen of the Philippines at the time of his or her death, only
the portion of the estate in the Philippines shall be included in the taxable estate. For
example, if the decedent was a resident of the United States and became a naturalized
U.S. citizen before death, then only the properties in the Philippines will be subject to
estate tax. The properties in the United States would not be covered by Philippine
estate tax.
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Basis and computation of the net estate tax:


The estate shall be appraised at its fair market value as of the time of death, which is
either the fair market value as determined by the Commissioner (the zonal value, or
the fair market value as shown in the schedule of values fixed by the Provincial and City
Assessors (the assessed value), whichever is higher.
So, if the decedent died in 1991, then the estate tax will be computed based on its zonal
or assessed value (whichever is higher) in 1991. It is also possible that at that time, the
BIR had not yet come out with a zonal valuation of the property, thus the computation
will have to be based on its 1991 assessed value.
Deadline to file the estate tax return:
Six (6) months from the decedents death. This may still be extended. when the
Commissioner finds that the payment on the due date of the estate tax or of any part
thereof would impose undue hardship upon the estate or any of the heirs,
not to exceed five (5) years, in case the estate is settled through the courts, or
two (2) years in case the estate is settled extrajudicially.
ESTATE TAX is a tax on the right or privilege of the deceased person to
transmit his/her estate to his/her lawful heirs and beneficiaries at the
time of death and on certain transfers, which are made by law as
equivalent to testamentary disposition. It is not a tax on property. The Tax
is based on the laws in force at the time of death notwithstanding the
postponement of the actual possession or enjoyment of the estate by the
beneficiary.
Tax Form: BIR Form 1801 - Estate Tax Return
Documentary Requirements
1. Notice of Death duly received by the BIR, if gross estate exceeds
P20,000 for deaths occurring on or after Jan. 1, 1998; or if the gross estate
exceeds P3,000 for deaths occurring prior to January 1, 1998
2. Certified true copy of the Death Certificate
3. Deed of Extra-Judicial Settlement of the Estate, if the estate is settled

Procedures
The heirs/authorized representative/administrator/executor shall file the
estate tax return (BIR Form 1801) and pay the corresponding estate tax.
Deadlines
File the return within six (6) months from decedent's death. However, the
Commissioner may, in meritorious cases, grant extension not exceeding
thirty (30) days.
Frequently Asked Questions
1. Who are required to file the Estate Tax return?
a) The executor or administrator or any of the legal heirs of the decedent
3. What are included in gross estate?
4. What are excluded from gross estate?
5. What will be used as basis in the valuation of property?
The properties shall be appraised based on its fair market value at the time
of the decedent's death.
6. What are the allowable deductions for Estate Tax purposes?

D. VALUE-ADDED TAX (VAT)


Value-Added Tax is a form of sales tax on consumption levied on the sale, barter,
exchange or lease of goods or properties and services in the Philippines and on
importation of goods into the Philippines. It is an indirect tax, which may be shifted or
passed on to the buyer, transferee or lessee of goods, properties or services.
Tax Rates
On sale of goods and properties - twelve percent (12%) of the gross selling price or
gross value in money of the goods or properties sold, bartered or exchanged
On sale of services and use or lease of properties - twelve percent (12%) of gross
receipts derived from the sale or exchange of services, including the use or lease of
properties
Who Are Required To File VAT Returns
Any person or entity who, in the course of his trade or business, sells, barters,
exchanges, leases goods or properties and renders services subject to VAT, if the
aggregate amount of actual gross sales or receipts exceed One Million Five Hundred
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Thousand Pesos (P1,500,000.00).


A person required to register as VAT taxpayer but failed to register
Any person, whether or not made in the course of his trade or business, who imports
goods
Monthly VAT Declarations
Tax Form: BIR Form 2550 M - Monthly Value-Added Tax Declaration (February 2007
ENCS)
Documentary Requirements
1. Duly issued Certificate of Creditable VAT Withheld at Source (BIR Form No. 2307), if
applicable
2. Summary Alphalist of Withholding Agents of Income Payments Subjected to
Withholding Tax At Source (SAWT), if applicable
3. Duly approved Tax Debit Memo, if applicable
4. Duly approved Tax Credit Certificate, if applicable
5. Authorization letter, if return is filed by authorized representative.
Procedures
1. Fill-up BIR Form No. 2550 M in triplicate copies (two copies for the BIR and one copy
for the taxpayer)
2. If there is payment:
File the Monthly VAT declaration, together with the required attachments, and pay the
VAT due thereon with any Authorized Agent Bank (AAB) under the jurisdiction of the
Revenue District Office (RDO)/Large Taxpayers District Office (LTDO) where the
taxpayer (head office of the business establishment) is registered or required to be
registered.
3. If there is no payment:
File the Quarterly VAT Return, together with the required attachments with the
RDO/LTDO/Large Taxpayers Assistance Division, Collection Agent or duly authorized
Municipal/City Treasurer of Municipality/City where the taxpayer (head office of the
business establishment) is registered or required to be registered.
Reminders:
1. Only one consolidated Monthly VAT Declaration/Quarterly VAT Return shall be filed
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covering the results of operation of the head office as well as the branches for all lines
of business subject to VAT.
2. The Quarterly List of Sales and Purchases shall be submitted in magnetic form using
3.5-inch floppy diskette following the format provided under Section 4.114-3(g) of RR
No. 16-2005.
3. The Quarterly List of Sales and Purchases shall be submitted through electronic filing
facility for taxpayers under the jurisdiction of the Large Taxpayers Service (LTS) and
those enrolled under the eFPS.
Deadline
Within twenty five (25) days following the close of taxable quarter.
Frequently Asked Questions
I. General VAT Queries
Who are liable to register as VAT taxpayers?
Any person who, in the course of trade or business, sells, barters or exchanges
goods or properties or engages in the sale or exchange of services shall be liable to
register if:
His gross sales or receipts for the past twelve (12) months, other than those that
are exempt under Section 109 (A) to (U), have exceeded One Million Five Hundred
Thousand Pesos (P1,500,000.00): or
There are reasonable grounds to believe that his gross sales or receipts for the
next twelve (12) months, other than those that are exempt under Section 109 (A)
to (U), will exceed One Million Five Hundred Thousand Pesos (P1,500,000.00).
When is a new VAT taxpayer required to apply for registration and pay the
registration fee?
New VAT taxpayers shall apply for registration as VAT Taxpayers and pay the
corresponding registration fee of five hundred pesos (P500.00) using BIR Form No.
0605 for every separate or distinct establishment or place of business before the
start of their business following existing issuances on registration.
Thereafter, taxpayers are required to pay the annual registration fee of five
hundred pesos (P500.00) not later than January 31, every year.
What compliance activities should a VAT taxpayer, after registration as such, do
promptly or periodically?
The following compliance activities must be performed by a VAT-registered
taxpayer:
Pay the annual registration fee of P500.00 for every place of business or
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establishment that generates sales;


Register the books of accounts of the business/occupation/calling, including
practice of profession, before using the same;
Register the sales invoices and official receipts as VAT-invoices or VAT official
receipts for use on transactions subject to VAT. (If there are other transaction not
subject to VAT, a separate set of non-VAT invoices or non-VAT official receipts need
to be registered for use on transactions not subject to VAT);
Filing of the Monthly Value-added Tax Declaration on or before the 20th day
following the end of the taxable month (for manual filers)/on or before the
prescribed due dates enunciated in RR No. 16-2005 (for e-filers) using BIR Form No.
2550M and of the Quarterly VAT Return on or before the 25th day following the
end of the taxable quarter using BIR Form No. 2550Q, reflecting therein gross
receipts (for seller of service)/ gross sales (for seller of goods) and output tax (VAT
on sales); purchases of goods and services made in the course of trade or
business/exercise of profession and input tax (VAT on purchases), other allowable
tax credits as in the case of advance VAT payment and VAT withheld by
government payors, and VAT payable or excess input VAT, whichever is applicable,
with the accredited agent banks (AABs) of the BIR or Revenue Collection Officers
(RCOs) of the BIR (in areas without AAB), for returns with payment, or with the
RDO/LTDO having jurisdiction over the taxpayer (home RDO/LTDO), for returns
without payment. (The monthly VAT Declaration and the Quarterly VAT Return
shall reflect the consolidated total for all the taxable lines of activity and all the
establishments - head office and branches);
Submit with the RDO/LTDO having jurisdiction over the taxpayer, on or before the
deadline set in the filing of the Quarterly VAT Return, the soft copy of the Quarterly
Schedule of Monthly Sales and Output Tax (if the quarterly sales exceed
P2,500,000.00), and the soft copy of the Quarterly Schedule of Monthly Domestic
Purchases and Input Tax/ the soft copy of the Schedule of Transactional/Individual
Importation ( if the quarterly total purchases exceed P1,000,000.00), reflecting
therein the required data prescribed under existing revenue issuances.
How do we determine the main or principal business of a taxpayer who is
engaged in mixed business activities?
In determining the main or principal business of a taxpayer, we apply the
predominance test: if more than fifty (50%) of its gross sales and/or gross receipts
comes from its business/es subject to VAT, its main/principal business falls within
the VAT system making its status as a VAT person. Otherwise, he can not be
considered as a VAT person eligible for the election provided for under Section
109(2) of the Tax Code.
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What is the liability of a taxpayer becoming liable to VAT and did not register as
such?
Any person who becomes liable to VAT and fails to register as such shall be liable to
pay the output tax as if he is a VAT-registered person, but without the benefit of
input tax credits for the period in which he was not properly registered.
Who may opt to register as VAT and what will be his liability?
Any person who is VAT-exempt under Sec. 4.109-1 (B) (1) (V) not required to
register for VAT may, in relation to Sec. 4.109-2, elect to be VAT-registered by
registering with the RDO that has jurisdiction over the head office of that person,
and pay the annual registration fee of P500.00 for every separate and distinct
establishment.
Any person who is VAT-registered but enters into transactions which are exempt
from VAT (mixed transactions) may opt that the VAT apply to his transactions which
would have been exempt under Section 109(1) of the Tax Code, as amended [Sec.
109(2)].
Franchise grantees of radio and/or television broadcasting whose annual gross
receipts of the preceding year do not exceed ten million pesos (P10,000,000.00)
derived from the business covered by the law granting the franchise may opt for
VAT registration. This option, once exercised, shall be irrevocable. (Sec. 119, Tax
Code).
Any person who elects to register under optional registration shall not be allowed
to cancel his registration for the next three (3) years.
The above-stated taxpayers may apply for VAT registration not later than ten (10)
days before the beginning of the calendar quarter and shall pay the registration fee
unless they have already paid at the beginning of the year. In any case, the
Commissioner of Internal Revenue may, for administrative reason deny any
application for registration. Once registered as a VAT person, the taxpayer shall be
liable to output tax and be entitled to input tax credit beginning on the first day of
the month following registration.
What are the instances when a VAT-registered person may cancel his VAT
registration?
If he makes a written application and can demonstrate to the commissioner's
satisfaction that his gross sales or receipts for the following twelve (12) months,
other than those that are exempt under Section 109 (A) to (U), will not exceed one
million five hundred thousand pesos (P1,500,000.00); or
If he has ceased to carry on his trade or business, and does not expect to
recommence any trade or business within the next twelve (12) months.
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When will the cancellation for registration be effective?


The cancellation for registration will be effective from the first day of the following
month the cancellation was approved.
What is the invoicing/ receipt requirement of a VAT-registered person?
A VAT registered person shall issue :
A VAT invoice for every sale, barter or exchange of goods or properties; and
A VAT official receipt for every lease of goods or properties and for every sale,
barter or exchange of services.
May a VAT-registered person issue a single invoice/ receipt involving VAT and NonVAT transactions?
Yes. He may issue a single invoice/ receipt involving VAT and non-VAT transactions
provided that the invoice or receipt shall clearly indicate the break-down of the
sales price between its taxable, exempt and zero-rated components and the
calculation of the Value-Added Tax on each portion of the sale shall be shown on
the invoice or receipt.
May a VAT- registered person issue separate invoices/ receipts involving VAT and
Non-VAT transactions?
Yes. A VAT registered person may issue separate invoices/ receipts for the taxable,
exempt, and zero-rated component of its sales provided that if the sales is exempt
from value-added tax, the term "VAT-EXEMPT SALE" shall be written or printed
prominently on the invoice or receipt and if the sale is subject to zero percent (0%)
VAT, the term "ZERO-RATED SALE" shall be written or printed prominently on the
invoice or receipt.
How is the Value-Added Tax presented in the receipt/ invoice?
The amount of the tax shall be shown as a separate item in the invoice or receipt.
Sample:
Sales Price
P 100,000.00
VAT
12,000.00
Invoice Amount
P112,000.00
What is the information that must be contained in the VAT invoice or VAT official
receipt?
Name of Seller
Business Style of the Seller
Business Address of the Seller
Statement that the seller is a VAT-registered person, followed by his TIN
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Name of Buyer
Business Style of Buyer
Address of Buyer
TIN of buyer, if VAT- registered and amount exceed P1,000.00
Date of transaction
Quantity
Unit cost
Description of the goods or properties or nature of the service
Purchase price plus the VAT, provided that:
The amount of tax shall be shown as a separate item in the invoice or receipt;
If the sale is exempt from VAT, the term "VAT-EXEMPT SALE" shall be written or
printed prominently on the invoice or receipt;
If the sale is subject to zero percent (0%) VAT, the term "ZERO-RATED SALE" shall
be written or printed prominently on the invoice receipt; and
If the sale involves goods, properties or services some of which are subject to and
some of which are zero-rated or exempt from VAT, the invoice or receipt shall
clearly indicate the breakdown of the sales price between its taxable, exempt and
zero-rated components, and the calculation of the VAT on each portion of the sale
shall be shown on the invoice or receipt.
Authority to Print Receipt Number at the lower left corner of the invoice or receipt.
What is the liability of a taxpayer not registered as VAT and issues a VAT invoice/
receipt?
The non-VAT registered person shall, in addition to paying the percentage tax
applicable to his transactions, be liable to VAT imposed in Section 106 or 108 of the
Tax Code without the benefit of any input tax credit plus 50% surcharge on the VAT
payable (output tax). If the invoice/ receipts contain the required information,
purchaser shall be allowed to recognize an input tax credit.
What is the liability of a VAT-registered person in the issuance of a VAT invoice/
receipt for VAT-exempt transactions?
If a VAT-registered person issues a VAT invoice or VAT official receipt for a VATexempt transaction but fails to display prominently on the invoice or receipt the
words "VAT-EXEMPT SALE", the transaction shall become taxable and the issuer
shall be liable to pay the VAT thereon. The purchaser shall be entitled to claim an
input tax credit on his purchase.
What is "output tax"?

15

16

Output tax means the VAT due on the sale, lease or exchange of taxable goods or
properties or services by any person registered or required to register under
Section 236 of the Tax Code.
What is "input tax"?
Input tax means the VAT due on or paid by a VAT-registered on importation of
goods or local purchase of goods, properties or services, including lease or use of
property in the course of his trade or business. It shall also include the transitional
input tax determined in accordance with Section 111 of the Tax Code, presumptive
input tax and deferred input tax from previous period.
What comprises "goods or properties"?
The term "goods or properties" shall mean all tangible and intangible objects,
which are capable of pecuniary estimation and shall include, among others:
Real properties held primarily for sale to customers or held for lease in the
ordinary course of trade or business;
The right or the privilege to use motion picture films, films, tapes and discs; and
Radio, television, satellite transmission and cable television time.
What comprises "sale or exchange of services"?
The term "sale or exchange of services" means the performance of all kinds of
services in the Philippines for others for a fee, remuneration or consideration,
whether in kind or in cash, including those performed or rendered by the following:
Construction and service contractors;
Stock, real estate, commercial, customs and immigration brokers;
Lessors of property, whether personal or real;
Persons engaged in warehousing services;
Proprietors, operators or keepers of hotels, motels, rest houses, pension houses,
inns, resorts, theatres, and movie houses;
What is a zero-rated sale?
It is a sale, barter or exchange of goods, properties and/or services subject to 0%
VAT pursuant to Sections 106 (A) (2) and 108 (B) of the Tax Code. It is a taxable
transaction for VAT purposes, but shall not result in any output tax. However, the
input tax on purchases of goods, properties or services, related to such zero-rated
sales, shall be available as tax credit or refund in accordance with RR No. 16-2005.
What is a Contractor's Final Payment Release Certificate and where should
taxpayers file their application for this?
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17

The Contractor's Final Payment Release Certificate is issued by the BIR before a
government contractor is fully paid for his contract with the government. Taxpayers
may file their application at the BIR National Office at the Audit Information, Tax
Exemption and Incentives Division (AITEID)
What transactions are considered deemed sales?
The following transactions are considered as deemed sales:
Transfer, use or consumption, not in the course of business, of goods or properties
originally intended for sale or for use in the course of business. Transfer of goods or
properties not in the course of business can take place when VAT-registered person
withdraws goods from his business for his personal use;
Distribution or transfer to:
Shareholders or investors as share in the profits of the VAT-registered person; or
Creditors in payment of debt or obligation
Consignment of goods if actual sale is not made within sixty (60) days following the
date such goods were consigned. Consigned goods returned by the consignee
within the 60-day period are not deemed sold;
Retirement from or cessation of business, with respect to all goods on hand,
whether capital goods, stock-in-trade, supplies or materials as of the date of such
retirement or cessation, whether or not the business is continued by the new
owner or successor. The following circumstances shall, among others, give rise to
transactions "deemed sale";
Change of ownership of the business. There is a change in the ownership of the
business when a single proprietorship incorporated; or the proprietor of a single
proprietorship sells his entire business.
Dissolution of a partnership and creation of a new partnership which takes over the
business.
What is VAT-exempt sale?
It is a sale of goods, properties or service and the use or lease of properties which is
not subject to output tax and whereby the buyer is not allowed any tax credit or
input tax related to such exempt sale.
What are the VAT-exempt transactions?
Services subject to percentage tax under Title V of the Code, as amended;
Services by agricultural contract growers and milling for others of palay into rice,
corn into grits, and sugar cane into raw sugar;
Educational services rendered by private educational institutions duly accredited by
the Department of Education (DepED), the Commission on Higher Education (CHED)
and the Technical Education and Skills Development Authority (TESDA) and those
17

18

rendered by the government educational institutions;


Services rendered by individuals pursuant to an employer-employee relationship;
Services rendered by regional or area headquarters established in the Philippines
by multinational corporations which act as supervisory, communications and
coordinating centers for their affiliates, subsidiaries or branches in the Asia-Pacific
Region and do not earn or derive income from the Philippines;
Transactions which are exempt under international agreements to which the
Philippines is a signatory or under special laws except those granted under P.D. No.
529 - Petroleum Exploration Concessionaires under the Petroleum Act of 1949;
Sales by agricultural cooperatives duly registered and in good standing with the
Cooperative Development Authority (CDA) to their members, as well as of their
produce, whether in its original state or processed form, to non-members, their
importation of direct farm inputs, machineries and equipment, including spare
parts thereof, to be used directly and exclusively in the production and/or
processing of their produce;
Gross receipts from lending activities by credit or multi-purpose cooperatives duly
registered and in good standing with the Cooperative Development Authority;
Sales by non-agricultural, non-electric and non-credit cooperatives duly registered
with and in good standing with CDA; Provided, that the share capital contribution
of each member does not exceed Fifteen Thousand Pesos (P15,000.00) and
regardless of the aggregate capital and net surplus ratably distributed among the
members;
Export sales by persons who are not VAT-registered;
The following sales of real properties are exempt from VAT, namely:
Sale of real properties not primarily held for sale to customers or held for lease in
the ordinary course of trade or business;
Sale of real properties utilized for low-cost housing as defined by RA No. 7279,
otherwise known as the "Urban Development and Housing Act of 1992" and other
related laws, such as RA No. 7835 and RA No. 8763;
Sale of real properties utilized for specialized housing as defined under RA No.
7279, and other related laws, such as RA No. 7835 and RA No. 8763, wherein price
ceiling per unit is P225,000.00 or as may from time to time be determined by the
HUDCC and the NEDA and other related laws;
Sale of residential lot valued at One Million Five Hundred Thousand Pesos
(P1,500,000.00) and below, or house and lot and other residential dwellings valued
at Two Million Five Hundred Thousand Pesos (P2,500,000.00) and below where the
instrument of sale/ transfer/ disposition was executed on or after July 1, 2005;
Provided, that not later than January 31, 2009 and every three (3) years thereafter,
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19

the amounts stated herein shall be adjusted to its present value using the
Consumer Price Index, as published by the National Statistics Office (NSO);
Provided, further, that such adjustment shall be published through revenue
regulations to be issued not later than March 31 of each year.
Lease of residential units with a monthly rental per unit not exceeding Ten
Thousand Pesos (P10,000.00), regardless of the amount of aggregate rentals
received by the lessor during the year; Provided, that not later than January 31,
2009 and every three (3) years thereafter, the amount of P10,000.00 shall be
adjusted to its present value using the Consumer Price Index, as published by the
NSO;
Sale, importation, printing or publication of books and any newspaper, magazine,
review or bulletin which appears at regular intervals with fixed prices for
subscription and sale and which is not devoted principally to the publication of paid
advertisements;
Sale, importation or lease of passenger or cargo vessels and aircraft, including
engine equipment and spare parts thereof for domestic or international transport
operations; Provided, that the exemption from VAT on the importation and local
purchase of passenger and/or cargo vessels shall be limited to those of one
hundred fifty (150) tons and above, including engine and spare parts of said vessels;
Provided, further, that the vessels to be imported shall comply with the age limit
requirement, at the time of acquisition counted from the date of the vessel's
original commissioning, as follows: (a) for passenger and/or cargo vessel, the age
limit is fifteen (15) years old, (b) for tankers, the age limit is ten (10) year old, and
(c) for high-speed passengers crafts, the age limit is five (5) years old; Provided,
finally, that exemption shall be subject to the provisions of Section 4 of Republic
Act No. 9295, otherwise known as "The Domestic Shipping Development Act of
2004";
Importation of life-saving equipment, safety and rescue equipment and
communication and navigational safety equipment, steel plates and other metal
plates including marine-grade aluminum plates, used for shipping transport
operations; Provided, that the exemption shall be subject to the provisions of
Section 4 of Republic Act No. 9295, otherwise known as "The Domestic Shipping
Development Act of 2004".
Importation of capital equipment, machinery, spare parts, life-saving and
navigational equipment, steel plates and other metal plates including marine-grade
aluminum plates to be used in the construction, repair, renovation or alteration of
any merchant marine vessel operated or to be operated in the domestic trade.
Provided, that the exemption shall be subject to the provisions of Section 19 of
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20

Republic Act No. 9295, otherwise known as the "The Domestic Shipping
Development Act of 2004".
Importation of fuel, goods and supplies engaged in international shipping or air
transport operations; Provided, that the said fuel, goods and supplies shall be used
exclusively or shall pertain to the transport of goods and/or passenger from a port
in the Philippines directly to a foreign port, or vice-versa, without docking or
stopping at any other port in the Philippines unless the docking or stopping at any
other Philippine port is for the purpose of unloading passengers and/or cargoes
that originated form abroad, or to load passengers and/or cargoes bound for
abroad; Provided, further, that if any portion of such fuel, goods or supplies is used
for purposes other that the mentioned in the paragraph, such portion of fuel,
goods and supplies shall be subject to 12% VAT;
Services of banks, non-bank financial intermediaries performing quasi-banking
functions, and other non-bank financial intermediaries, such as money changers
and pawnshops, subject to percentage tax under Sections 121 and 122, respectively
of the Tax Code; and
Sale or lease of goods or properties or the performance of services other than the
transactions mentioned in the preceding paragraphs, the gross annual sales and/or
receipts do not exceed the amount of P1,500,000.00. Provided, that not later than
January 31, 2009 and every three (3) years thereafter, the amount of P1,500,000.00
shall be adjusted to its present value after using the Consumer Price Index, as
published by the NSO.
What are the previously exempt transactions that are now subject to VAT?
Sale of residential lot valued at more than P1,500,000.00;
Sale of residential house & lot/dwellings valued at more than P2,500,000.00;
Lease of residential unit with a monthly rental of more than P10,000;
II. RELIEF-Related Queries
What is "RELIEF"?
RELIEF means Reconciliation of Listing for Enforcement. It supports the third party
information program of the Bureau through the cross referencing of third party
information from the taxpayers' Summary Lists of Sales and Purchases prescribed
to be submitted on a quarterly basis.
Who are required to submit Summary List of Sales?
VAT taxpayers with quarterly total sales/receipts (net of VAT), exceeding Two
Million Five Hundred Thousand Pesos (P2,500,000.00) are required to submit a
Summary List of Sales.
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21

Who are required to submit Summary List of Purchases?


VAT taxpayers with quarterly total purchases (net of VAT) of goods and services,
including importation exceeding One Million Pesos (P1,000,000.00) are required to
submit Summary List of Purchases.
What are the Summary Lists required to be submitted?
Quarterly Summary List of Sales to Regular Buyers/ Customers Casual Buyers/
Customers and Output Tax
Quarterly Summary of List of Local Purchases and Input tax; and
Quarterly Summary List of Importation.
When is the deadline for submission of the above Summary Lists?
The Summary List of Sales/Purchases, whichever is applicable, shall be submitted on or
before the twney-fifth (25th) day of the month following the close of the taxable
quarter -- calendar quarter or fiscal quarter.
What are the penalties for failure to submit the Summary Lists?
For failure to file, keep or supply a statement, list or information required on the date
prescribed shall pay and administrative penalty of One Thousand Pesos (P1,000.00) for
each such failure, unless it is shown that such failure is due to reasonable cause and
not to willful neglect; and
An aggregate amount to be imposed for all such failures during a taxable year shall not
exceed Twenty-Five Thousand Pesos (P25,000.00).
III. What is the treatment for Withholding of VAT on Government Money Payments?
The government or any of its political subdivisions, instrumentalities or agencies,
including government-owned or controlled corporations (GOCCs) shall, before making
payment on account of each purchase of goods and/or services taxed at twelve percent
(12%) VAT pursuant to Sections 106 and 108 of the Tax Code, deduct and withhold a
Final VAT due at the rate of five percent (5%) of the gross payment.
The five percent (5%) final VAT withholding rate shall represent the net VAT payable of
the seller. The remaining seven percent (7%) effectively accounts for the standard
input VAT for sales of goods or services to government or any of its political
subdivisions, instrumentalities or agencies including GOCCs in lieu of the actual input
VAT directly attributable or ratably apportioned to such sales. Should actual input VAT
attributable to sales to government exceeds seven percent (7%) of gross payments, the
excess may form part of the sellers' expense or cost. On the other hand, if actual input
VAT attributable to sale to government is less than seven percent (7%) of gross
payment, the difference must be closed to expense or cost.
The government or any of its political subdivisions, instrumentalities or agencies
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22

including GOCCs, as well as private corporation, individuals, estates and trusts, whether
large or non-large taxpayers, shall withhold twelve percent (12%) VAT with respect to
the following payments:
Lease or use of properties or property rights owned by non-residents; and
Other services rendered in the Philippines by non-residents.
IV. In what grounds can the Commissioner of Internal Revenue suspend the business
operations of a taxpayer?
The Commissioner or his authorized representative is empowered to suspend the
business operations and temporarily close the business establishment of any person
for any of the following violations:
(a) In the case of a VAT-registered Person:
Failure to issue receipts or invoices;
Failure to file a value-added-tax return as required under Section 114; or
Understatement of taxable sales or receipts by thirty percent (30%) or more of his
correct taxable sales or receipts for the taxable quarter.
(b) Failure to any Person to Register as Required under Section 236
The temporary closure of the establishment shall be for the duration of not less than
five (5) days and shall be lifted only upon compliance with whatever requirements
prescribed by the Commissioner in the closure order.

E. PERCENTAGE TAX
Description: Percentage tax is a business tax imposed on persons or entities who sell
or lease goods, properties or services in the course of trade or business whose gross
annual sales and/or receipts do not exceed P750,000 and who are not VAT-registered.
Who Are Required To File Percentage Tax Returns
Any person who is not a VAT-registered person (persons exempt from VAT
under Sec. 109z of the Tax Code)
Monthly Percentage Tax
Tax Form: BIR Form 2551 M - Monthly Percentage Tax Return
Documentary Requirements
1.
Duly issued Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if
applicable
2.
Duly approved Tax Debit Memo, if applicable
3.
Copy of Certificate of Registration issued by Cooperative Development Authority
for cooperatives and from the National Electrification Administration for electric
22

23

cooperatives
4.
Previously filed return and proof of payment, for amended return
Procedures
1. Fill-up BIR Form 2551 M in triplicate copies
2.
If there is payment:
Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District
Office where taxpayer is required to register and present the duly accomplished BIR
Form 2551 M, together with the required attachments and payment. (The Percentage
Tax imposed shall be paid at the time the return is filed by the taxpayer.)
In places where there are no AABs, the duly accomplished BIR Form 2551 M,
together with the required attachments and payment, shall be filed/paid with the
Revenue Collection Officer or duly Authorized Treasurer of the city or municipality
where said business or principal place of business is located.
Receive taxpayer's copy of the duly stamped and validated form from the teller
of the AAB/Revenue Collection Officer/duly Authorized City or Municipal Treasurer.
3.
If there is no payment:
Proceed to the Revenue District Office where taxpayer is required to register
and present the duly accomplished BIR Form 2551M, together with the required
attachments.
Receive taxpayer's copy of the duly stamped and validated form from the RDO
representative.
Note: "No payment" returns filed late shall be imposed the necessary penalties by the
RDO, which shall be paid at the concerned AAB.
Deadline
Manual Filing
Not later than 20th day following the end of each month
Quarterly Percentage Tax
Tax Form: BIR Form 2551 Q - Quarterly Percentage Tax Return
Documentary Requirements
1.
Duly issued Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if
applicable
2.
Duly approved Tax Debit Memo, if applicable
3.
Copy of Certificate of Registration issued by Cooperative Development Authority
for cooperatives and from the National Electrification Administration for electric
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24

cooperatives
4.
Previously filed return and proof of payment, for amended return
Procedures
1.
Fill-up BIR Form 2551 Q in triplicate copies.
2.
If there is payment:
Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District
Office where taxpayer is required to register and present the duly accomplished BIR
Form 2551Q, together with the required attachments and payment. (The Percentage
Tax imposed shall be paid at the time the return is filed by the taxpayer.)
In places where there are no AABs, the accomplished BIR Form 2551 Q,
together with the required attachments and payment, shall be filed/paid with the
Revenue Collection Officer or duly Authorized Treasurer of the city or municipality
where said business or principal place of business is located.
Receive taxpayer's copy of the duly stamped and validated form from the teller
of the AAB/Revenue Collection Officer/duly Authorized City or Municipal Treasurer.
3.
If there is no payment:
Proceed to the Revenue District Office where taxpayer is required to register and
present the duly accomplished BIR Form 2551Q, together with the required
attachments.
Receive taxpayer's copy of the duly stamped and validated form from the RDO
representative.
Note: "No payment" returns filed late shall be imposed the necessary penalties by the
RDO, which shall be paid at the concerned AAB.
Deadline
Manual Filing
Not later than 20th day following the end of each quarter
Filing Through Electronic Filing and Payment System (eFPS)
Not later than the 20th day following the end of the quarter

DONORS TAX (Sec. 98, NIRC)


Tax Rates
Effective January 1, 1998 to present (Ranges from 2% to 15%)
Notes:
1. Rate applicable shall be based on the law prevailing at the time of donation.
2. When the gifts are made during the same calendar year but on different dates,
the donor's tax computed on the total net gifts during the year.
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25

Donation made to a stranger is subject to 30% of the net gift. A stranger is a person who
is not a:
brother, sister (whether by whole or half blood), spouse, ancestor and lineal
descendants; or
. relative by consanguinity in the collateral line within the fourth degree of
relationship (up to first cousin).
Donation made to a stranger is subject to 10% of the net gift. A stranger is a person who
is not a:
brother, sister (whether by whole or half blood), spouse, ancestor and lineal
descendants; or
. relative by consanguinity in the collateral line within the fourth degree of
relationship (up to first cousin).
Effective before July 28, 1992
Description : Donors Tax is a tax on a donation or gift, and is imposed on the
gratuitous transfer of property between two or more persons who are living at the time
of the transfer. It shall apply whether the transfer is in trust or otherwise, whether the
gift is direct or indirect and whether the property is real or personal, tangible or
intangible.
Tax Form : BIR Form 1800 Donors Tax Return
Documentary Requirements
The following requirements must be submitted upon field or office audit of the tax case
before the Tax Clearance Certificate/Certificate Authorizing Registration can be
released:
1. Deed of Donation
2. Sworn Statement of the relationship of the donor to the donee
3. Proof of tax credit, if applicable
4. Certified true copy(ies) of the Original/Transfer/Condominium Certificate of Title
(front and back ) of lot and/or improvement donated, if applicable
5. Certified true copy(ies) of the latest Tax Declaration (front and back pages) of lot
and/or improvement, if applicable
25

26

6.

Certificate of No Improvement issued by the Assessors office where the


properties have no declared improvement, if applicable
7. Proof of valuation of shares of stocks at the time of donation, if applicable
For listed stocks - newspaper clippings or certification issued by the Stock
Exchange as to the par value per share
For unlisted stocks - latest audited Financial Statements of the issuing
corporation with computation of the book value per share
8. Proof of valuation of other types of personal properties, if applicable
9. Proof of claimed deductions, if applicable
10. Copy of Tax Debit Memo used as payment, if applicable
Additional requirements may be requested for presentation during audit of the tax case
depending upon existing audit procedures.
Procedures
File the return in triplicate (two copies for the BIR and one copy for the taxpayer) with
any Authorized Agent Bank (AAB) of the RDO having jurisdiction over the place of the
domicile of the donor at the time of the transfer. In places where there are no AAB, the
return will be filed directly with the Revenue Collection Officer or duly Authorized City
or Municipal Treasurer where the donor was domiciled at the time of the transfer, or if
there is no legal residence in the Philippines, with Revenue District No. 39 - South
Quezon City.
In the case of gifts made by a non-resident alien, the return may be filed with Revenue
District No. 39 - South Quezon City, or with the Philippine Embassy or Consulate in the
country where donor is domiciled at the time of the transfer.
Submit all documentary requirements and proof of payment to the Revenue District
Office having jurisdiction over the place of residence of the donor.
Deadlines
Within thirty days (30) after the date the gift (donation) is made. A separate return will
be filed for each gift (donation) made on the different dates during the year reflecting
therein any previous net gifts made during the same calendar year.
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27

If the gift (donation) involves conjugal/community/property, each spouse will file


separate returns corresponding to his/ her respective share in the conjugal/community
property. This rule will also apply in the case of co-ownership over the property.
Frequently Asked Questions
1. Who are required to file the Donors Tax Return?
Every person, whether natural or juridical, resident or non-resident, who transfers or
causes to transfer property by gift, whether in trust or otherwise, whether the gift is
direct or indirect and whether the property is real or personal, tangible or intangible.
2. What are the procedures in filing the Donors Tax return?
File the return in triplicate (two copies for the BIR and one copy for the taxpayer) with
any Authorized Agent Bank (AAB) of the RDO having jurisdiction over the place of the
domicile of the donor at the time of the transfer. In places where there are no AAB, the
return will be filed directly with the Revenue Collection Officer or duly Authorized City
or Municipal Treasurer where the donor was domiciled at the time of the transfer, or if
there is no legal residence in the Philippines, with Revenue District No. 39 - South
Quezon City.
In the case of gifts made by a non-resident alien, the return may be filed with Revenue
District No. 39 - South Quezon City, or with the Philippine Embassy or Consulate in the
country where donor is domiciled at the time of the transfer.
Submit all documentary requirements and proof of payment to the Revenue District
Office having jurisdiction over the place of residence of the donor.
3. What donations are tax exempt?
Dowries or donations made on account of marriage before its celebration or within
one year thereafter, by parents to each of their legitimate, recognized natural, or
adopted children to the extent of the first P10,000
Gifts made to or for the use of the National Government or any entity created by
any of its agencies which is not conducted for profit, or to any political subdivision of
the said Government
Gifts in favor of an educational and/or charitable, religious, cultural or social welfare
corporation, institution, accredited non-government organization, trust or
philantrophic organization or research institution or organization, provided not
more than 30% of said gifts will be used by such donee for administration purposes
27

28

Encumbrances on the property donated if assumed by the donee in the deed of


donation
Donations made to the following entities as exempted under special laws:
- Aquaculture Department of the Southeast Asian Fisheries Development Center of
the Philippines
- Development Academy of the Philippines
- Integrated Bar of the Philippines
- International Rice Research Institute
- National Social Action Council
- Ramon Magsaysay Foundation
- Philippine Inventors Commission
- Philippine American Cultural Foundation
- Task Force on Human Settlement on the donation of equipment, materials and
services
4. What are the bases in the valuation of property?
If the gift is made in property, the fair market value at that time will be considered the
amount of gift
In case of real property, the taxable base is the fair market value as determined by the
Commissioner of Internal Revenue (Zonal Value) or fair market value as shown in the
latest schedule of values of the provincial and city assessor (MV per Tax Declaration),
whichever is higher
If there is no zonal value, the taxable base is the fair market value that appears in the
latest tax declaration
If there is an improvement, the value of improvement is the construction cost per
building permit and or occupancy permit plus 10% per year after year of construction,
or the market value per latest tax declaration.

F. DOCUMENTARY STAMP TAX (Title VII)


Description:

Documentary Stamp Tax is a tax on documents, instruments, loan


28

29

agreements and papers evidencing the acceptance, assignment, sale or transfer of an


obligation, right or property incident thereto.
Tax Form: BIR Form 2000 (Documentary Stamp Tax Declaration Return)
Documentary Requirements
1) Photocopy of document(s) to which the documentary stamp shall be affixed, in case
of constructive affixture of Documentary Stamp Tax
2) For metering machine users, a schedule of the details of usage or consumption of
documentary stamp
3) Proof of exemption under special law, if applicable
4) Duly approved Tax Debit Memo, if applicable
Tax Rates
Tax
Code Document
Section

Taxable Unit

Tax Due
Per Unit

% of
Unit

Taxable Base

P1.50

.75%

Face value of
Document

Par value of shares of


stocks actual
consideration for the
issuance of shares of
stocks

174

Debentures and P200.00 or


Certificates of
fraction
Indebtedness
thereof

175

P200.00 or
Original Issue of fraction
Shares of Stock thereof
with par value
P200.00 or
2.00
Original Issue of fraction
2.00
Shares of Stock thereof
without par
based on
value
actual
consideration

1%
1%

176

Sales,
Agreements to
Sell, Memoranda
P200.00 or
of Sales,
fraction
Deliveries or
thereof
Transfer of Duebills, Certificate
of Obligation, or

Par value of such due.75% bills, certificate of


obligation or stocks

1.50

29

30

Shares or
Certificates of
Stock

177

Bonds,
Debentures,
Certificate of
P200.00 or
Stock or
fraction
Indebtedness
thereof
issued in foreign
Countries

1.50

Par value of such


.75% bonds, debentures or
Certificate of Stocks

178

Certificate of
P200.00 or
Profits or Interest
fraction
in Property or
thereof
Accumulation

.50

Face value of such


.25% certificate /
memorandum

179

Bank Checks,
Drafts, Certificate
of Deposit not
On each
bearing interest Document
and other
Instruments

1.50

180

Bonds, Loan
Agreements,
Promissory
Notes, Bills of
Exchange, Drafts,
Instruments and
Securities Issued
by the
P200.00 or
Government or fraction
any of its
thereof
Instrumentalities,
Deposit
Substitutes Debt
Instrument,
Certificates of
Deposit bearing
interest and

.30

.15%

Face value of the


instrument/document

30

31

others not
payable on sight
or demand
(except loan
agreement or
promissory notes
exceeding
P250,000.00 for
personal use or
family use)

181

Bills of Exchange
or order drawn in P200.00 or
foreign country fraction
but payable in
thereof
the Philippines

.30

Face value of such bill


of exchange or order
or the equivalent of
.15%
such value, if
expressed in foreign
currency

182

Foreign Bills of
Exchange and
Letter of Credit

P200.00 or
fraction
thereof

.30

Face value of such bill


of exchange or order
or the equivalent of
.15%
such value, if
expressed in foreign
currency

183

Life Insurance
Policies

P200.00 or
fraction
thereof

.50

.25%

184

Policies Of
Insurance upon
Property

P4.00
premium or
fraction
thereof

.50

12.5% Premium charged

185

Fidelity Bonds
and other
Insurance
Policies

P4.00
premium or
fraction
thereof

.50

12.5% Premium charged

186

Policies of
P200.00 or
Annuities,
fraction
Annuity or other
thereof
instruments

1.50

75%

Amount Insured by
the Policy

Capital of annuity, or
if unknown 33 1/3
times the annual
income
31

32

186

Pre-Need Plans

P500.00 or
fraction
thereof

Value or amount of
the Plan

.50

.10%

187

P4.00 or
Indemnity Bonds fraction
thereof

.30

7.5% Premium charged

188

Certificates of
Damage or
otherwise and
Certificate or
document issued
by any customs
officers, marine Each
surveyor, notary Certificate
public and
certificate
required by law
or by rules and
regulations of a
public office

15.00

193

Powers of
Attorney

Each
Document

5.00

Lease and other


Hiring
agreements of
memorandum or
contract for hire,
use or rent of
any land or
tenements or
portions thereof

First 2,000
For every
P1,000 or
fractional
part thereof
3.00
in excess of
1.00
the first
P2,000 for
each year of
the term of
the contract

194

1.5%
1%

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33

or agreement

195

First 5,000
Mortgages
On each
Pledges of lands, P5,000 or
20.00
estate, or
fractional
10.00
property and
part thereof
Deeds of Trust
in excess of
5,000

.4%
.2%

196

Deed of Sale,
instrument or
writing and
Conveyances of
Real Property
(except grants,
patents or
original
certificate of the
government)

Consideration or Fair
Market Value,
1.5% whichever is higher (if
1.5% government is a
party, basis shall be
the consideration)

First 1,000
For each
additional
P1,000 or
15.00
fractional
15.00
part thereof
in excess of
P1,000

Amount Secured
Amount Secured

Procedures
File BIR Form No. 2000 in triplicate (two copies for the BIR and one copy for the
taxpayer) with the Authorized Agent Bank (AAB) in the Revenue District where the seller
or transferor is registered, for shares of stocks or where the property is located, for real
property. In places where there are no AAB, the return will be filed directly with the
Revenue Collection Officer or Authorized City or Municipal Treasurer.
Submit all documentary requirements and proof of payment to the Revenue District
Office having jurisdiction over the place of residence of the seller.
Deadlines
The Documentary Stamp Tax return (BIR Form 2000) shall be filed in triplicate (two
copies for the BIR and one copy for the taxpayer) within five (5) days after the close of
the month when the taxable document was made signed, issued, accepted or
transferred; when reloading a metering machine becomes necessary; or upon
remittance by Collection Agents of collection from sale of loose stamps. The
Documentary Stamp Tax shall be paid upon filing of the return.
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Frequently Asked Questions


1) Who are required to file Documentary Stamp Tax Declaration Return?
a) In case of constructive affixture of documentary stamps, by the persons making,
signing, issuing, accepting or transferring documents, instruments, loan agreements and
papers, acceptances, assignments, sales and conveyances of the obligation, right or
property incident thereto wherever the document is made, signed, issued, accepted or
transferred when the obligation or right arises from Philippine sources or the property is
situated in the Philippines at the same time such act is done or transaction had;
b) By metering machine user who imprints the Documentary Stamp Tax due on the
taxable documents; and
c) By Revenue Collection Agent, for remittance of sold loose documentary stamps.
Note: Wherever one party to the taxable document enjoys exemption from the tax
imposed, the other party who is not exempt will be the one directly liable to file
Documentary Stamp Tax Declaration and pay the applicable stamp tax.
2) Where is the Documentary Stamp Tax Declaration Return filed?
In the Authorized Agent Bank (AAB) within the territorial jurisdiction of the RDO which
has jurisdiction over the residence or principal place of business of the taxpayer or
where the property is located in case of sale of real property or where the Collection
Agent is assigned. In places where there is no Authorized Agent Bank, the return will be
filed with the Revenue Collection Officer or duly authorized City or Municipal Treasurer
where the taxpayer's residence or principal place of business is located or where the
property is located in case of sale of real property or where the Collection Agent is
assigned.
3) What are the documents/papers not subject to Documentary Stamp Tax?
Policies of insurance or annuities made or granted by a fraternal or beneficiary society,
order, association or cooperative company, operated on the lodge system or local
cooperation plan and organized and conducted solely by the members thereof for the
exclusive benefit of each member and not for profit
Certificates of oaths administered by any government official in his official capacity or
acknowledgement by any government official in performance of his official duty
Written appearance in any court by any government official in his official capacity
Certificates of the administration of oaths to any person as to the authenticity of any
paper required to be filed in court by any person or party thereto, whether the
proceedings be civil or criminal
Papers and documents filed in court by or for the national, provincial, city or municipal
governments
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Affidavits of poor persons for the purpose of proving poverty


Statements and other compulsory information required of persons or corporations by
the rules and regulations of the national, provincial, city or municipal government
exclusively for statistical purposes and which are wholly for the use of the Bureau or
office in which they are filed, and not at the instance or for the use or benefit of the
person filing them
Certified copies and other certificates placed upon documents, instruments and papers
for the national, provincial, city or municipal governments made at the instance and for
the sole use of some other branch of the national, provincial, city or municipal
governments
Certificates of the assessed value of lands, not exceeding P200 in value assessed,
furnished by the provincial, city or municipal Treasurer to applicants for registration of
title to land
4) What are the implications of failure to stamp taxable documents?
The untaxed document will not be recorded, nor will it or any copy thereof or any
record of transfer of the same be admitted or used in evidence in court until the
requisite stamp or stamps have been affixed thereto and cancelled
No notary public or other officer authorized to administer oaths will add his jurat or
acknowledgment to any document subject to Documentary Stamp Tax unless the
proper documentary stamps are affixed thereto and cancelled.

H. WITHHOLDING TAX
Description: Withholding Tax on Compensation is the tax withheld from income
payments to individuals arising from an employer-employee relationship.
Expanded Withholding Tax is a kind of withholding tax which is prescribed on certain
income payments and is creditable against the income tax due of the payee for the
taxable quarter/year in which the particular income was earned.
Final Withholding Tax is a kind of withholding tax which is prescribed on certain income
payments and is not creditable against the income tax due of the payee on other
income subject to regular rates of tax for the taxable year. Income Tax withheld
constitutes the full and final payment of the Income Tax due from the payee on the
particular income subjected to final withholding tax.
Withholding Tax on Government Money Payments (GMP) - Percentage Taxes - is the tax
withheld by National Government Agencies (NGAs) and instrumentalities, including
government-owned and controlled corporations (GOCCs) and local government units
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(LGUs), before making any payments to non-VAT registered taxpayers/suppliers/payees


Withholding Tax on GMP - Value Added Taxes (GVAT) - is the tax withheld by
National Government Agencies (NGAs) and instrumentalities, including governmentowned and controlled corporations (GOCCs) and local government units (LGUs), before
making any payments to VAT registered taxpayers/suppliers/payees on account of their
purchases of goods and services.
Monthly Remittance of Taxes Withheld on Compensation
Tax Form
BIR Form 1601-C : Monthly Remittance Return of Income Taxes Withheld on
Compensation
Who Are Required To File
Every registered withholding agent on compensation, which includes, but not limited to
the following:
1) Individuals engaged in business or practice of profession with employees subject to
income tax
2) All Juridical persons (e.g., Corporations, general partnerships, associations,
etc.) whether or not
engaged in business.
3) Government Agencies and Instrumentalities (e.g.,NGAs, GOCCs, etc.), including local
government units (LGUs)
Documentary Requirements/Attachments to the tax return:
1) For amended return, proof of remittance and the return previously filed.
2) For those with advance payments, BIR Form No. 0605
3) For Private Sector, copy of the list of MWEs who received hazard pay submitted to
the DOLE Regional/Provincial Offices-Operations Division/Unit, for the return period
March, June, September and December, if applicable.
4) For Public Sector, copy of Department of Budget and Management (DBM) circular/s
or equivalent on MWEs allowed to receive hazard pay, for the return period March,
June, September and December, if applicable.

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5) Electronic Tax Remittance Advice (eTRA) previously Tax Remittance Advice (TRA) for
National Government Agencies (NGAs) as required under DOF-DBM Joint Circular No. 12000A and RR 1-2003 .
Procedures for Filing and Payment
1. Read instructions indicated in the tax return.
2. Accomplish correctly BIR Form 1601-C in triplicate copies.
3. If there is tax required to be remitted:
- Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office
(RDO) where you are registered or withholding agent is registered and present the duly
accomplished BIR Form No. 1601-C, together with the required attachments (if
applicable) and your payment.
- In places where there are no AABs, proceed to the Revenue Collection Officer or duly
Authorized City or Municipal Treasurer located within the Revenue District Office where
you are registered or withholding agent is registered and present the duly accomplished
BIR Form No. 1601- C, together with the required attachments (if applicable) and your
payment.
- Receive your copy of the duly stamped and validated form from the teller of the
AAB's/Revenue Collection Officer/duly Authorized City or Municipal Treasurer.
4. If there is no tax required to be remitted:
- Proceed to the Revenue District Office where you are registered or where the
withholding agent is registered and present the duly accomplished BIR Form 1601-C,
together with the required attachments.
- Receive your copy of the duly stamped and validated form from the RDO
representative
Deadline (See Schedule)

REVISED WITHHOLDING TAX TABLES


Effective JANUARY 1, 2009 (See BIR Schedule)

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Tax Rates (see BIR Table)

Monthly Remittance Of Value-Added Taxes And Other Percentage Taxes Withheld


Tax Form
BIR Form No. 1600 - Monthly Remittance Return of Value-Added Taxes and Other
Percentage Taxes Withheld
Who Are Required To File
1. All government offices, bureaus, agencies or instrumentalities, local government
units, government owned and controlled corporation on money payments made to
private individuals, corporations, partnerships, associations and other judicial/artificial
entities as required under RA Nos. 1051, 7649, 8241, 8424 and 9337.
2. Payors of income subject to Value-Added Tax to Non-residents.
3. Payors of income to persons, natural or juridical, who opted to remit his/its VAT or
percentage tax through the withholding and remittance of the same by the withholding
agent/payor which option is manifested by filing the Notice of Availment of the option
to Pay the Tax through the Withholding Process, copy furnished the withholding agentpayor and the revenue district offices of both the payor and payee.
Documentary Requirements
.
Tax Rates (see BIR Table)
Monthly Remittance of Final Income Taxes Withheld
Tax Form
BIR Form 1601-F : Monthly Remittance Return of Final Income Taxes Withheld
Who Are Required To File

Every withholding agent/payor who is either an individual or non-individual required to


deduct and withhold taxes on income payments subject to Final Withholding Taxes
Documentary Requirements
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1. Return previously filed and proof of remittance, if amended return


2. Monthly Alphalist of Payees (MAP)
3. For advance payment, BIR Form No. 0605
4. Electronic Tax Remittance Advice (eTRA) previously Tax Remittance Advice (TRA) for
National Government Agencies (NGAs) as required under DOF-DBM Joint Circular No. 12000A and RR 1-2003
Procedures for Filing and Payment
1. Read instructions indicated in the tax return.
2. Accomplish BIR Form No. 1601-F in triplicate copies.

Procedures
File BIR Form No. 2000 in triplicate (two copies for the BIR and one copy for the
taxpayer) with the Authorized Agent Bank (AAB) in the Revenue District where the seller
or transferor is registered, for shares of stocks or where the property is located, for real
property. In places where there are no AAB, the return will be filed directly with the
Revenue Collection Officer or Authorized City or Municipal Treasurer.
Submit all documentary requirements and proof of payment to the Revenue District
Office having jurisdiction over the place of residence of the seller.
Deadlines
The Documentary Stamp Tax return (BIR Form 2000) shall be filed in triplicate (two
copies for the BIR and one copy for the taxpayer) within five (5) days after the close of
the month when the taxable document was made signed, issued, accepted or
transferred; when reloading a metering machine becomes necessary; or upon
remittance by Collection Agents of collection from sale of loose stamps. The
Documentary Stamp Tax shall be paid upon filing of the return.
Frequently Asked Questions
1) Who are required to file Documentary Stamp Tax Declaration Return?
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40

a) In case of constructive affixture of documentary stamps, by the persons making,


signing, issuing, accepting or transferring documents, instruments, loan agreements and
papers, acceptances, assignments, sales and conveyances of the obligation, right or
property incident thereto wherever the document is made, signed, issued, accepted or
transferred when the obligation or right arises from Philippine sources or the property is
situated in the Philippines at the same time such act is done or transaction had;
b) By metering machine user who imprints the Documentary Stamp Tax due on the
taxable documents; and
c) By Revenue Collection Agent, for remittance of sold loose documentary stamps.
Note: Wherever one party to the taxable document enjoys exemption from the tax
imposed, the other party who is not exempt will be the one directly liable to file
Documentary Stamp Tax Declaration and pay the applicable stamp tax.
2) Where is the Documentary Stamp Tax Declaration Return filed?
In the Authorized Agent Bank (AAB) within the territorial jurisdiction of the RDO which
has jurisdiction over the residence or principal place of business of the taxpayer or
where the property is located in case of sale of real property or where the Collection
Agent is assigned. In places where there is no Authorized Agent Bank, the return will be
filed with the Revenue Collection Officer or duly authorized City or Municipal Treasurer
where the taxpayer's residence or principal place of business is located or where the
property is located in case of sale of real property or where the Collection Agent is
assigned.
3) What are the documents/papers not subject to Documentary Stamp Tax?
Policies of insurance or annuities made or granted by a fraternal or beneficiary society,
order, association or cooperative company, operated on the lodge system or local
cooperation plan and organized and conducted solely by the members thereof for the
exclusive benefit of each member and not for profit
Certificates of oaths administered by any government official in his official capacity or
acknowledgement by any government official in performance of his official duty
Written appearance in any court by any government official in his official capacity
Certificates of the administration of oaths to any person as to the authenticity of any
paper required to be filed in court by any person or party thereto, whether the
proceedings be civil or criminal
Papers and documents filed in court by or for the national, provincial, city or municipal
governments
Affidavits of poor persons for the purpose of proving poverty
Statements and other compulsory information required of persons or corporations by
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the rules and regulations of the national, provincial, city or municipal government
exclusively for statistical purposes and which are wholly for the use of the Bureau or
office in which they are filed, and not at the instance or for the use or benefit of the
person filing them
Certified copies and other certificates placed upon documents, instruments and papers
for the national, provincial, city or municipal governments made at the instance and for
the sole use of some other branch of the national, provincial, city or municipal
governments
Certificates of the assessed value of lands, not exceeding P200 in value assessed,
furnished by the provincial, city or municipal Treasurer to applicants for registration of
title to land
4) What are the implications of failure to stamp taxable documents?
The untaxed document will not be recorded, nor will it or any copy thereof or any
record of transfer of the same be admitted or used in evidence in court until the
requisite stamp or stamps have been affixed thereto and cancelled
No notary public or other officer authorized to administer oaths will add his jurat or
acknowledgment to any document subject to Documentary Stamp Tax unless the
proper documentary stamps are affixed thereto and cancelled.

Local Taxation, Real Property Tax, and Idle Land Tax


PRESIDENTIAL DECREE NO. 464 (ENACTING A REAL PROPERTY TAX CODE).
(Effectivity of Code. June 1, 1974)
(Presidential Decree No. 1812, Amending Presidential Decree No. 464, As Amended,
Otherwise Known As The Real Property Tax Code, By Granting Special Authority To The
President To Provide Flexibility In The Real Property Tax System To Meet Economic
Exigencies And/Or Promote The General Welfare.)
Declaration of principles and policies
The country cannot progress steadily if the LGUs are not contributing their
proportionate shares to national progress.. The past decades saw the passage of the
Local Autonomy Act, the Barrio Charter, the Decentralization Act and other laws
intended to make LGUs financially self-reliant. In spite of all these laws, local
governments still find difficulty in providing adequate funds with which to provide basic
and essential public services within their respective jurisdictions. One reason behind this
is the failure of LGUs to fully tap the income potentialities of the real property tax.
There is, therefore, an urgent need to upgrade assessment techniques, procedures and
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practices to bring about equitable distribution of the realty tax burden among real
property owners throughout the country.

ACCOUNTING AND TAXATION FOR


REAL ESTATE (under the LGU and NIRC)
Problems in accounting and taxation could be subjects for real estate consultancy,
where the corporate and individual clients objective is related to faithful compliance to
financial accountability and prompt and correct payment of tax obligations to local and
national government. A well-prepared project feasibility study must consider these two
aspects of real estate operation and management.
Accounting
Proper accounting is often overlooked until management is confronted with problems
related to financial condition and results of operations. Because of the relatively
sizeable investment involved in real estate development, both in equity and debt, it is
gross imprudence to overlook the standard requirement of good management to
include financial analysis as a tool to measure the projects financial viability, which may
not be shown by simply measuring profitability. A project may look very profitable and
yet find itself saddled by financial problems which may soon pre-empt project viability.
The installation of an accounting system and procedures (in accordance with generally
accepted accounting standards and tax rules and regulations) is a must. The accounting
and tax peculiarities in the real estate transactions (like installment sales, construction
in progress, deferred income tax, capital gains tax, withholding tax, value-added tax,
valuation, impairment in asset values, etc.) require particular attention. Proper
financial and tax accounting should start right in the planning stage of a project,
especially in projecting the financial condition, results of operation and cash flows.
Likewise, proper accounting that also complies with financial reporting standards
required by government agencies (like the SEC, BIR and Banko Sentral) and lending
institutions must be observed. External audits undertaken in compliance with
government regulations and generally accepted auditing standards may result in
unnecessary issues with the auditors and the stakeholders in the company (or project) if
the auditors are unable to conclude and acceptable opinion as to the financial condition
and results of operation due to improper and deficient bookkeeping and accounting.
The experienced consultant should be able to provide advice and direction on how to
accomplish the proper design and installation of appropriate systems for accounting
and tax planning. The necessary professional skills, on the other hand, may be provided
42

43

by an experienced CPA and tax lawyer.


With regards to the engagement of an external audit service, one wrong perception
must be dispelled as to the principal scope of responsibility in the preparation of the
basic financial reports. How often have we observed company officers avoiding of
evading questions about the financial statements (basically the Balance Sheet,
Statement of Income and Retained Earnings, and Cash Flow Statement) by answering
that FS are yet to be audited, implying wrongly that it is the external auditors
responsibility to prepare the same.
Management Responsibility for the Financial Statements
The by-laws of a corporation usually requires the periodic preparation of financial
reports or financial statements (FS) and the engagement of an external auditor. The
SEC regulation requires that the FS reported or submitted to it be audited by and
independent CPA accredited by the Board of Accountancy under PRC. Therefore,
management is responsible for the preparation and fair presentation of the financial
statements in accordance with accounting principles generally accepted in the
Philippines. This responsibility includes: designing, implementing and maintaining
internal control relevant to the preparation and fair presentation of financial
statements that are free from material misstatement, whether due to fraud or error;
selecting and applying appropriate accounting policies, and making accounting
estimates that are reasonable in the circumstances.
Auditors Responsibility
The auditors responsibility is to express an opinion on the management-prepared FS,
based on the audit conducted in accordance with Philippine Standards on Auditing,
which require the auditors compliance with ethical requirement and plan and perform
the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts
and disclosures in the FS. The procedures selected depend on the auditors judgment,
including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the
auditor considers internal control relevant to the entitys preparation and fair
presentation of the FS in order to design audit procedures that are appropriate in the
circumstances, bud not for the purpose of expressing an opinion on the effectiveness of
the entitys internal control. And audit also includes evaluation the appropriateness of
accounting policies used and the reasonableness of the accounting estimates made by
management, as well as evaluating the overall FS presentation.
In the light of the foregoing statements of management responsibility in the
preparation and presentation of the FS, the appropriate advice to management is to
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adopt an Accounting Manual recommended by an objective expert for use


companywide. Such manual, supported by an organization chart (to show lines of
authority, responsibility and communication) duly approved by management, basically
contains the following:
Functional organization of the bookkeeping-accounting unit/s
Chart of accounts classified in accordance with prescribed Financial Statement and
supporting schedules
Description of the individual accounts in the Chart of Accounts
Pro-forma Financial Reports, including supporting reports
Pro-forma accountable forms and how these are accomplished to achieve internal
control and proper record-keeping
Frequency and time table of report completion and official distribution of report copies
Computer program (software and hardware) for bookkeeping and reporting as may be
required by circumstances.
The Accounting Manual will greatly assist the external and internal auditors in their
functions and work plans. Review and updating of the manual should also be
programmed.
REAL ESTATE TAXATION
Taxation in real estate transactions and possession is generally covered by National
Internal Revenue Code (of 1997, as amended) and the local revenue codes of the
various LGUs as authorized by the 1992 Local Government Code (such as the Makati
Revised Revenue Code under City Ordinance NO. 2004-A-025, effective January 1,
2006).
REAL ESTATE TAXATION UNDER LGU REVENUE CODE (where the property and/or the
real estate-related business/service practice is located)
Real Property Taxes (in Makati City)
For our purpose defining the imposition of the real property tax will make use of the
above-cited Makati Revenue Code as an example. The consultant may have to refer to
the applicable local revenue code where the property is located.
Makati Real Property Tax (Article A)
Sec. 2A.02. imposes the basic real property tax, as an annual ad valorem tax on the
assessed value of the real property such as land, buildings, machinery and other
improvements affixed or attached to real property located in Makati City, at the
following rates:
Class of Property Rate of Levy %
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45

Residential 1.50%
Commercial 2.00%
2,000,000 5,000,000 40%
5,000,00 10,000,000 50%
10,000,000 60%
(B) Commercial/Industrial
Over Not Over Assessment Level
P300,000 30%
P300,000 500,000 35%
500,000 750,000 40%
750,000
1,000,000 50%
1,000,000
2,000,000 60%
2,000,000
5,000,000 70%
5,000,000
10,000,000 75%
10,000,000
80%
3. On Machineries
Class
Assessment Level
Residential
50%
Commercial
80%
Industrial
80%
4. On Special Classes
Assessment Level
Actual Use
15%
Cultural
15%
Scientific 15%
Hospital 15%
Local water districts 10%
Government-owned or controlled.ect. 10%

Sec. 2A.08 provides the following exemptions from the payment of the basic real
property tax and SEF tax:
(a) Real property owned by the Philippine Government or any of its political subdivisions
except when the beneficial owner thereof has been granted for consideration or
otherwise to a taxable person;
(b) Charitable institutions, churches, and personages or convents appurtenant thereto,
mosques, non-profit or religious cemeteries and all lands, buildings and improvements
actually, directly, and exclusively used for religious, charitable and educational
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46

purposes;
(c) All machineries and equipment that are actually and exclusively used by local water
districts and government owned or controlled corporations engaged in supply and
distribution of or water and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives under R.A. No. 65938; and
(e) Machinery and equipment used for pollution control and environmental protection.
Sec. 2A.10. Time of payment of both the basic tax and SEF tax are due and payable on
January 1, but may be paid in four equal installments without interest/penalty: on or
before March 31, June 30, September 30, and December 31, respectively. A 10%
discount is granted if paid in full on or before January 20 and 5% discount if paid on or
before the first 20 days of the quarter of the installment schedule. These discounts are
granted only to property without ant delinquency .
Sec. 2A.26 The City Assessor may recommend to the Sanguniang Panglungsod
amendments to correct errors in valuation in the schedule of fair market value, which
recommendation shall be acted upon within 30 days thereof.
Makati Tax on Idle Land (II Article B)
Sec. 2B.01. Coverage: For purposes of real property taxation, idle lands include all lands
located in the city more than one thousand (1,000) square meters in area, of which
remain unutilized or unimproved by the owner of the property or person having legal
interest therein. Regardless of land area, this coverage likewise apply to residential lots
in subdivisions duly approved by proper authorities, the ownership of which has been
transferred to individual owners, who shall be liable for the additional tax; individual;
lots, the ownership of which has not been transferred to the buyer shall be considered
as part of the subdivision owner or operator.
Sec.2B.02 Tax imposed: annual tax on idle lands at the rate of 5% of the assessed value
of the property, in addition to the basic real property tax, payable at the same time and
in the same manner as that of the basic real property tax (Sec.2b.04).
Sec.2B.03.Exemptions apply to idle lands wherein the landowner is physically or legally
prevented from improving, or utilizing the same person by reason of force majeure, civil
disturbance, natural calamity, or any justifiable cause or circumstance. Exemption
application may be filed with the City Treasure.
Makati Special Levy on Lands (Article C)
Special levy is a form of taxation (based on the benefit principle) imposed upon the land
supposed to have derived some special benefit in terms of higher values from the
improvements (such as public work projects or improvements) introduced by the
government. The levy is at the rate not to exceed 60% of the actual cost of such other
real property in connection therewith (SEC. 2C.02). Exemption applies to lands exempt
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47

for the basic real property tax. The special is payable on the first day of the quarter next
following the effectivity of the ordinance imposing such levy.
Definitions Under the Makati Revenue Code (Sec. 2A.01)
Actual use refers to the purpose for which the property is principally or predominantly
utilized by the person in possession thereof.
Ad Valorem Tax is a levy on real properties determined on the basis of a fixed
proportion of the appraised value of the property.
Appraisal is the act or process of determining the value of the property as of specific
date for specific purposes
Assessment is the act or process of determining the value of a property, or a portion
thereof subject to tax, including the discovery, listing classification and appraisal of
properties. Assessment level is the percentage applied to the fair market value to
determine the taxable value of the property. Assessed value (or taxable value) is the
appraised value of the real property multiplied by the assessment level
Fair Market Value is the price at which a property may be sold by a seller who is not
compelled to sell and bought by a buyer who is not compelled to buy.
Improvement is a valuable addition made to a property or amelioration in its condition,
amounting to more than a mere repair or replacement of parts involving capital
expenditures and labor of which is intended to enhance its value, beauty and utility or
to adapt it for new or further purposes.
Commercial Land is land devoted principally for the abject of profit and is not classified
as agricultural, industrial, mineral, timber, or residential land. Industrial land is land
devoted principally

(EDITED FOR LECTURE PRESENTATION)

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PHILIPPNE TAXATION ON REAL ESTATE TRANSACTIONS


AND POSESSION
BY DOMINGO D. DE VERA
Tax impositions on Philippine real estate transactions and possession are covered
principally by the National Internal Revenue Code (NIRC) and Local Government Code
(section on local taxation) under the states power of taxation.
INCOME TAX
Description: Income Tax is a tax on a person's income, emoluments, profits arising from
property, practice of profession, conduct of trade or business or on the pertinent items
of gross income specified in the Tax Code of 1997 (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, as amended, or other special laws.
Who Are Required To File Income Tax Returns
Individuals
Resident citizens receiving income from sources within or outside the Philippines
Non-resident citizens receiving income from sources within the Philippines
Aliens, whether resident or not, receiving income from sources within the Philippines
Corporation shall include partnerships, no matter how created or organized.
Domestic corporations receiving income from sources within and outside the
Philippines
Foreign corporations receiving income from sources within the Philippines
Estates and trusts engaged in trade or business
Annual Income Tax For Individuals Earning Purely Compensation Income (Including
Non-Business/Non-Profession Related Income) and For Marginal Income Earners
Tax Form: BIR Form 1700 - Annual Income Tax Return (For Individual Earning Purely
Compensation Income Including Non-Business/Non-Profession Related Income)
Documentary Requirements
1. Certificate of Income Tax Withheld on Compensation (BIR Form 2316)
2. Waiver of the Husbands right to claim additional exemption, if applicable
3. Duly approved Tax Debit Memo, if applicable
4. Proof of Foreign Tax Credits, if applicable
5. Income Tax Return previously filed and proof of payment, if filing an amended
return for the same taxable year
Procedures
1. Fill-up BIR Form 1700 in triplicate.
2. If there is payment:
Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office
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where you are registered and present the duly accomplished BIR Form 1700, together
with the required attachments and your payment.
In places where there are no AABs, proceed to the Revenue Collection Officer or duly
Authorized City or Municipal Treasurer located within the Revenue District Office
where you are registered and present the duly accomplished BIR Form 1700, together
with the required attachments and your payment.
Receive your copy of the duly stamped and validated form from the teller of the
AABs/Revenue Collection Officer/duly Authorized City or Municipal Treasurer.
3. For "No Payment" Returns including refundable returns, and for tax returns
qualified for second installment:
Proceed to the Revenue District Office where you are registered or to any Tax Filing
Center established by the BIR and present the duly accomplished BIR Form 1700,
together with the required attachments.
Receive your copy of the duly stamped and validated form from the RDO/Tax Filing
Center representative.
Deadline: On or before the 15th day of April of each year covering taxable income for
the preceding taxable year

Annual Income Tax For Self-Employed Individuals, Estates And Trusts (Including Those
With Mixed Income, i.e., Compensation Income and Income from Business and/or
Practice of Profession )
Tax Form: BIR Form 1701 - Annual Income Tax Return (For Self-Employed Individuals,
Estates and Trusts Including Those With Both Business and Compensation Income)
Documentary Requirements
1. Certificate of Income Tax Withheld on Compensation (BIR Form 2316), if applicable
2. Certificate of Income Payments not Subjected to Withholding Tax (BIR Form 2304) if
applicable
3. Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable
4. Waiver of the Husbands right to claim additional exemption, if applicable
5. Duly approved Tax Debit Memo, if applicable
6. Proof of Foreign Tax Credits, if applicable
7. Income Tax Return previously filed and proof of payment, if filing an amended
return for the same year
8. Account Information Form (AIF) or the Certificate of the independent
CPA with Audited Financial Statements if the gross quarterly sales, earnings, receipts
or output exceed P 150,000.00
9. Proof of prior years excess tax credits, if applicable
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Procedures
1. Fill-up BIR Form 1701 in triplicate copies.
2. If there is payment:
Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office
where you are registered and present the duly accomplished BIR Form 1701, together
with the required attachments and your payment.
In places where there are no AABs, proceed to the Revenue Collection Officer or duly
Authorized City or Municipal Treasurer located within the Revenue District Office
where you are registered and present the duly accomplished BIR Form 1701, together
with the required attachments and your payment.
Receive your copy of the duly stamped and validated form from the teller of the
AABs/Revenue Collection Officer/duly Authorized City or Municipal Treasurer
3. For "No Payment" including refundable/ creditable returns, returns with excess tax
credit carry over, and returns qualified for second installment:
Proceed to the Revenue District Office where you are registered or to any established
Tax Filing Centers established by the BIR and present the duly accomplished BIR Form
1701, together with the required attachments.
Receive your copy of the duly stamped and validated form from the RDO/Tax Filing
Center representative.
Deadline: Final Adjustment Return or Annual Income Tax Return - On or before the 15th
day of April of each year covering income for the preceding year
Account Information Form For Self-Employed Individuals, Estates And Trusts (Including
Those With Mixed Income , I.E., Compensation Income and Income from Business
and/or Practice of Profession)
Tax Form: BIR Form 1701 AIF - Account Information Form For Self-Employed
Individuals, Estates and Trusts (Including those with Mixed Income, i.e., Compensation
Income and Income from Business and/or Practice of Profession) and Estates and
Trusts (Engaged in Trade or Business)
NOTE: Pursuant to Revenue Memorandum Circular No. 6 2001, corporations,
companies or persons whose gross quarterly sales, earnings, receipts or output exceed
P 150,000.00 may not accomplish this form. In lieu thereof, they may file their annual
income tax returns accompanied by balance sheets, profit and loss statement,
schedules listing income-producing properties and the corresponding income
therefrom, and other relevant statements duly certified by an independent CPA.
Deadline: Same deadline as BIR Form 1701 - On or before the 15th day of April of each
year covering taxable income for the preceding year

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Quarterly Income Tax For Self-Employed Individuals, Estates And Trusts (Including
Those With Mixed Income, I.E., Compensation Income and Income from Business
and/or Practice of Profession)
Tax Form: BIR Form 1701Q - Quarterly Income Tax Return For Self-Employed
Individuals, Estates and Trusts (Including those with both Business and Compensation
Income)
II. Annual Income Tax For Corporations And Partnerships
Tax Form: BIR Form 1702 - Annual Income Tax Return (For Corporations and
Partnerships)
Documentary Requirements
1. Certificate of Income Payments not Subjected to Withholding Tax (BIR Form 2304), if
applicable
2. Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable
3. Duly approved Tax Debit Memo, if applicable
4. Proof of Foreign Tax Credits, if applicable
5. Income tax return previously filed and proof of payment, if amended return is filed
for the same taxable year
6. Account Information Form (AIF) and/or the Certificate of the independent CPA with
Audited Financial Statements, if the gross quarterly sales, earnings, receipts or output
exceed P150,000.00
7. Proof of prior years excess tax credits, if applicable
Deadline: Final Adjustment Return or Annual Income Tax Return - On or before the
15th day of the fourth month following the close of the taxpayers taxable year

Account Information Form For Corporations And Partnerships


Tax Form: BIR Form 1702 AIF - Account Information Form (For Corporations and
Partnerships)
NOTE: Pursuant to Revenue Memorandum Circular No. 6 2001, corporations,
companies or persons whose gross quarterly sales, earnings, receipts or output exceed
P 150,000.00 may not accomplish this form. In lieu thereof, they may file their annual
income tax returns accompanied by balance sheets, profit and loss statement,
schedules listing income-producing properties and the corresponding income
therefrom, and other relevant statements duly certified by an independent CPA.
Deadline: Same deadline as BIR Form 1702 - On or before the 15th day of the fourth
month following the close of the taxpayers taxable year
Quarterly Income Tax For Corporations And Partnerships
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Tax Form: BIR Form 1702 Q - Quarterly Income Tax Return (For Corporations and
Partnerships)
Deadline: Corporate Quarterly Declaration or Quarterly Income Tax Return - On or
before the 60th day following the close of each of the quarters of the taxable year
Improperly Accumulated Earnings Tax For Corporations
Tax Form: BIR Form 1704 - Improperly Accumulated Earnings Tax Return (For
Corporations)
Documentary Requirements
1. Photocopy of Annual Income Tax Return (BIR Form 1702) with Audited Financial
Statements and/or Account Information Form of the covered taxable year duly
received by the BIR; and
2. Sworn declaration as to dividends declared taken from the covered year's earnings
and the corresponding tax withheld, if any
Deadline: Within fifteen (15) days after the close of the taxable year
Annual Income Information Form for General Professional Partnerships
Sec. 55. Returns of General Professional Partnership (Tax Code of 1997, as amended)
Every general professional partnership shall file, in duplicate, a return of its income,
except income exempt under Section 32 (B) of this Title, setting forth the items of gross
income and of deductions allowed by this Title, and the names, Taxpayer Identification
Numbers (TIN),addresses and shares of each of the partners.
Tax Rate
For Individuals Earning Purely Compensation Income and Individuals Engaged in
Business and Practice of Profession (SEE SCHEDULE)

Tax Rate

Taxable Base

1. Domestic Corporations:
a. In General
b. Minimum Corporate
Income Tax*
c. Improperly
Accumulated Earnings
c. Improperly

30% (effective Net taxable income from all


Jan. 1, 2009) sources
2%
10%
10%

Gross Income
Improperly Accumulated
Taxable Income
Improperly Accumulated
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Accumulated Earnings
7. Exempt Corporation
b. On Taxable Activities
8. General Professional
Partnerships

Taxable Income

30%
0%

*Beginning on the 4th year immediately following the year in which such corporation
commenced its business operations, when the minimum
corporate income tax is greater than the tax computed using the normal income tax.
B. For Non-Resident Aliens Engaged in Trade or Business
1. Interest from currency deposits, trust funds and
20%
deposit substitutes
2. Interest Income from long-term deposit or investment
in the form of savings, common or individual trust funds, Exempt
deposit substitutes, investment management accounts
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and other investments evidenced by certificates


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
-Three (3) years to less than four (4) years
-Less than three (3) years
3. On capital gains presumed to have been realized from
the sale, exchange or other disposition of real property

5%
12%
20%
6%

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Frequently Asked Question


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
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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?
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
income derived by foreign government
income derived by the government or its political subdivision
prizes and awards in sport competition
prizes and awards which met the conditions set in the Tax Code
13th month pay and other benefits
GSIS, SSS, Medicare and other contributions
gain from the sale of bonds, debentures or other certificate of indebtedness
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
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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 dependentsP 50,000.00
For head of familyP 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
employees deriving purely compensation income from 2 or more employers,
concurrently or successively at anytime during the taxable year
employees deriving purely compensation income regardless of the amount, whether
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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
self-employed individuals receiving income from the conduct of trade or business
and/or practice of profession
individuals deriving mixed income, i.e., compensation income and income from the
conduct of trade or business and/or practice of profession
individuals deriving other non-business, non-professional related income in addition to
compensation income not otherwise subject to a final tax
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
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
domestic corporations receiving income from sources within and outside the
Philippines
foreign corporations receiving income from sources within the Philippines
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
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the amount of tax due from the employee at the end of the year equals the amount of
tax withheld by the employer
the employees 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.
10) What are the procedures in filing Income Tax returns (ITRs)?
For with payment ITRs (BIR Form Nos. 1700 / 1701 / 1701Q / 1702 / 1702Q / 1704)
File the return in triplicate (two copies for the BIR and one copy for the taxpayer) with
the Authorized Agent Bank (AAB) of the place where taxpayer is registered or required
to be registered. In places where there are no AABs, the return will be filed directly
with the Revenue Collection Officer or duly Authorized Treasurer of the city or
municipality in which such person has his legal residence or principal place of business
in the Philippines, or if there is none, filing of the return will be at the Office of the
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Commissioner.
For no payment ITRs -- refundable, break-even, exempt and no
operation/transaction, including returns to be paid on 2nd installment and returns paid
through a Tax Debit Memo(TDM)
File the return with the concerned Revenue District Office (RDO) where the taxpayer is
registered. However, "no payment" returns filed late shall be accepted by the RDO but
instead shall be filed with an Authorized Agent Bank (AAB) or Collection
Officer/Deputized Municipal Treasurer (in places where there are no AABs), for
payment of necessary penalties.
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
Generally 10% or 15% if the gross annual business or professional income exceeds
P720,000 per year
20% - Fees paid to directors who are not employees and 20% of professional fees paid
to non-individuals
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 ___________
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13) Is the Minimum Corporate Income Tax (MCIT) an addition to the regular or normal
income tax?
No, the MCIT is not an additional tax. An MCIT of 2% of the gross income as of the end
of taxable year (whether calendar or fiscal year, depending on the accounting period
employed) is imposed on a corporation taxable under Title II of the Tax Code, as
amended, beginning on the 4th taxable year immediately following the taxable year in
which such corporation commenced its business operations when the MCIT is greater
than the regular income tax. The MCIT is compared with the regular income tax, which
is due from a corporation. If the regular income is higher than the MCIT, then the
corporation does not pay the MCIT but the amount of the regular income tax.
Notwithstanding the above provision, however, the computation and the payment of
MCIT, shall likewise appply at the time of filing the quarterly corporate income tax as
prescribed under Section 75 and Section 77 of the Tax Code, as amended. Thus, in the
computation of the tax due for the taxable quarter, if the computed quarterly MCIT is
higher than that quarterly normal income tax, the tax due to be paid for such taxable
quarter at the time of filing the quarterly income tax return shall be the MCIT which is
two percent (2%) of the gross income as of the end of the taxable quarter. In the
payment of said quarterly MCIT, excess MCIT from the previous taxable year/s shall not
be allowed to be credited. Expanded withholding tax, quarterly corporate income tax
payments under the normal income tax, and the MCIT paid in the previous taxable
quarter/s are allowed to be applied against the quarterly MCIT due.
14) Who are covered by MCIT?
The MCIT covers domestic and resident foreign corporations which are subject to the
regular income tax. The term regular income tax refers to the regular income tax
rates under the Tax Code. Thus, corporations which are subject to a special corporate
tax system do not fall within the coverage of the MCIT.
For corporations whose operations or activities are partly covered by the regular
income tax and partly covered by the preferential rate under special law, the MCIT
shall apply on operations by the regular income tax rate. Newly established
corporations or firms which are on their first 3 years of operations are not covered by
the MCIT.
15) When does a corporation start to be covered by the MCIT?
A corporation starts to be covered by the MCIT on the 4th year of its business
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operations. The period of reckoning which is the start of its business operations is the
year when the corporation was registered with the BIR. This rule will apply regardless
of whether the corporation is using the calendar year or fiscal year as its taxable year.
16) When is the MCIT reported and paid? Is it quarterly?
The MCIT is paid on an annual basis and quarterly basis. The rules are governed by
Revenue Regulations No. 12-2007.
17) How is MCIT computed?
The MCIT is 2% of the gross income of the corporation at the end of the year.
Gross income means gross sales less sales returns, discounts and cost of goods sold.
Passive income, which have been subject to a final tax at source do not form part of
gross income for purposes of the MCIT.
Cost of goods sold includes all business expenses directly incurred to produce the
merchandise to bring them to their present location and use.
For trading or merchandising concern, cost of goods sold means the invoice cost of
goods sold, plus import duties, freight in transporting the goods to the place where the
goods are actually sold, including insurance while the goods are in transit.
For a manufacturing concern, cost of goods manufactured and sold means all costs of
production of finished goods such as raw materials used, direct labor and
manufacturing overhead, freight cost, insurance premiums and other costs incurred to
bring the raw materials to the factory or warehouse.
For sale of services, gross income means gross receipts less sales returns, allowances,
discounts and cost of services which cover all direct costs and expenses necessarily
incurred to provide the services required by the customers and clients including:
Salaries and employees benefits of personnel, consultants and specialists directly
rendering the service;
Cost of facilities directly utilized in providing the service such as depreciation or rental
of equipment used;
Cost of supplies
Interest Expense is not included as part of cost of service, except in the case of banks
and other financial institutions.
Gross Receipts means amounts actually or constructively received during the taxable
year. However, for taxpayers employing the accrual basis of accounting, it means
amounts earned as gross income.

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18) What is the carry forward provision under the MCIT?


Any excess of the MCIT over the normal income tax may be carried forward on an
annual basis and be credited against the normal income tax for 3 immediately
succeeding taxable years.
19) How would the MCIT be recorded for accounting purposes?
Any amount paid as excess minimum corporate income tax should be recorded in the
corporations books as an asset under account title Deferred charges-MCIT
20) How long can we amend our income tax return?
There is no prescription period for amending the return. When the taxpayer has been
issued a Letter of Authority, he can no longer amend the return.
21) Can a benefactor of a senior citizen claim him/her as additional dependent in
addition to his/her 3 qualified dependent children at P 25,000 each?
No, pursuant to Revenue Regulations 2-94, the benefactor of a senior citizen cannot
claim the additional exemption.
22) What is a tax treaty?
A tax treaty formally known as convention or agreement for the avoidance of double
taxation and the prevention of fiscal evasion with respect to taxes on income (and on
capital) could be defined in terms of its purpose. First, a tax treaty is intended to
promote international trade and investment in several ways, the most important of
which is by allocating taxing jurisdiction between the Contracting States so as to
eliminate or mitigate double taxation of income. Second, a tax treaty is intended to
permit the Contracting States to better enforce their domestic laws so as to reduce tax
evasion. These purposes are in fact incorporated in the title and the preamble.
23) What are the effective Philippine tax treaties?
The Philippines has thirty-seven (37) effective tax treaties. The following tax treaties
and their dates of effectivity as follows:
24) What office can we inquire about the said tax treaties?
The International Tax Affairs Division (ITAD).
25) What taxes are covered b Philippine tax treaties?
Income taxes imposed by the domestic laws of the Contracting States, including
substantially similar taxes that may be imposed later, in addition to, or in place, are
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covered by the tax treaties. In the Philippines, this is generally limited to Title II (Tax on
Income) of the National Internal Revenue Code of 1997, as amended.
26) How is business income treated under our tax treaties?
The business profits of a resident of a Contracting State shall not be taxable in the
Philippines unless that enterprise of a resident of a Contracting State carries on
business in the Philippines through a permanent establishment.
27) What is the concept of permanent establishment (PE) as used in tax treaties?
PE is defined as a fixed place of business through which the business of the enterprise
is wholly or partly carried on. The concept of permanent establishment is used to
determine the rights of a Contracting State to tax the business profits of enterprises of
the other Contracting State. Under this concept, profits of an enterprise of a
Contracting State are not taxable by the other Contracting State, unless the enterprise
carries on business through a permanent establishment situated in the other
Contracting State.
A list of places, circumstances, and activities which constitute a permanent
establishment is provided under the different tax treaties which the Philippines has
with other countries.
28) What is the Most-Favored-Nation clause (MFN)?
The appearance of the MFN clause in the tax treaty means that a Contracting State will
grant to a resident of the other Contracting State the same lower rate of tax or
exemption the former has granted to a resident of a third State.
29) What is the tax treatment on immovable property?
Income from an immovable property is taxable in the Contracting State where the
property is situated. This term is generally defined under the domestic laws of the
Contracting States. However, this is further defined in the tax treaties.
30) How are capital gains taxed under our tax treaties?
Gains from the alienation of immovable property or movable property forming part of
the business property of a permanent establishment or pertaining to a fixed base are
taxed in the Philippines if the immovable property or permanent establishment or fixed
base is located here.

CAPITAL GAINS TAX


Description: Capital Gains Tax is a tax imposed on the gains presumed to have been
realized by the seller from the sale, exchange, or other disposition of capital assets
located in the Philippines, including pacto de retro sales and other forms of conditional
sale.

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Final Capital Gains Tax for Onerous Transfer of Real Property Classified as Capital Assets
(Taxable and Exempt)
Tax Form: BIR Form 1706 Final Capital Gains Tax Return (For Onerous Transfer of
Real Property Classified as Capital Assets -Taxable and Exempt)
Documentary Requirements
1) One original copy and one photocopy of the Notarized Deed of Sale or Exchange
2) Photocopy of the Transfer Certificate of Title; Original Certificate of Title; or
Condominium Certificate of Title
3) Certified True Copy of the tax declaration on the lot and/or improvement during
nearest time of sale
4) Certificate of No Improvement issued by the Assessors office where the property
has no declared improvement, if applicable or Sworn Declaration/Affidavit of No
Improvement by at least one (1) of the transferees
5) Copy of BIR Ruling for tax exemption confirmed by BIR, if applicable
6) Duly approved Tax Debit Memo, if applicable
7) Sworn Declaration of Interest as prescribed under Revenue Regulations 13-99, if
the transaction is tax-exempt
8) Documents supporting the exemption
Additional requirements may be requested for presentation during audit of the tax
case depending upon existing audit procedures.
Procedures
File the Capital Gains Tax return in triplicate (two copies for the BIR and one copy for
the taxpayer) with the Authorized Agent Bank (AAB) in the Revenue District where the
property is located. In places where there are no AAB, the return will be filed directly
with the Revenue Collection Officer or Authorized City or Municipal Treasurer.
Tax Rates: For real property - 6%.
Deadline: Within 30 days after each sale, exchange, transfer or other disposition of
real property.
Capital Gains Tax for Onerous Transfer of Shares of Stocks Not Traded Through the
Local Stock Exchange
Tax Form: BIR Form 1707 - Capital Gains Tax Return (For Onerous Transfer of Shares of
Stocks Not Traded Through the Local Stock Exchange)
Documentary Requirements
1) One original copy and one photocopy of the Notarized Deed of Sale/ Exchange of
shares of stock
2) Photocopy of the Deed of Acquisition or proof of cost/ fair market value of the
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stocks at the time of acquisition


3) Photocopy of certificate of shares of stock
4) Photocopy of evidences of expenses related to sale
5) Photocopy of the Audited Financial Statements of issuing corporation nearest the
date of sale or transfer
6) Duly approved Tax Debit Memo, if applicable
Additional requirements may be requested for presentation during audit of the tax
case depending upon existing audit procedures.
Procedures
File the Capital Gains Tax return in triplicate (two copies for the BIR and one copy for
the taxpayer) with the Authorized Agent Bank (AAB) in the Revenue District where the
seller or transferor of stocks is registered. In places where there are no AAB, the return
will be filed directly with the Revenue Collection Officer or Authorized City or Municipal
Treasurer.
Tax Rates
For Shares of Stocks Not Traded in the Stock Exchange
- Not over P100,000 - 5%
- Any amount in excess of P100,000 - 10%
Deadline
Within 30 days after each sale or disposition of shares of stocks or real property. In
case of installment sale, the return shall be filed within 30 days following the receipt of
the first down payment and within 30 days following the subsequent installment
payments. Only one return shall be filed for multiple transactions within the day.
Annual Capital Gains Tax for Onerous Transfer of Shares of Stocks Not Traded Through
the Local Stock Exchange
Tax Form
BIR Form 1707A - Annual Capital Gains Tax Return (For Onerous Transfer of Shares of
Stocks Not Traded Through the Local Stock Exchange)
Procedures
File the Capital Gains Tax return in triplicate (two copies for the BIR and one copy for
the taxpayer) with the Authorized Agent Bank (AAB) in the Revenue District where the
seller or transferor of stocks is registered. In places where there are no AAB, the return
will be filed directly with the Revenue Collection Officer or Authorized City or Municipal
Treasurer.
Tax Rates
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For Shares of Stocks Not Traded in the Stock Exchange


- Not over P100,000 - 5%
- Any amount in excess of P100,000 - 10%
Deadline
Individual Taxpayers On or before April 15 of each year covering all stock transactions
of the preceding taxable year
Corporate Taxpayers On or before the fifteenth (15) day of the fourth (4) month
following the close of the taxable year covering all transactions of the preceding
taxable year
Frequently Asked Questions
1) What is meant by capital asset?
Capital asset means property held by the taxpayer (whether or not connected with his
trade or business), but does not include
a) stock in trade of the taxpayer or other property of a kind which would properly be
included in the inventory of the taxpayer if on hand at the close of the taxable year; or
b) property held by the taxpayer primarily for sale to customers in the ordinary course
of his trade or business; or
c) property used in the trade or business of a character which is subject to the
allowance for depreciation provided in subsection (F) of Sec. 34 of the Code; or
d) real property used in trade or business of the taxpayer.
2) What is meant by ordinary asset?
Ordinary asset refers to all properties specifically excluded from the definition of
capital assets under Sec. 39 (A)(1) of the NIRC.
3) What is meant by real property?
Real property shall have the same meaning attributed to that term under Article 415 of
Republic Act No. 386, otherwise known as the Civil Code of the Philippines.
4) What does a real estate dealer refer to?
A real estate dealer refers to any person engaged in the business of buying and selling
or exchanging real properties on his own account as a principal and holding himself out
as a full or part-time dealer in real estate.
5) What does a real estate developer refer to?
Real estate developer refers to any person engaged in the business of developing real
properties into subdivisions, or building houses on subdivided lots, or constructing
residential or commercial units, townhouses and other similar units for his own
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account and offering them for sale or lease.


6) What does a real estate lessor refer to?
Real estate lessor refers to any person engaged in the business of leasing or renting
real properties on his own account as a principal and holding himself out as a lessor of
real properties being rented out or offered for rent.
7) Who are considered engaged in the real estate business?
Taxpayers who are considered engaged in the real estate business refer collectively to
real estate dealers, real estate developers and/or real estate lessors. A taxpayer whose
primary purpose of engaging in business, or whose Articles of Incorporation states that
its primary purpose is to engage in the real estate business shall be deemed to be
engaged in the real estate business.
8) Who are considered not engaged in the real estate business?
Taxpayers who are considered not engaged in the real estate business refer to persons
other than real estate dealers, real estate developers and/or real estate lessors.
9) Who are considered habitually engaged in the real estate business?
Real estate dealers or real estate developers who are registered with the Housing and
Land Use Regulatory Board (HULRB) or HUDCC
10)How can you determine whether a particular real property is a capital asset or an
ordinary asset?
a) Real properties shall be classified with respect to taxpayers engaged in the real
estate business as follows:
i) All real properties acquired by the real estate dealer shall be considered as ordinary
assets.
ii) All real properties acquired by the real estate developer, whether developed or
undeveloped as of the time of acquisition, and all real properties which are held by the
real estate developer primarily for sale or for lease to customers in the ordinary course
of his trade or business or which would properly be included in the inventory of the
taxpayer if on hand at the close of the taxable year and all real properties used in the
trade or business, whether in the form of land, building, or other improvements, shall
be considered as ordinary assets.
iii) All real properties of the real estate lessor, whether land, building and/or
improvements, which are for lease/rent or being offered for lease/rent, or otherwise
for use or being used in the trade or business shall likewise be considered as ordinary
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assets.
iv) All real properties acquired in the course of trade or business by a taxpayer
habitually engaged in the sale of real property shall be considered as ordinary assets.
Note: Registration with the HLURB or HUDCC as a real estate dealer or developer shall
be sufficient for a taxpayer to be considered as habitually engaged in the sale of real
estate.
If the taxpayer is not registered with the HLURB or HUDCC as a real estate dealer or
developer, he/it may nevertheless be deemed to be engaged in the real estate business
through the establishment of substantial relevant evidence (such as consummation
during the preceding year of at least six (6) taxable real estate sale transactions,
regardless of amount; registration as habitually engaged in real estate business with
the Local Government Unit or the Bureau of Internal Revenue, etc.)
b) In the case of taxpayer not engaged in the real estate business, real properties,
whether land, building, or other improvements, which are used or being used or have
been previously used in trade or business of the taxpayer shall be considered as
ordinary assets.
c) In the case of taxpayers who changed its real estate business to a non-real estate
business, real properties held by these taxpayer shall remain to be treated as ordinary
assets.
d) In the case of taxpayers who originally registered to be engaged in the real estate
business but failed to subsequently operate, all real properties acquired by them shall
continue to be treated as ordinary assets.
e) Real properties formerly forming part of the stock in trade of a taxpayer engaged in
the real estate business, or formerly being used in the trade or business of a taxpayer
engaged or not engaged in the real estate business, which were later on abandoned
and became idle, shall continue to be treated as ordinary assets. Provided however,
that properties classified as ordinary assets for being used in business by a taxpayer
engaged in business other than real estate business are automatically converted into
capital assets upon showing proof that the same have not been used in business for
more than two years prior to the consummation of the taxable transactions involving
said properties
f) Real properties classified as capital or ordinary asset in the hands of the
seller/transferor may change their character in the hands of the buyer/transferee. The
classification of such property in the hands of the buyer/transferee shall be determined
in accordance with the following rules:
i) Real property transferred through succession or donation to the heir or donee who is
not engaged in the real estate business with respect to the real property inherited or
donated, and who does not subsequently use such property in trade or business, shall
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be considered as a capital asset in the hands of the heir or donee.


ii) Real property received as dividend by the stockholders who are not engaged in the
real estate business and who do not subsequently use such property in trade or
business, shall be considered as a capital asset in the hands of the recipients even if the
corporation which declared the real property dividends is engaged in real estate
business.
iii) The real property received in an exchange shall be treated as ordinary asset in the
hands of the case of a tax-free exchange by taxpayer not engaged in real estate
business to a taxpayer who is engaged in real estate business, or to a taxpayer who,
even if not engaged in real estate business, will use in business the property received in
exchange.
g) In the case of involuntary transfers of real properties, including expropriations or
foreclosure sale, the involuntariness of such sale shall have no effect on the
classification of such real property in the hands of the involuntary seller, either as
capital asset or ordinary asset as the case may be.
11) What is the basis in the valuation of property?
The value of the real property will be based on the selling price, fair market value as
determined by the Commissioner (zonal value) or the fair market value as shown in the
schedule of values of the Provincial or City Assessor, whichever is higher.
If there is no zonal value, the taxable base is whichever is higher of the gross selling
price per sales documents or the fair market value that appears in the latest tax
declaration.
If there is an improvement, the FMV per latest tax declaration at the time of the sale or
disposition, duly certified by the City/Municipal Assessor shall be used. No adjustments
shall be added on the said value, provided that the tax declaration bears the upgraded
fair market value of the said property pursuant to Section 219 of R.A. No. 7160,
otherwise known as the Local Government Code of 1991 and the last paragraph of the
Local Assessment Regulations No. 1-92 dated October 6, 1992.
In case the tax declaration being presented was issued three (3) or more years prior to
the date of sale or disposition of the real property, the seller/transferor shall be
required to submit a certification from the City/Municipal Assessor whether or not the
same is still the latest tax declaration covering the said real property. Otherwise, the
taxpayer shall secure its latest tax declaration and shall submit a copy thereof duly
certified by the said Assessor. (RAMO 1-2001)
For shares of stocks, it will be based on the net capital gains realized from the sale,
barter, exchange or other disposition of shares of stocks in a domestic corporation,
considered as capital assets not traded through the local stock exchange.
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12) What are the applicable tax rates of Capital Gains Tax under the National Internal
Revenue Code of 1997?
a) Real Properties - 6 %
b) For Shares of Stocks not Traded in the Stock Exchange, on the net Capital Gains
- Not over P100,000 - 5%
- Any amount in excess of P100,000 - 10%
13) Who are required to file the Final Capital Gains Tax return?
Every person, whether natural or juridical, resident or non-resident, including estates
and trusts, who sells, transfers, exchanges or disposes real properties located in the
Philippines classified as capital assets, including pacto de retro sales and other forms of
conditional sales or shares of stocks in domestic corporations not traded through the
local stock exchange classified as capital assets.
14) What is the procedure in the filing of Final Capital Gains Tax return?
File the Final Capital Gains Tax return in triplicate (two copies for the BIR and one copy
for the taxpayer) with the Authorized Agent Bank (AAB) in the Revenue District where
the seller or transferor is registered, for shares of stocks or where the property is
located, for real property. In places where there are no AAB, the return will be filed
directly with the Revenue Collection Officer or Authorized City or Municipal Treasurer.
15) Who/what are considered exempt from the payment of Final Capital Gains Tax?
Dealer in securities, regularly engaged in the buying and selling of securities
An entity exempt from the payment of income tax under existing investment incentives
and other special laws
An individual or non-individual exchanging real property solely for shares of stocks
resulting in corporate control
A government entity or government-owned or controlled corporation selling real
property
If the disposition of the real property is gratuitous in nature
Where the disposition is pursuant to the CARP law
16) Who are conditionally exempt from the payment of Final Capital Gains Tax?
Natural persons who dispose their principal residence, provided that the following
criteria are met:
The proceeds of the sale of the principal residence have been fully utilized in acquiring
or constructing new principal residence within eighteen (18) calendar months from the
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date of sale or disposition;


The historical cost or adjusted basis of the real property sold or disposed will be carried
over to the new principal residence built or acquired;
The Commissioner has been duly notified, through a prescribed return, within thirty
(30) days from the date of sale or disposition of the persons intention to avail of the
tax exemption;
Exemption was availed only once every ten (10) years; and
There is no full utilization of the proceeds of sale or disposition. The portion of the gain
presumed to have been realized from the sale or disposition will be subject to Capital
Gains Tax.
In case of sale/transfer of principal residence, the Buyer/Transferee shall withhold from
the seller and shall deduct from the agreed selling price/consideration the 6% capital
gains tax which shall be deposited in cash or managers check in interest-bearing
account with an Authorized Agent Bank (AAB) under an Escrow Agreement between
the concerned Revenue District Officer, the Seller and the Transferee, and the AAB to
the effect that the amount so deposited, including its interest yield, shall only be
released to such Transferor upon certification by the said RDO that the proceeds of the
sale/disposition thereof has, in fact, been utilized in the acquisition or construction of
the Seller/Transferors new principal residence within eighteen (18) calendar months
from date of the said sale or disposition. The date of sale or disposition of a property
refers to the date of notarization of the document evidencing the transfer of said
property. In general, the term Escrow means a scroll, writing or deed, delivered by
the grantor, promisor or obligor into the hands of a third person, to be held by the
latter until the happening of a contingency or performance of a condition, and then by
him delivered to the grantee, promise or obligee.
17) What is a Certificate Authorizing Registration?
Certificate Authorizing Registration (CAR) is a certification issued by the Commissioner
or his duly authorized representative attesting that the transfer and conveyance of
land, buildings/improvements or shares of stock arising from sale, barter or exchange
have been reported and the taxes due inclusive of the documentary stamp tax, have
been fully paid.
CARs shall now have a validity of one (1) year from date of issue. In case of failure to
present the same to the Registry of Deeds (RD) within the one (1) year period, the
same shall be presented for revalidation to the District Office where the CAR was
issued. The revalidation
___________" in a conspicuous space in the CAR, shall be
good for another one-year period, after which the CAR losses its validity. (RMO 152003)

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Philippine Estate Tax


Observe that many estates still remain in the names of the deceased ancestors due to
the financial inability of the heirs to pay the estate taxes (inheritance taxes) which are
quite substantial.
The current estate tax rates in the Philippines range from 5% to 20% of the net estate,
per table below:
Philippine Estate Tax Rates

The estate tax is payable upon the transfer of the net estate of every decedent,
whether a resident or nonresident of the Philippines. However, if the decedent was
neither a resident nor a citizen of the Philippines at the time of his or her death, only
the portion of the estate in the Philippines shall be included in the taxable estate. For
example, if the decedent was a resident of the United States and became a naturalized
U.S. citizen before death, then only the properties in the Philippines will be subject to
estate tax. The properties in the United States would not be covered by Philippine
estate tax.
Basis and computation of the net estate tax:
The estate shall be appraised at its fair market value as of the time of death, which is
either the fair market value as determined by the Commissioner (the zonal value, or
the fair market value as shown in the schedule of values fixed by the Provincial and City
Assessors (the assessed value), whichever is higher. Usually, the zonal value is much
higher than the assessed value.
So, if the decedent died in 1991, then the estate tax will be computed based on its
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zonal or assessed value (whichever is higher) in 1991. It is also possible that at that
time, the BIR had not yet come out with a zonal valuation of the property, thus the
computation will have to be based on its 1991 assessed value.
Deadline to file the estate tax return: ESTATE TAX

Description: Estate Tax is a tax on the right of the deceased person to transmit
his/her estate to his/her lawful heirs and beneficiaries at the time of death and on
certain transfers, which are made by law as equivalent to testamentary disposition. It
is not a tax on property. It is a tax imposed on the privilege of transmitting property
upon the death of the owner. The Estate Tax is based on the laws in force at the time
of death notwithstanding the postponement of the actual possession or enjoyment of
the estate by the beneficiary.
Tax Form: BIR Form 1801 - Estate Tax Return
Documentary Requirements
1. Notice of Death duly received by the BIR, if gross estate exceeds P20,000 for deaths
occurring on or after Jan. 1, 1998; or if the gross estate exceeds P3,000 for deaths
occurring prior to January 1, 1998
2. Certified true copy of the Death Certificate
3. Deed of Extra-Judicial Settlement of the Estate, if the estate is settled extra
judicially
4. Court Orders/Decision, if the estate is settled judicially;
5. Affidavit of Self-Adjudication and Sworn Declaration of all properties of the Estate
6. A certified true copy of the schedule of partition of the estate and the order of the
court approving the same, if applicable
7. Certified true copy(ies) of the Transfer/Original/Condominium Certificate of Title(s)
of real property(ies) (front and back pages), if applicable
8. Certified true copy of the latest Tax Declaration of real properties at the time of
death, if applicable
9. "Certificate of No Improvement" issued by the Assessor's Office declared properties
have no declared improvement or Sworn Declaration/Affidavit of No Improvement by
at least one (1) of the transferees
10. Certificate of Deposit/Investment/Indebtedness owned by the decedent and the
surviving spouse, if applicable
11. Photo copy of Certificate of Registration of vehicles and other proofs showing the
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correct value of the same, if applicable


12. Photo copy of certificate of stocks, if applicable
13. Proof of valuation of shares of stocks at the time of death, if applicable
For listed stocks - newspaper clippings or certification from the Stock Exchange
For unlisted stocks - latest audited Financial Statement of issuing corporation with
computation of book value per share
14. Proof of valuation of other types of personal property, if applicable
15. Proof of claimed tax credit, if applicable
16. CPA Statement on the itemized assets of the decedent, itemized deductions from
gross estate and the amount due if the gross value of the estate exceeds two million
pesos, if applicable
17. Certification of Barangay Captain for claimed Family Home
18. Duly notarized Promissory Note for "Claims against the Estate" arising from
Contract of Loan
19. Accounting of the proceeds of loan contracted within three (3) years prior to
death of the decedent
20. Proof of the claimed "Property Previously Taxed"
21. Proof of claimed "Transfer for Public Use"
22. Copy of Tax Debit Memo used as payment, if applicable
Additional requirements may be requested for presentation during audit of the tax
case depending upon existing audit procedures.
Tax Rates
Effective January 1, 1998 up to Present
If the Net Estate is
The Tax
Over
But not Over
Shall be
Plus
P 200,000.00 Exempt
P 200,000.00 500,000.00
0
5%
500,000.00
2,000,000.00 P 15,,000.00
8%
2,000,000.00
5,000,000.00 135,000.00
11 %
5,000,000.00
10,000,000.00 465,000.00
15 %
10,000,000.00
1,2l5,000.00
20 %
Effective After July 28, 1992 up to December 31, 1997
If the Net Estate is
The Tax
Over
But not Over
Shall be
Plus

Of the
Excess Over
P 200,000.00
500,000.00
2,000,000.00
5,000,000.00
10,000,000.00

Of the
Excess Over
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P 200,000.00
0%
P 200,000.00 500,000.00
5%
500,000.00
2,000,000.00 P 15,000.00
8%
2,000,000.00
5,000,000.00 135,000.00
12 %
5,000,000.00
10,000,000.00 495,000.00
21%
10,000,000.00
1,545,000.00
35 %
Effective Before July 28, 1992
If the Net Estate is
The Tax
Over
But not Over
Shall be
Plus
P 10,000.00
Exempt
P 10,000.00 50,000.00
3%
50,000.00
75,000.00
P 1,200.00
4%
75,000.00
100,000.00
2,200.00
5%
100,000.00
150,000.00
3,450.00
10%
150,000.00
200,000.00
8,450.00
15 %
200,000.00
300,000.00
15,950.00
20%
300,000.00
400,000.00
35,950.00
25%
400,000.00
500,000.00
60,950.00
30%
500,000.00
625,000.00
90,950.00
35%
625,000.00
750,000.00
134,700.00
40%
750,000.00
875,000.00
184,700.00
45%
875,000.00
1,000,000.00
240,950.00
50%
1,000,000.00 2,000,000.00
303,450.00
53%
2,000,000.00 3,000,000.00
833,450.00
56%
3,000,000.00
1,393,450.00
60%
Effective September 15, 1950 to December 31, 1972
Estate and Inheritance Tax
From
To
ESTATE
5,000.00
0
5,000.00
Exempt
7,000.00
5,000.00
12,000.00
1.0%
18,000.00
12,000.00
30,000.00
2.0%
20,000.00
30,000.00
50,000.00
2.5%

P 200,000.00
500,000.00
2,000,000.00
5,000,000.00
10,000,000.00

Of the
Excess Over
P 10,000.00
50,000.00
75,000.00
100,000.00
150,000.00
200,000.00
300,000.00
400,000.00
500,000.00
625,000.00
750,000.00
875,000.00
1,000,000.00
2,000,000.00
3,000,000.00

INHERITANCE
Exempt
2%
4%
6%
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20,000.00

50,000.00

70,000.00

3.0%

8%

Procedures
The heirs/authorized representative/administrator/executor shall file the estate tax
return (BIR Form 1801) and pay the corresponding estate tax with the Authorized
Agent Bank (AAB), Revenue Collection Officer (RCO) or duly authorized Treasurer of
the city or municipality in the Revenue District Office having jurisdiction over the place
of domicile of the decedent at the time of his death, pursuant to Section 90(D) of the
Tax Code, as amended.
In case of a non-resident decedent, with executor or administrator in the Philippines,
the estate tax return shall be filed with the AAB of the RDO where such
executor/administrator is registered or is domiciled, if not yet registered with the BIR.
For non-resident decedent with no executor or administrator in the Philippines, the
estate tax return shall be filed with the AAB under the jurisdiction of RDO No. 39
South Quezon City.
Deadlines
File the return within six (6) months from decedent's death. However, the
Commissioner may, in meritorious cases, grant extension not exceeding thirty (30)
days.
The Estate Tax imposed shall be paid at the time the return is filed by the executor or
administrator or the heirs. However, when the Commissioner finds that payment on
the due date of the Estate Tax or of any part thereof would impose undue hardship
upon the estate or any of the heirs, he may extend the time for payment of such tax or
any part thereof not to exceed five (5) years, in case the estate is settled through the
courts or two (2) years in case the estate is settled extra-judicially.
Extension of Time of Filing:
When the Commissioner finds that the payment of the estate tax or of any part
thereof would imposed undue hardship upon the estate or any of the heirs, he may
extend the time for payment of such tax or any part thereof not to exceed five (5)
years in case the estate is settled through the courts, or two (2) years in case it settled
extra-judicially.
Where the request for extension is by reason of negligence, intentional disregard of
rules and regulations, or fraud on the part of the taxpayer, no extension will be
granted by the Commissioner.
If an extension is granted, the Commissioner or his duly authorized representative may
require the executor, or administrator, or beneficiary, as the case may be, to furnish a
bond in such amount, not exceeding double the amount, not exceeding double the
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amount of tax and with such sureties as the Commissioner deems necessary,
conditioned upon the payment of the said tax in accordance in the terms of extension.
The request for extension shall be filed with the Revenue District Officer (RDO) where
the estate is required to secure its TIN and file the estate tax return. The application
shall be approved by the Commissioner or his duly authorized representative.
Frequently Asked Questions
1. Who are required to file the Estate Tax return?
a) The executor or administrator or any of the legal heirs of the decedent or nonresident of the Philippines under any of the following situation:
- In all cases of transfer subject to Estate Tax;
- Where though exempt from Estate Tax, the gross value of the estate exceeds two
hundred thousand P 200,000.00; and
- Where regardless of the gross value, the estate consists of registered or registrable
property such as real property, motor vehicle, share of stocks or other similar property
for which a clearance from the Bureau of Internal Revenue (BIR) is required as a
condition precedent for the transfer of ownership thereof in the name of the
transferee.
b) Where there is no executor or administrator appointed, qualified and acting within
the Philippines, then any person in actual or constructive possession of any property
of the decedent must file the return.
c) The Estate Tax imposed under the Tax Code shall be paid by the executor or
administrator before the delivery of the distributive share in the inheritance to any
heir or beneficiary. Where there are two or more executors or administrators, all of
them are severally liable for the payment of the tax. The estate tax clearance issued by
the Commissioner or the Revenue District Officer (RDO) having jurisdiction over the
estate, will serve as the authority to distribute the remaining/distributable
properties/share in the inheritance to the heir or beneficiary.
d) The executor or administrator of an estate has the primary obligation to pay the
estate tax but the heir or beneficiary has subsidiary liability for the payment of that
portion of the estate which his distributive share bears to the value of the total net
estate. The extent of his liability, however, shall in no case exceed the value of his
share in the inheritance.
2. What are the procedures in the filing of the Estate Tax Return and payment of the
corresponding taxes?
a) The Estate Tax Return (BIR Form 1801) shall be filed and payment made with an
Authorized Agent Bank (AAB) of the Revenue District Office (RDO) having jurisdiction
over the place of residence of the decedent at the time of his/her death.
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b) If there is no AAB within the residence of the decedent, the Estate Tax Return must
be filed and the payment made with the Revenue Collection Officer or duly Authorized
City or Municipal Treasurer of the RDO having jurisdiction over the place of residence
of the decedent.
c) If the required filer has no legal residence in the Philippines, the Estate Tax return
will be filed and payment be made with:
- The Office of the Revenue District Officer, Revenue District Office No. 39, South
Quezon City; or
- The Philippine Embassy or Consulate in the country where decedent is residing at
the time of his/her death.
d) Submit all documentary requirements and proof of payment to the Revenue
District Office having jurisdiction over the place of residence of the decedent.
e) Payment of Estate tax by installment -In case the available cash of the estate is not
sufficient to pay its total estate tax liability, the estate may be allowed to pay the tax
by installment and a clearance shall be released only with respect to the property, the
corresponding/computed tax on which has been paid.
3. What are included in gross estate?
For resident alien decedents/citizens:
a) Real or immovable property, wherever located
b) Tangible personal property, wherever located
c) Intangible personal property, wherever located
For non-resident decedent/non-citizens:
a) Real or immovable property located in the Philippines
b) Tangible personal property located in the Philippines
c) Intangible personal property - with a situs in the Philippines such as:
- Franchise which must be exercised in the Philippines
- Shares, obligations or bonds issued by corporations organized or constituted in the
Philippines
- Shares, obligations or bonds issued by a foreign corporation 85% of the business of
which is located in the Philippines
- Shares, obligations or bonds issued by a foreign corporation if such shares,
obligations or bonds have acquired a business situs in the Philippines ( i. e. they are
used in the furtherance of its business in the Philippines)
- Shares, rights in any partnership, business or industry established in the Philippines
4. What are excluded from gross estate?
GSIS proceeds/ benefits
Accruals from SSS
Proceeds of life insurance where the beneficiary is irrevocably appointed
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Proceeds of life insurance under a group insurance taken by employer (not taken out
upon his life)
War damage payments
Transfer by way of bona fide sales
Transfer of property to the National Government or to any of its political subdivisions
Separate property of the surviving spouse
Merger of usufruct in the owner of the naked title
Properties held in trust by the decedent
Acquisition and/or transfer expressly declared as not taxable
5. What will be used as basis in the valuation of property?
The properties subject to Estate Tax shall be appraised based on its fair market value
at the time of the decedent's death.
The appraised value of the real estate shall be whichever is higher of the fair market
value, as determined by the Commissioner (zonal value) or the fair market value, as
shown in the schedule of values fixed by the Provincial or City Assessor.
If there is no zonal value, the taxable base is the fair market value that appears in the
latest tax declaration.
If there is an improvement, the value of improvement is the construction cost per
building permit or the fair market value per latest tax declaration.
6. What are the allowable deductions for Estate Tax purposes?
For Resident Decedent
Expenses, losses, indebtedness and taxes
a) Funeral Expenses
i) CA 466 - 5 % of gross estate (up to Dec. 31, 1972)
ii) PD 69 - 5 % of gross estate but not exceeding P 50,000 (Jan. 1, 1973 to July 27,
1992)
iii) RA 7499 - 5 % of gross estate but not exceeding P 100,000 (July 28, 1992 to
December 3l, 1997)
iv) RA 8424 - 5% of gross estate but not exceeding P 200,000 (Jan. 1,1998)
b) Judicial expenses of the testamentary/intestate proceedings
c) Valid claims against the estate
d) Claims against insolvent person
e) Unpaid mortgages/indebtedness
f) Unpaid taxes
g) Casualty losses
h) Property previously taxed or vanishing deductions
Requisites:
Present decedent must have died within five (5) years from date of death of prior
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decedent or date of gift


The property with respect to which the deduction is claimed must have formed part of
the gross estate situated in the Philippines of the prior decedent or taxable gift of the
donor
The property must be identified as the same property received from prior decedent or
donor or the one received in exchange therefore
The estate taxes on the transmission of the prior estate or the donors tax on the gift
must have been finally determined and paid
No vanishing deduction on the property or the property given in exchange therefore
was allowed to the prior estate
i) Transfer for public purpose
j) Share of surviving spouse
k) Medical expenses - those incurred by the decedent within one (1) year prior to
his/her death which shall be substantiated with receipts
(NOTE: Amount allowable as deduction depends on the law prevailing at the time of
death of the decedent).
l) Family Home - fair market value but not to exceed P1,000,000.00
m) Standard Deduction - an amount equivalent to P1,000,000.00 (applicable only for
death occurring after the effectivity of RA 8424 which is January 1, 1998.)
n) Amount received by the heirs under Republic Act No. 4917 (applicable only for
death occurring after the effectivity of RA 8424 which is January 1, 1998)
For Non-Resident Decedent, not a citizen of the Philippines
Expenses, losses, indebtedness, taxes
Property previously taxed
Transfer for public use
Share in the conjugal property

six (6) months from the decedents death. But this may still be extended.
When the Commissioner finds that the payment on the due date of the estate tax or of
any part thereof would impose undue hardship upon the estate or any of the heirs, he
may extend the time for payment of such tax or any part thereof:
not to exceed five (5) years, in case the estate is settled through the courts, or
two (2) years in case the estate is settled extrajudicially.

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PERCENTAGE TAX
Description: Percentage tax is a business tax imposed on persons or entities who sell
or lease goods, properties or services in the course of trade or business whose gross
annual sales and/or receipts do not exceed P750,000 and who are not VAT-registered.
Who Are Required To File Percentage Tax Returns
Any person who is not a VAT-registered person (persons exempt from VAT
under Sec. 109z of the Tax Code)

Domestic carriers and keepers of garages, except owners of bancas and owners
of animal drawn two- wheeled vehicle
Operators of international air and shipping carriers doing business in the
Philippines
Franchise grantees of electric, gas or water utilities
Franchise grantees of radio and/or television broadcasting companies whose
gross annual receipts for the preceding year do not exceed Ten Million Pesos (P
10,000,000.00) and did not opt to register as VAT taxpayers
Operators of communication equipment sending overseas dispatch, messages,
or conversations from the Philippines, except on services involving the following:
o
Government of the Philippines - for messages transmitted by the Government of
the Republic of the Philippines or any of its political subdivisions and instrumentalities
o
Diplomatic services - for messages transmitted by any embassy and consular
offices of a foreign government
o
International organizations - for messages transmitted by a public international
organization or any of its agencies based in the Philippines enjoying privileges,
exemptions and immunities which the government of the Philippine is committed to
recognize pursuant to an international agreement
o

News Services - for messages from any newspaper, press association, radio or
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television newspaper broadcasting agency, or newsticker services to any other


newspaper, press association, radio or television, newspaper, broadcasting agency or
newsticker services, or to bonafide correspondents, which messages deal exclusively
with the collection of news items for, or the dissemination of news items through
public press, radio or television broadcasting or a newsticker service furnishing a
general news service similar to that of the public press
Banks and non-bank financial intermediaries and finance companies
Life insurance premiums
Agents of foreign insurance companies
Proprietor, lessee, or operator of cockpits, cabarets, night or day clubs, boxing
exhibitions, professional basketball games, jai-alai and race tracks
Every stock broker who effected a sale, barter, exchange or other disposition of
shares of stock listed and traded through the Local Stock Exchange (LSE) other than the
sale by a dealer in securities
Corporate issuer / stock broker, whether domestic of foreign, engaged in the
sale, barter, exchange or other disposition through Initial Public Offering (IPO) seller in
secondary public offering of shares of stock in closely held corporations
Monthly Percentage Tax
Tax Form: BIR Form 2551 M - Monthly Percentage Tax Return
Documentary Requirements
1.
Duly issued Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if
applicable
2.

Duly approved Tax Debit Memo, if applicable

3.
Copy of Certificate of Registration issued by Cooperative Development Authority
for cooperatives and from the National Electrification Administration for electric
cooperatives
4.
Previously filed return and proof of payment, for amended return
Procedures
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1. Fill-up BIR Form 2551 M in triplicate copies


2.
If there is payment:
Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District
Office where taxpayer is required to register and present the duly accomplished BIR
Form 2551 M, together with the required attachments and payment. (The Percentage
Tax imposed shall be paid at the time the return is filed by the taxpayer.)
In places where there are no AABs, the duly accomplished BIR Form 2551 M,
together with the required attachments and payment, shall be filed/paid with the
Revenue Collection Officer or duly Authorized Treasurer of the city or municipality
where said business or principal place of business is located.
Receive taxpayer's copy of the duly stamped and validated form from the teller
of the AAB/Revenue Collection Officer/duly Authorized City or Municipal Treasurer.
3.
If there is no payment:
Proceed to the Revenue District Office where taxpayer is required to register
and present the duly accomplished BIR Form 2551M, together with the required
attachments.
Receive taxpayer's copy of the duly stamped and validated form from the RDO
representative.
Note: "No payment" returns filed late shall be imposed the necessary penalties by the
RDO, which shall be paid at the concerned AAB.
Deadline
Manual Filing
Not later than 20th day following the end of each month
Filing Through Electronic Filing and Payment System (eFPS)
Group A - Twenty-Five (25) days following the end of the month
Group B - Twenty-Four (24) days following the end of the month
Group C - Twenty-Three (23) days following the end of the month
Group D - Twenty-Two (22) days following the end of the month
Group E - Twenty-One (21) days following the end of the month
Quarterly Percentage Tax
Tax Form: BIR Form 2551 Q - Quarterly Percentage Tax Return
Documentary Requirements
1.
Duly issued Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if
applicable
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2.
Duly approved Tax Debit Memo, if applicable
3.
Copy of Certificate of Registration issued by Cooperative Development Authority
for cooperatives and from the National Electrification Administration for electric
cooperatives
4.
Previously filed return and proof of payment, for amended return
Procedures
1.
Fill-up BIR Form 2551 Q in triplicate copies.
2.
If there is payment:

Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District
Office where taxpayer is required to register and present the duly accomplished BIR
Form 2551Q, together with the required attachments and payment. (The Percentage
Tax imposed shall be paid at the time the return is filed by the taxpayer.)
In places where there are no AABs, the accomplished BIR Form 2551 Q,
together with the required attachments and payment, shall be filed/paid with the
Revenue Collection Officer or duly Authorized Treasurer of the city or municipality
where said business or principal place of business is located.
Receive taxpayer's copy of the duly stamped and validated form from the teller
of the AAB/Revenue Collection Officer/duly Authorized City or Municipal Treasurer.
3.
If there is no payment:
Proceed to the Revenue District Office where taxpayer is required to register and
present the duly accomplished BIR Form 2551Q, together with the required
attachments.
Receive taxpayer's copy of the duly stamped and validated form from the RDO
representative.
Note: "No payment" returns filed late shall be imposed the necessary penalties by the
RDO, which shall be paid at the concerned AAB.
Deadline
Manual Filing
Not later than 20th day following the end of each quarter
Filing Through Electronic Filing and Payment System (eFPS)
Not later than the 20th day following the end of the quarter
Percentage Tax For Transactions Involving Shares of Stocks Listed and Traded Through
the Local Stock Exchange or Through Initial and/or Secondary Offering
Tax Form: BIR Form 2552 - Percentage Tax Return (For Transactions Involving Shares of
Stocks Listed and Traded Through the Local Stock Exchange or Through Initial and/or
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Secondary Offering)
Documentary Requirements
1.
Duly issued Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if
applicable
2.
Proof of Exemption for transactions not subject to tax, if applicable
3.
Duly approved Tax Debit Memo, if applicable
4.
Previously filed return and proof of payment, for amended return
Procedures
1.
Fill-up BIR Form 2552 in triplicate copies.
2.
If there is payment:
Proceed to the nearest Authorized Agents Banks (AABs) of the Revenue District
Office where the local stock exchange is located and present the duly accomplished BIR
Form 2552, together with the required attachments and payment. (The Percentage Tax
imposed shall be paid at the time the return is filed by the taxpayer.)
Receive taxpayer's copy of the duly stamped and validated form from the teller
of the AAB
3.
If there is no payment:
Proceed to the Revenue District Office where the local stock exchange is located
and present the duly accomplished BIR Form 2552, together with the required
attachments.
Receive taxpayer's copy of the duly stamped and validated form from the RDO
representative.
Note: "No payment" returns filed late shall be imposed the necessary penalties by the
RDO, which shall be paid at the concerned AAB.
Deadline
For tax on sale of shares of stocks listed and traded through the local stock
exchange (LSE) within five (5) banking days from the date of collection
For tax on shares of stocks sold or exchanged through primary offering - within
30 days from the date of listing in the LSE
For tax on shares of stocks sold or exchanged through secondary public
offering
- within five (5) banking days from the date of collection
Tax Rates
Coverage

Basis

Tax
Rate
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Persons exempt from VAT


under Sec. 116
Domestic carriers and
keepers of garages
International
Carriers:
International air/shipping
carriers doing business in
the Philippines
Franchise Grantees:
Electric , gas and water
utilities
Radio and television
broadcasting companies
whose annual gross
receipts of the preceding
year do not exceed P
10,000,000 and did not
opt to register asVAT
taxpayer
Banks and non-bank
financing intermediaries

Gross Sales or Receipts

3%

Gross Receipts

3%

Gross Receipts

3%

Gross Receipts

2%

Gross Receipts

3%

Interest, commissions and


discounts from lending
activities as well as income
from leasing on the basis
of remaining maturities of
instruments:
Short term maturity (not
over 2 years)
Medium term (over 2
years but not over 4 years)
Long Term Maturity
Over 4 years but not over
7 years
Over 7 years
On Dividends
On royalties, rentals of
properties, real or
personal, profits from

5%
3%

1%
0%
0%
5%
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Finance Companies

exchange and all other


items treated as gross
income under Sec. 32 of
the Code
On interest, discounts and
other items of gross
income paid to finance
companies and other
financial intermediaries
not performing quasi
banking functions
Interest, commissions and
discounts paid from their
loan transactions from
finance companies as well
as income from financial
leasing shall be taxed
based on the remaining
maturities of instruments:
Short term maturity (not
over 2 years)
Medium term (over 2
years but not over 4 years)
Long Term Maturity
Over 4 years but not over
7 years
Over 7 years

Life Insurance Companies


(except purely
Total premiums collected
cooperative companies or
associations)
Agents of foreign
insurance companies:
(except reinsurance
premium)
Insurance agents
authorized under the
Total premium collected
Insurance Code to

5%

5%
3%

1%
0%
5%

10 %
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procure policies of
insurance for companies
not authorized to transact
business in the Phils.
Owners of
property obtaining
insurance directly with
foreign insurance
companies
Proprietors, lessee or
operator of the following:
Cockpits
Cabarets, Night or Day
Clubs
Boxing exhibitions
Professional basketball
games
Jai-alai and race track
(operators shall withheld
tax on winnings)
Every stock broker who
effected a sale, barter,
exchange or other
disposition of shares of
stock listed and traded
through the Local Stock
Exchange (LSE) other than
the sale by a dealer in
securities
A corporate issuer/stock
broker, whether domestic
of foreign, engaged in the
sale, barter, exchange or
other disposition through
Initial Public Offering
(IPO)/secondary public
offering of shares of stock
in closely held

Total premium collected

5%

Gross receipts

18%

Gross receipts

18%

Gross receipts

10%

Gross receipts

15%

Gross receipts

30%

Gross selling price or gross


value in money of shares
of stocks sold, bartered,
exchanged or otherwise
disposed

of 1
%

Gross selling price or gross


value of in money of
shares of stocks sold,
bartered, exchanged or
otherwise disposed in
accordance with the
proportion of stocks sold,
bartered or exchanged or
after listing in the stock
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corporations

exchange
Up to 25 %
Over 25% but not
over 33 1/3%
Over 33 1/3 %

4%
2%
1%

VALUE-ADDED TAX

Description: Value-Added Tax is a form of sales tax. It is a tax on consumption levied


on the sale, barter, exchange or lease of goods or properties and services in the
Philippines and on importation of goods into the Philippines. It is an indirect tax, which
may be shifted or passed on to the buyer, transferee or lessee of goods, properties or
services.
Who Are Required To File VAT Returns
Any person or entity who, in the course of his trade or business, sells, barters,
exchanges, leases goods or properties and renders services subject to VAT, if the
aggregate amount of actual gross sales or receipts exceed One Million Five Hundred
Thousand Pesos (P1,500,000.00).
A person required to register as VAT taxpayer but failed to register
Any person, whether or not made in the course of his trade or business, who imports
goods
Monthly VAT Declarations
Tax Form: BIR Form 2550 M - Monthly Value-Added Tax Declaration (February 2007
ENCS)
Documentary Requirements
1. Duly issued Certificate of Creditable VAT Withheld at Source (BIR Form No. 2307), if
applicable
2. Summary Alphalist of Withholding Agents of Income Payments Subjected to
Withholding Tax At Source (SAWT), if applicable
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91

3. Duly approved Tax Debit Memo, if applicable


4. Duly approved Tax Credit Certificate, if applicable
5. Authorization letter, if return is filed by authorized representative.
Procedures
1. Fill-up BIR Form No. 2550 M in triplicate copies (two copies for the BIR and one copy
for the taxpayer)
2. If there is payment:
File the Monthly VAT declaration, together with the required
attachments, and pay the VAT due thereon with any Authorized Agent Bank (AAB)
under the jurisdiction of the Revenue District Office (RDO)/Large Taxpayers District
Office (LTDO) where the taxpayer (head office of the business establishment) is
registered or required to be registered.
The taxpayer must accomplish and submit BIR-prescribed deposit slip, which the
bank teller shall machine validate as evidence that payment was received by the AAB.
The AAB receiving the tax return shall stamp mark the word "Received" on the return
and machine validate the return as proof of filing the return and payment of the tax.
In places where there are no duly accredited agent banks, file the
Monthly VAT declaration, together with the required attachments and pay the VAT
due with the Revenue Collection Officer (RCO) or duly authorized Treasurer of the
Municipality where such taxpayer (head office of the business establishment) is
registered or required to be registered.
The RCO or duly authorized Municipal/City Treasurer shall issue a Revenue Official
Receipt upon payment of the tax.
3. If there is no payment:
File the Monthly VAT Declaration, together with the required attachments with the
RDO/LTDO/Large Taxpayers Assistance Division, Collection Agent or duly authorized
Municipal/ City Treasurer of Municipality/City where the taxpayer (head office of the
business establishment) is registered or required to be registered.
Deadline
Manual Filing
Not later than the 20th day following the end of each month
Through Electronic Filing and Payment System (eFPS):
Period for filing Monthly
Business Industry
VAT Declarations
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Group A
Insurance and Pension
Funding
Activities Auxiliary to Financial Intermediation
Construction
Water Transport
Hotels and Restaurants
Land Transport

25 days following the end of


the month

Group B
Manufacture and Repair of Furniture
24 days following the end of
the month
Manufacture of Basic Metals
Manufacture of Chemicals and Chemical Products
Manufacture of Coke, Refined Petroleum & Fuel
Products
Manufacture of Electrical Machinery & Apparatus
N.E.C.
Manufacture of Fabricated Metal Products
Manufacture of Food, Products & Beverages
Manufacture of Machinery & Equipment NEC
Manufacture of Medical, Precision, Optical
Instruments
Manufacture of Motor Vehicles, Trailer & Semi-Trailers
Manufacture of Office, Accounting & Computing
Machinery
Manufacture of Other Non-Metallic Mineral Products
Manufacture of Other Transport Equipment
Manufacture of Other Wearing Apparel
Manufacture of Paper and Paper Products
Manufacture of Radio, TV & Communication
Equipment/ Apparatus
Manufacture of Rubber & Plastic Products
Manufacture of Textiles
Manufacture of Tobacco Products
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Manufacture of Wood & Wood Products


Manufacturing N.E.C.
Metallic Ore Mining
Non-Metallic Mining & Quarrying
Group C
Retail Sale
Wholesale Trade and Commission Trade
Sale, Maintenance, Repair of Motor Vehicle, Sale of
Automotive Fuel
Collection, Purification and Distribution of Water
Computer and Related Activities
Real Estate Activities
Group D
Air Transport
Electricity, Gas, Steam & Hot Water Supply
Postal & Telecommunications
Publishing, Printing & Reproduction of Recorded
Media
Recreational, Cultural & Sporting Activities
Recycling
Renting of Goods & Equipment
Supporting & Auxiliary Transport Services
Group E
Activities of Membership Organizations, Inc.
Health and Social Work
Public Admin & Defense Compulsory Social Security
Research and Development
Agricultural, Hunting, and Forestry
Farming of Animals
Fishing
Other Service Activities
Miscellaneous Business Activities

23 days following the end of


the month

22 days following the end of


the month

21 days following the end of


the month

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Unclassified
Quarterly Value-Added Tax Return
Tax Form: BIR Form No. 2550Q - Quarterly Value-Added Tax Return (February 2007
ENCS)
Attachments to the Return
1. Duly issued Certificate of Creditable VAT Withheld at Source (BIR Form 2307), if
applicable
2. Summary Alphalist of Withholding Agents of Income Payments Subjected to
Withholding Tax At Source (SAWT), if applicable
3. Duly approved Tax Debit Memo, if applicable
4. Duly approved Tax Credit Certificate, if applicable
5. Previously filed return and proof of payment, for amended return
6. Authorization letter, if return is filed by authorized representative
Procedures
1. Fill-up BIR Form 2550 Q in triplicate copies (two copies for the BIR and one copy for
the taxpayer)
2. If there is payment:

File the Quarterly VAT Return, together with the required attachments, and pay the
VAT due thereon with any AAB under the jurisdiction of the RDO/LTDO where the
taxpayer (head office of the business establishment) is registered or required to be
registered.
The taxpayer must accomplish and submit BIR- prescribed deposit slip, which the bank
teller shall machine validate as evidence that payment was received by the AAB. The
AAB receiving the tax return shall stamp mark the word "Received" on the return and
machine validate that return as proof of filing the return and payment of the tax.
In places where there are no duly accredited agent banks, file the Quarterly VAT
Return, together with the required attachments and pay the VAT due with the
Revenue Collection Officer (RCO) or duly authorized Treasurer of the Municipality
where such taxpayer (head office of the business establishment) is registered or
required to be registered.
The RCO or duly authorized Municipal/City Treasurer shall issue a Revenue Official
Receipt upon payment of the tax.
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3. If there is no payment:
File the Quarterly VAT Return, together with the required attachments with the
RDO/LTDO/Large Taxpayers Assistance Division, Collection Agent or duly authorized
Municipal/City Treasurer of Municipality/City where the taxpayer (head office of the
business establishment) is registered or required to be registered.

Reminders:
1. Only one consolidated Monthly VAT Declaration/Quarterly VAT Return shall be filed
covering the results of operation of the head office as well as the branches for all lines
of business subject to VAT.
2. The Quarterly List of Sales and Purchases shall be submitted in magnetic form using
3.5-inch floppy diskette following the format provided under Section 4.114-3(g) of RR
No. 16-2005.
3. The Quarterly List of Sales and Purchases shall be submitted through electronic filing
facility for taxpayers under the jurisdiction of the Large Taxpayers Service (LTS) and
those enrolled under the eFPS.
Deadline
Within twenty five (25) days following the close of taxable quarter.
Tax Rates
On sale of goods and properties - twelve percent (12%) of the gross selling price or
gross value in money of the goods or properties sold, bartered or exchanged
On sale of services and use or lease of properties - twelve percent (12%) of gross
receipts derived from the sale or exchange of services, including the use or lease of
properties
On importation of goods - twelve percent (12%) based on the total value used by
the Bureau of Customs in determining tariff and customs duties, plus customs duties,
excise taxes, if any, and other charges, such as tax to be paid by the importer prior to
the release of such goods from customs custody; provided, that where the customs
duties are determined on the basis of quantity or volume of the goods, the VAT shall
be based on the landed cost plus excise taxes, if any.
On export sales and other zero-rated sales - 0%
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Frequently Asked Questions


I. General VAT Queries
Who are liable to register as VAT taxpayers?
Any person who, in the course of trade or business, sells, barters or exchanges
goods or properties or engages in the sale or exchange of services shall be liable to
register if:
His gross sales or receipts for the past twelve (12) months, other than those that
are exempt under Section 109 (A) to (U), have exceeded One Million Five Hundred
Thousand Pesos (P1,500,000.00): or
There are reasonable grounds to believe that his gross sales or receipts for the next
twelve (12) months, other than those that are exempt under Section 109 (A) to (U),
will exceed One Million Five Hundred Thousand Pesos (P1,500,000.00).
When is a new VAT taxpayer required to apply for registration and pay the
registration fee?
New VAT taxpayers shall apply for registration as VAT Taxpayers and pay the
corresponding registration fee of five hundred pesos (P500.00) using BIR Form No.
0605 for every separate or distinct establishment or place of business before the
start of their business following existing issuances on registration.
Thereafter, taxpayers are required to pay the annual registration fee of five
hundred pesos (P500.00) not later than January 31, every year.
What compliance activities should a VAT taxpayer, after registration as such, do
promptly or periodically?
The following compliance activities must be performed by a VAT-registered
taxpayer:
Pay the annual registration fee of P500.00 for every place of business or
establishment that generates sales;
Register the books of accounts of the business/occupation/calling, including
practice of profession, before using the same;
Register the sales invoices and official receipts as VAT-invoices or VAT official
receipts for use on transactions subject to VAT. (If there are other transaction not
subject to VAT, a separate set of non-VAT invoices or non-VAT official receipts need
to be registered for use on transactions not subject to VAT);
Filing of the Monthly Value-added Tax Declaration on or before the 20th day
following the end of the taxable month (for manual filers)/on or before the
prescribed due dates enunciated in RR No. 16-2005 (for e-filers) using BIR Form No.
2550M and of the Quarterly VAT Return on or before the 25th day following the
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97

end of the taxable quarter using BIR Form No. 2550Q, reflecting therein gross
receipts (for seller of service)/ gross sales (for seller of goods) and output tax (VAT
on sales); purchases of goods and services made in the course of trade or
business/exercise of profession and input tax (VAT on purchases), other allowable
tax credits as in the case of advance VAT payment and VAT withheld by
government payors, and VAT payable or excess input VAT, whichever is applicable,
with the accredited agent banks (AABs) of the BIR or Revenue Collection Officers
(RCOs) of the BIR (in areas without AAB), for returns with payment, or with the
RDO/LTDO having jurisdiction over the taxpayer (home RDO/LTDO), for returns
without payment. (The monthly VAT Declaration and the Quarterly VAT Return
shall reflect the consolidated total for all the taxable lines of activity and all the
establishments - head office and branches);
Submit with the RDO/LTDO having jurisdiction over the taxpayer, on or before the
deadline set in the filing of the Quarterly VAT Return, the soft copy of the Quarterly
Schedule of Monthly Sales and Output Tax (if the quarterly sales exceed
P2,500,000.00), and the soft copy of the Quarterly Schedule of Monthly Domestic
Purchases and Input Tax/ the soft copy of the Schedule of Transactional/Individual
Importation ( if the quarterly total purchases exceed P1,000,000.00), reflecting
therein the required data prescribed under existing revenue issuances.
How do we determine the main or principal business of a taxpayer who is engaged
in mixed business activities?
In determining the main or principal business of a taxpayer, we apply the
predominance test. Under this test, if more than fifty (50%) of its gross sales and/or
gross receipts comes from its business/es subject to VAT, its main/principal
business falls within the VAT system making its status as a VAT person. Otherwise,
he can not be considered as a VAT person eligible for the election provided for
under Section 109(2) of the Tax Code.
What is the liability of a taxpayer becoming liable to VAT and did not register as
such?
Any person who becomes liable to VAT and fails to register as such shall be liable to
pay the output tax as if he is a VAT-registered person, but without the benefit of
input tax credits for the period in which he was not properly registered.
Who may opt to register as VAT and what will be his liability?
Any person who is VAT-exempt under Sec. 4.109-1 (B) (1) (V) not required to
register for VAT may, in relation to Sec. 4.109-2, elect to be VAT-registered by
registering with the RDO that has jurisdiction over the head office of that person,
and pay the annual registration fee of P500.00 for every separate and distinct
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establishment.
Any person who is VAT-registered but enters into transactions which are exempt
from VAT (mixed transactions) may opt that the VAT apply to his transactions which
would have been exempt under Section 109(1) of the Tax Code, as amended [Sec.
109(2)].
Franchise grantees of radio and/or television broadcasting whose annual gross
receipts of the preceding year do not exceed ten million pesos (P10,000,000.00)
derived from the business covered by the law granting the franchise may opt for
VAT registration. This option, once exercised, shall be irrevocable. (Sec. 119, Tax
Code).
Any person who elects to register under optional registration shall not be allowed
to cancel his registration for the next three (3) years.
The above-stated taxpayers may apply for VAT registration not later than ten (10)
days before the beginning of the calendar quarter and shall pay the registration fee
unless they have already paid at the beginning of the year. In any case, the
Commissioner of Internal Revenue may, for administrative reason deny any
application for registration. Once registered as a VAT person, the taxpayer shall be
liable to output tax and be entitled to input tax credit beginning on the first day of
the month following registration.
What are the instances when a VAT-registered person may cancel his VAT
registration?
If he makes a written application and can demonstrate to the commissioner's
satisfaction that his gross sales or receipts for the following twelve (12) months,
other than those that are exempt under Section 109 (A) to (U), will not exceed one
million five hundred thousand pesos (P1,500,000.00); or
If he has ceased to carry on his trade or business, and does not expect to
recommence any trade or business within the next twelve (12) months.
When will the cancellation for registration be effective?
The cancellation for registration will be effective from the first day of the following
month the cancellation was approved.
What is the invoicing/ receipt requirement of a VAT-registered person?
A VAT registered person shall issue :
A VAT invoice for every sale, barter or exchange of goods or properties; and
A VAT official receipt for every lease of goods or properties and for every sale,
barter or exchange of services.
May a VAT-registered person issue a single invoice/ receipt involving VAT and NonVAT transactions?
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Yes. He may issue a single invoice/ receipt involving VAT and non-VAT transactions
provided that the invoice or receipt shall clearly indicate the break-down of the
sales price between its taxable, exempt and zero-rated components and the
calculation of the Value-Added Tax on each portion of the sale shall be shown on
the invoice or receipt.
May a VAT- registered person issue separate invoices/ receipts involving VAT and
Non-VAT transactions?
Yes. A VAT registered person may issue separate invoices/ receipts for the taxable,
exempt, and zero-rated component of its sales provided that if the sales is exempt
from value-added tax, the term "VAT-EXEMPT SALE" shall be written or printed
prominently on the invoice or receipt and if the sale is subject to zero percent (0%)
VAT, the term "ZERO-RATED SALE" shall be written or printed prominently on the
invoice or receipt.
How is the Value-Added Tax presented in the receipt/ invoice?
The amount of the tax shall be shown as a separate item in the invoice or receipt.
Sample:
Sales Price
P100,000.00
VAT
12,000.00
Invoice Amount
P112,000.00
What is the information that must be contained in the VAT invoice or VAT official
receipt?
Name of Seller
Business Style of the Seller
Business Address of the Seller
Statement that the seller is a VAT-registered person, followed by his TIN
Name of Buyer
Business Style of Buyer
Address of Buyer
TIN of buyer, if VAT- registered and amount exceed P1,000.00
Date of transaction
Quantity
Unit cost
Description of the goods or properties or nature of the service
Purchase price plus the VAT, provided that:
The amount of tax shall be shown as a separate item in the invoice or receipt;
If the sale is exempt from VAT, the term "VAT-EXEMPT SALE" shall be written or
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printed prominently on the invoice or receipt;


If the sale is subject to zero percent (0%) VAT, the term "ZERO-RATED SALE" shall
be written or printed prominently on the invoice receipt; and
If the sale involves goods, properties or services some of which are subject to and
some of which are zero-rated or exempt from VAT, the invoice or receipt shall
clearly indicate the breakdown of the sales price between its taxable, exempt and
zero-rated components, and the calculation of the VAT on each portion of the sale
shall be shown on the invoice or receipt.
Authority to Print Receipt Number at the lower left corner of the invoice or receipt.
What is the liability of a taxpayer not registered as VAT and issues a VAT invoice/
receipt?
The non-VAT registered person shall, in addition to paying the percentage tax
applicable to his transactions, be liable to VAT imposed in Section 106 or 108 of the
Tax Code without the benefit of any input tax credit plus 50% surcharge on the VAT
payable (output tax). If the invoice/ receipts contain the required information,
purchaser shall be allowed to recognize an input tax credit.
What is the liability of a VAT-registered person in the issuance of a VAT invoice/
receipt for VAT-exempt transactions?
If a VAT-registered person issues a VAT invoice or VAT official receipt for a VATexempt transaction but fails to display prominently on the invoice or receipt the
words "VAT-EXEMPT SALE", the transaction shall become taxable and the issuer
shall be liable to pay the VAT thereon. The purchaser shall be entitled to claim an
input tax credit on his purchase.
What is "output tax"?
Output tax means the VAT due on the sale, lease or exchange of taxable goods or
properties or services by any person registered or required to register under
Section 236 of the Tax Code.
What is "input tax"?
Input tax means the VAT due on or paid by a VAT-registered on importation of
goods or local purchase of goods, properties or services, including lease or use of
property in the course of his trade or business. It shall also include the transitional
input tax determined in accordance with Section 111 of the Tax Code, presumptive
input tax and deferred input tax from previous period.
What comprises "goods or properties"?
The term "goods or properties" shall mean all tangible and intangible objects,
which are capable of pecuniary estimation and shall include, among others:
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Real properties held primarily for sale to customers or held for lease in the ordinary
course of trade or business;
The right or the privilege to use patent, copyright, design or model, plan, secret
formula or process, goodwill, trademark, trade brand or other like property or
right;
The right or privilege to use in the Philippines of any industrial, commercial or
scientific equipment;
The right or the privilege to use motion picture films, films, tapes and discs; and
Radio, television, satellite transmission and cable television time.
What comprises "sale or exchange of services"?
The term "sale or exchange of services" means the performance of all kinds of
services in the Philippines for others for a fee, remuneration or consideration,
whether in kind or in cash, including those performed or rendered by the following:
Construction and service contractors;
Stock, real estate, commercial, customs and immigration brokers;
Lessors of property, whether personal or real;
Persons engaged in warehousing services;
Lessors or distributors of cinematographic films;
Persons engaged in milling, processing, manufacturing or repacking goods for
others;
Proprietors, operators or keepers of hotels, motels, rest houses, pension houses,
inns, resorts, theatres, and movie houses;
Proprietors or operators of restaurants, refreshment parlors, cafes, and other
eating places, including clubs and caterers;
Dealers in securities;
Lending investors;
Transportation contractors on their transport of goods or cargoes, including
persons who transport goods or cargoes for hire and other domestic common
carriers by land relative to their transport of goods or cargoes;
Common carriers by air and sea relative to their transport of passengers, goods or
cargoes from one place in the Philippines to another place in the Philippines;
Sales of electricity by generation, transmission, and/or distribution companies;
Franchise grantees of electric utilities, telephone and telegraph, radio and/or
television broadcasting and all other franchise grantees, except franchise grantees
of radio and/or television broadcasting whose annual gross receipts of the
preceding year do not exceed Ten Million Pesos (P10,000,000.00), and franchise
grantees of gas and water utilities;
Non-life insurance companies (except their crop insurances), including surety,
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fidelity, indemnity and bonding companies; and


Similar services regardless of whether or not the performance thereof calls for the
exercise of use of the physical or mental faculties.
The phrase "sale or exchange of services" shall likewise include:
The lease of use of or the right or privilege to use any copyright, patent, design or
model, plan, secret formula or process, goodwill, trademark, trade brand or other
like property or right;
The lease or the use of, or the right to use of any industrial, commercial or scientific
equipment;
The supply of scientific, technical, industrial or commercial knowledge or
information;
The supply of any assistance that is ancillary and subsidiary to and is furnished as a
means of enabling the application or enjoyment of any such property, or right or
any such knowledge or information;
The supply of services by a nonresident person or his employee in connection with
the use of property or rights belonging to, or the installation or operation of any
brand, machinery or other apparatus purchased from such non-resident person;
The supply of technical advice, assistance or services rendered in connection with
technical management or administration of any scientific, industrial or commercial
undertaking, venture, project or scheme;
The lease of motion picture films, films, tapes and discs; and
The lease or the use of or the right to use radio, television, satellite transmission
and cable television time.
What is a zero-rated sale?
It is a sale, barter or exchange of goods, properties and/or services subject to 0%
VAT pursuant to Sections 106 (A) (2) and 108 (B) of the Tax Code. It is a taxable
transaction for VAT purposes, but shall not result in any output tax. However, the
input tax on purchases of goods, properties or services, related to such zero-rated
sales, shall be available as tax credit or refund in accordance with RR No. 16-2005.
What transactions are considered as zero-rated sales?
The following services performed in the Philippines by VAT-registered person shall
be subject to zero percent (0%) rate:
Processing, manufacturing or repacking goods for other persons doing business
outside the Philippines which goods are subsequently exported where the services
are paid for in acceptable foreign currency and accounted for in accordance with
the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
Services other than processing, manufacturing or repacking rendered to a person
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engaged in business conducted outside the Philippines or to a non-resident person


engaged in business who is outside the Philippines when the services are
performed, the consideration for which is paid for in acceptable foreign currency
and accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP);
Services rendered to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory effectively subjects
the supply of such services to zero percent (0%) rate;
Services rendered to persons engaged in international shipping or air transport
operations, including leases of property for use thereof; Provided, however, that
the services referred to herein shall not pertain to those made to common carriers
by air and sea relative to their transport of passengers, goods or cargoes from one
place in the Philippines to another place in the Philippines, the same being subject
to twelve percent (12%) VAT under Sec. 108 of the Tax Code starting Feb. 1, 2006;
Services performed by subcontractors and/or contractors in processing, converting,
or manufacturing goods for an enterprise whose export sales exceeds seventy
percent (70%) of total annual production;
Transport of passengers and cargo by domestic air or sea carriers from the
Philippines to a foreign country. Gross receipts of international air carriers doing
business in the Philippines and international sea carriers doing business in the
Philippines are still liable to a percentage tax of three percent (3%) based on their
gross receipts as provided for in Sec. 118 of the Tax Code but shall not be liable to
VAT; and
Sale of power or fuel generated through renewable sources of energy such as, but
not limited to, biomass, solar, wind, hydropower, geothermal and steam, ocean
energy, and other shipping sources using technologies such as fuel cells and
hydrogen fuels; Provided, however that zero-rating shall apply strictly to the sale of
power or fuel generated through renewable sources of energy, and shall not
extend to the sale of services related to the maintenance or operation of plants
generating said power .
The following sales by VAT-registered persons shall be subject to zero percent (0%)
rate:
Export sales
The sale and actual shipment of goods from the Philippines to a foreign country,
irrespective of any shipping arrangement that may be agreed upon which may
influence or determine the transfer of ownership of the goods so exported, paid in
acceptable foreign currency or its equivalent in goods or services, and accounted
for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
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(BSP);
The sale of raw materials or packaging materials to a non-resident buyer for
delivery to as resident local export-oriented enterprise to be used in
manufacturing, processing, packing or repacking in the Philippines of the said
buyer's goods, paid for in acceptable foreign currency, and accounted for in
accordance with the rules and regulations of the BSP;
The sale of raw materials or packaging materials to an export-oriented enterprise
whose export sales exceed seventy percent (70%) of total annual production;
Sale of gold to the BSP;
Transactions considered export sales under Executive Order No. 226, otherwise
known as the Omnibus Investments Code of 1987, and other special laws; and
The sale of goods, supplies, equipment and fuel to persons engaged in international
shipping or international air transport operations; Provided, that the same is
limited to goods, supplies, equipment and fuel pertaining to or attributable to the
transport of goods and passengers from a port in the Philippines directly to a
foreign port, or vice-versa without docking or stopping at any other port in the
Philippines unless the docking or stopping at any other Philippine port is for the
purpose of unloading passengers and/or cargoes that originated from abroad, or to
load passengers and/or cargoes bound for abroad; Provided, further, that if any
portion of such fuel, goods or supplies is used for purposes other than the
mentioned in this paragraph, such portion of fuel, goods and supplies shall be
subject to twelve percent (12%) output VAT.
Foreign Currency Denominated Sales
The sale to a non-resident of goods, except those mentioned in Sections 149 and
150 of the Tax Code, assembled or manufactured in the Philippines for delivery to a
resident in the Philippines, paid for in acceptable foreign currency and accounted
for in accordance with the rules and regulations of the BSP.
Sales to Persons or Entities Deemed Tax-exempt under Special Law or International
Agreement
Sale of goods or property to persons or entities who are tax-exempt under special
laws or international agreements to which the Philippines is a signatory, such as,
Asian Development Bank (ADB), International Rice Research Institute (IRRI), etc.
Where will taxpayers file their applications for VAT zero-rating?
Taxpayers shall file their application directly with the Audit Information, Tax
Exemption and Incentives Division (AITEID) under the Assessment Service, or with
the LTAID I and II, BIR National Office, as the case may be.
What is a Contractor's Final Payment Release Certificate and where should
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taxpayers file their application for this?


The Contractor's Final Payment Release Certificate is issued by the BIR before a
government contractor is fully paid for his contract with the government. Taxpayers
may file their application at the BIR National Office at the Audit Information, Tax
Exemption and Incentives Division (AITEID)
What transactions are considered deemed sales?
The following transactions are considered as deemed sales:
Transfer, use or consumption, not in the course of business, of goods or properties
originally intended for sale or for use in the course of business. Transfer of goods or
properties not in the course of business can take place when VAT-registered person
withdraws goods from his business for his personal use;
Distribution or transfer to:
Shareholders or investors as share in the profits of the VAT-registered person; or
Creditors in payment of debt or obligation
Consignment of goods if actual sale is not made within sixty (60) days following the
date such goods were consigned. Consigned goods returned by the consignee
within the 60-day period are not deemed sold;
Retirement from or cessation of business, with respect to all goods on hand,
whether capital goods, stock-in-trade, supplies or materials as of the date of such
retirement or cessation, whether or not the business is continued by the new
owner or successor. The following circumstances shall, among others, give rise to
transactions "deemed sale";
Change of ownership of the business. There is a change in the ownership of the
business when a single proprietorship incorporated; or the proprietor of a single
proprietorship sells his entire business.
Dissolution of a partnership and creation of a new partnership which takes over the
business.
What is VAT-exempt sale?
It is a sale of goods, properties or service and the use or lease of properties which is
not subject to output tax and whereby the buyer is not allowed any tax credit or
input tax related to such exempt sale.
What are the VAT-exempt transactions?
Sale or importation of agricultural and marine food products in their original state,
livestock and poultry of a kind generally used as, or yielding or producing foods for
human consumption; and breeding stock and genetic materials therefore;
Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn,
livestock and poultry feeds, including ingredients, whether locally produced or
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imported, used in the manufacture of finished feeds (except specialty feeds for race
horses, fighting cocks, aquarium fish, zoo animals and other animals considered as
pets);
Importation of personal and household effects belonging to residents of the
Philippines returning from abroad and non-resident citizens coming to resettle in
the Philippines; Provided, that such goods are exempt from custom duties under
the Tariff and Customs Code of the Philippines;
Importation of professional instruments and implements, wearing apparel,
domestic animals, and personal household effects (except any vehicle, vessel,
aircraft, machinery and other goods for use in the manufacture and merchandise of
any kind in commercial quantity) belonging to persons coming to settle in the
Philippines, for their own use and not for sale, barter or exchange, accompanying
such persons, or arriving within ninety (90) days before or after their arrival, upon
the production of evidence satisfactory to the Commissioner of Internal Revenue,
that such persons are actually coming to settle in the Philippines and that the
change of residence is bonafide;
Services subject to percentage tax under Title V of the Code, as amended;
Services by agricultural contract growers and milling for others of palay into rice,
corn into grits, and sugar cane into raw sugar;
Medical, dental, hospital and veterinary services except those rendered by
professionals;
Educational services rendered by private educational institutions duly accredited by
the Department of Education (DepED), the Commission on Higher Education (CHED)
and the Technical Education and Skills Development Authority (TESDA) and those
rendered by the government educational institutions;
Services rendered by individuals pursuant to an employer-employee relationship;
Services rendered by regional or area headquarters established in the Philippines
by multinational corporations which act as supervisory, communications and
coordinating centers for their affiliates, subsidiaries or branches in the Asia-Pacific
Region and do not earn or derive income from the Philippines;
Transactions which are exempt under international agreements to which the
Philippines is a signatory or under special laws except those granted under P.D. No.
529 - Petroleum Exploration Concessionaires under the Petroleum Act of 1949;
Sales by agricultural cooperatives duly registered and in good standing with the
Cooperative Development Authority (CDA) to their members, as well as of their
produce, whether in its original state or processed form, to non-members, their
importation of direct farm inputs, machineries and equipment, including spare
parts thereof, to be used directly and exclusively in the production and/or
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processing of their produce;


Gross receipts from lending activities by credit or multi-purpose cooperatives duly
registered and in good standing with the Cooperative Development Authority;
Sales by non-agricultural, non-electric and non-credit cooperatives duly registered
with and in good standing with CDA; Provided, that the share capital contribution
of each member does not exceed Fifteen Thousand Pesos (P15,000.00) and
regardless of the aggregate capital and net surplus ratably distributed among the
members;
Export sales by persons who are not VAT-registered;
The following sales of real properties are exempt from VAT, namely:
Sale of real properties not primarily held for sale to customers or held for lease in
the ordinary course of trade or business;
Sale of real properties utilized for low-cost housing as defined by RA No. 7279,
otherwise known as the "Urban Development and Housing Act of 1992" and other
related laws, such as RA No. 7835 and RA No. 8763;
Sale of real properties utilized for specialized housing as defined under RA No.
7279, and other related laws, such as RA No. 7835 and RA No. 8763, wherein price
ceiling per unit is P225,000.00 or as may from time to time be determined by the
HUDCC and the NEDA and other related laws;
Sale of residential lot valued at One Million Five Hundred Thousand Pesos
(P1,500,000.00) and below, or house and lot and other residential dwellings valued
at Two Million Five Hundred Thousand Pesos (P2,500,000.00) and below where the
instrument of sale/ transfer/ disposition was executed on or after July 1, 2005;
Provided, that not later than January 31, 2009 and every three (3) years thereafter,
the amounts stated herein shall be adjusted to its present value using the
Consumer Price Index, as published by the National Statistics Office (NSO);
Provided, further, that such adjustment shall be published through revenue
regulations to be issued not later than March 31 of each year.
Lease of residential units with a monthly rental per unit not exceeding Ten
Thousand Pesos (P10,000.00), regardless of the amount of aggregate rentals
received by the lessor during the year; Provided, that not later than January 31,
2009 and every three (3) years thereafter, the amount of P10,000.00 shall be
adjusted to its present value using the Consumer Price Index, as published by the
NSO;
Sale, importation, printing or publication of books and any newspaper, magazine,
review or bulletin which appears at regular intervals with fixed prices for
subscription and sale and which is not devoted principally to the publication of paid
advertisements;
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Sale, importation or lease of passenger or cargo vessels and aircraft, including


engine equipment and spare parts thereof for domestic or international transport
operations; Provided, that the exemption from VAT on the importation and local
purchase of passenger and/or cargo vessels shall be limited to those of one
hundred fifty (150) tons and above, including engine and spare parts of said vessels;
Provided, further, that the vessels to be imported shall comply with the age limit
requirement, at the time of acquisition counted from the date of the vessel's
original commissioning, as follows: (a) for passenger and/or cargo vessel, the age
limit is fifteen (15) years old, (b) for tankers, the age limit is ten (10) year old, and
(c) for high-speed passengers crafts, the age limit is five (5) years old; Provided,
finally, that exemption shall be subject to the provisions of Section 4 of Republic
Act No. 9295, otherwise known as "The Domestic Shipping Development Act of
2004";
Importation of life-saving equipment, safety and rescue equipment and
communication and navigational safety equipment, steel plates and other metal
plates including marine-grade aluminum plates, used for shipping transport
operations; Provided, that the exemption shall be subject to the provisions of
Section 4 of Republic Act No. 9295, otherwise known as "The Domestic Shipping
Development Act of 2004".
Importation of capital equipment, machinery, spare parts, life-saving and
navigational equipment, steel plates and other metal plates including marine-grade
aluminum plates to be used in the construction, repair, renovation or alteration of
any merchant marine vessel operated or to be operated in the domestic trade.
Provided, that the exemption shall be subject to the provisions of Section 19 of
Republic Act No. 9295, otherwise known as the "The Domestic Shipping
Development Act of 2004".
Importation of fuel, goods and supplies engaged in international shipping or air
transport operations; Provided, that the said fuel, goods and supplies shall be used
exclusively or shall pertain to the transport of goods and/or passenger from a port
in the Philippines directly to a foreign port, or vice-versa, without docking or
stopping at any other port in the Philippines unless the docking or stopping at any
other Philippine port is for the purpose of unloading passengers and/or cargoes
that originated form abroad, or to load passengers and/or cargoes bound for
abroad; Provided, further, that if any portion of such fuel, goods or supplies is used
for purposes other that the mentioned in the paragraph, such portion of fuel,
goods and supplies shall be subject to 12% VAT;
Services of banks, non-bank financial intermediaries performing quasi-banking
functions, and other non-bank financial intermediaries, such as money changers
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and pawnshops, subject to percentage tax under Sections 121 and 122, respectively
of the Tax Code; and
Sale or lease of goods or properties or the performance of services other than the
transactions mentioned in the preceding paragraphs, the gross annual sales and/or
receipts do not exceed the amount of One Million Five Hundred Thousand Pesos
(P1,500,000.00). Provided, that not later than January 31, 2009 and every three (3)
years thereafter, the amount of P1,500,000.00 shall be adjusted to its present value
after using the Consumer Price Index, as published by the NSO.
What are the previously exempt transactions that are now subject to VAT?
Medical services such as dental & veterinary services rendered by professionals;
Legal services;
Non-food agricultural products;
Marine and forest products;
Cotton and cotton seeds;
Coal and natural gas;
Petroleum products;
Passenger cargo vessels of more than 5,000 tons;
Work of art, literary works, musical composition;
Generation, transmission and distribution of electricity including that of electric
cooperatives;
Sale of residential lot valued at more than P1,500,000.00;
Sale of residential house & lot/dwellings valued at more than P2,500,000.00;
Lease of residential unit with a monthly rental of more than P10,000;
II. RELIEF-Related Queries
What is "RELIEF"?
RELIEF means Reconciliation of Listing for Enforcement. It supports the third party
information program of the Bureau through the cross referencing of third party
information from the taxpayers' Summary Lists of Sales and Purchases prescribed
to be submitted on a quarterly basis.
Who are required to submit Summary List of Sales?
VAT taxpayers with quarterly total sales/receipts (net of VAT), exceeding Two
Million Five Hundred Thousand Pesos (P2,500,000.00) are required to submit a
Summary List of Sales.
Who are required to submit Summary List of Purchases?
VAT taxpayers with quarterly total purchases (net of VAT) of goods and services,
including importation exceeding One Million Pesos (P1,000,000.00) are required to
submit Summary List of Purchases.
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What are the Summary Lists required to be submitted?


Quarterly Summary List of Sales to Regular Buyers/ Customers Casual Buyers/
Customers and Output Tax
Quarterly Summary of List of Local Purchases and Input tax; and
Quarterly Summary List of Importation.
When is the deadline for submission of the above Summary Lists?
The Summary List of Sales/Purchases, whichever is applicable, shall be submitted on
or before the twney-fifth (25th) day of the month following the close of the taxable
quarter -- calendar quarter or fiscal quarter.
What are the penalties for failure to submit the Summary Lists?
For failure to file, keep or supply a statement, list or information required on the date
prescribed shall pay and administrative penalty of One Thousand Pesos (P1,000.00) for
each such failure, unless it is shown that such failure is due to reasonable cause and
not to willful neglect; and
An aggregate amount to be imposed for all such failures during a taxable year shall not
exceed Twenty-Five Thousand Pesos (P25,000.00).
III. What is the treatment for Withholding of VAT on Government Money Payments?
The goverment or any of its political subdivisions, instrumentalities or agencies,
including government-owned or controlled corporations (GOCCs) shall, before making
payment on account of each purchase of goods and/or services taxed at twelve
percent (12%) VAT pursuant to Sections 106 and 108 of the Tax Code, deduct and
withhold a Final VAT due at the rate of five percent (5%) of the gross payment.
The five percent (5%) final VAT withholding rate shall represent the net VAT payable of
the seller. The remaining seven percent (7%) effectively accounts for the standard
input VAT for sales of goods or services to government or any of its political
subdivisions, instrumentalities or agencies including GOCCs in lieu of the actual input
VAT directly attributable or ratably apportioned to such sales. Should actual input VAT
attributable to sales to government exceeds seven percent (7%) of gross payments,
the excess may form part of the sellers' expense or cost. On the other hand, if actual
input VAT attributable to sale to government is less than seven percent (7%) of gross
payment, the difference must be closed to expense or cost.
The government or any of its political subdivisions, instrumentalities or agencies
including GOCCs, as well as private corporation, individuals, estates and trusts,
whether large or non-large taxpayers, shall withhold twelve percent (12%) VAT with
respect to the following payments:
Lease or use of properties or property rights owned by non-residents; and
Other services rendered in the Philippines by non-residents.
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IV. In what grounds can the Commissioner of Internal Revenue suspend the business
operations of a taxpayer?
The Commissioner or his authorized representative is empowered to suspend the
business operations and temporarily close the business establishment of any person
for any of the following violations:
(a) In the case of a VAT-registered Person:
Failure to issue receipts or invoices;
Failure to file a value-added-tax return as required under Section 114; or
Understatement of taxable sales or receipts by thirty percent (30%) or more of his
correct taxable sales or receipts for the taxable quarter.
(b) Failure to any Person to Register as Required under Section 236
The temporary closure of the establishment shall be for the duration of not less than
five (5) days and shall be lifted only upon compliance with whatever requirements
prescribed by the Commissioner in the closure order.
DONORS TAX
Tax Rates
Effective January 1, 1998 to present
Net Gift Over But not Over

The Tax
Shall be

Plus

Of the Excess
Over

100,000.00

exempt

100,000.00

200,000.00

2% 100,000.00

200,000.00

500,000.00

P 2,000.00

4% 200,000.00

500,000.00

1,000,000.00 14,000.00

6% 500,000.00

1,000,000.00 3,000,000.00 44,000.00

8% 1,000,000.00

3,000,000.00 5,000,000.00 204,000.00

10% 3,000,000.00

5,000,000.00 10,000,000.00 404,000.00

12% 5,000,000.00

10,000,000.00 and over

1,004,000.00 15% 10,000,000.00

Notes:
1. Rate applicable shall be based on the law prevailing at the time of donation.
2. When the gifts are made during the same calendar year but on different dates,
the donor's tax computed on the total net gifts during the year.
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112

Donation made to a stranger is subject to 30% of the net gift. A stranger is a person
who is not a:
brother, sister (whether by whole or half blood), spouse, ancestor and lineal
descendants; or
. relative by consanguinity in the collateral line within the fourth degree of
relationship (up to first cousin).
Effective July 28, 1992 to December 31, 1997
The Tax
Of the Excess
Net Gift Over But not Over
Plus
Shall be
Over
50,000.00

exempt

50,000.00

100,000.00

1.5%

100,000.00

200,000.00

P 750.00

3%

100,000.00

200,000.00

500,000.00

3,750.00

5%

200,000.00

500,000.00

1,000,000.00 18,750.00

8%

500,000.00

1,000,000.00 3,000,000.00 58,750.00

50,000.00

10% 1,000,000.00

3,000,000.00 5,000,000.00 258,750.00 15% 3,000,000.00


5,000,000.00 and over

558,750.00 20% 5,000,000.00

Donation made to a stranger is subject to 10% of the net gift. A stranger is a person
who is not a:
brother, sister (whether by whole or half blood), spouse, ancestor and lineal
descendants; or
. relative by consanguinity in the collateral line within the fourth degree of
relationship (up to first cousin).
Effective before July 28, 1992
The Tax
Of the Excess
Net Gift Over But not Over
Plus
Shall be
Over
1,000.00

exempt
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113

1,000.00

50,000.00

1.5%

1,000.00

50,000.00

75,000.00

P 735.00

2.5% 50,000.00

75,000.00

100,000.00

1,360.00

3%

75,000.00

100,000.00

150,000.00

2,110.00

6%

100,000.00

150,000.00

200,000.00

5,110.00

9%

150,000.00

200,000.00

300,000.00

9,610.00

12%

200,000.00

300,000.00

400,000.00

21,610.00

15%

300,000.00

400,000.00

500,000.00

36,610.00

18%

400,000.00

500,000.00

625,000.00

54,610.00

21%

500,000.00

625,000.00

750,000.00

80,860.00

24%

625,000.00

750,000.00

875,000.00

110,860.00 28%

750,000.00

875,000.00

1,000,000.00 145,860.00 32%

875,000.00

1,000,000.00 2,000,000.00 185,860.00 36%

1,000,000.00

2,000,000.00
Description : Donors Tax is a tax on a donation or gift, and is imposed on the
gratuitous transfer of property between two or more persons who are living at the
time of the transfer. It shall apply whether the transfer is in trust or otherwise, whether
the gift is direct or indirect and whether the property is real or personal, tangible or
intangible.

Tax Form : BIR Form 1800 Donors Tax Return

Documentary Requirements
The following requirements must be submitted upon field or office audit of the tax case
before the Tax Clearance Certificate/Certificate Authorizing Registration can be
released:
1. Deed of Donation
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114

2.
3.
4.

Sworn Statement of the relationship of the donor to the donee


Proof of tax credit, if applicable
Certified true copy(ies) of the Original/Transfer/Condominium Certificate of Title
(front and back ) of lot and/or improvement donated, if applicable
5. Certified true copy(ies) of the latest Tax Declaration (front and back pages) of lot
and/or improvement, if applicable
6. Certificate of No Improvement issued by the Assessors office where the
properties have no declared improvement, if applicable
7. Proof of valuation of shares of stocks at the time of donation, if applicable
For listed stocks - newspaper clippings or certification issued by the Stock
Exchange as to the par value per share
For unlisted stocks - latest audited Financial Statements of the issuing
corporation with computation of the book value per share
8. Proof of valuation of other types of personal properties, if applicable
9. Proof of claimed deductions, if applicable
10. Copy of Tax Debit Memo used as payment, if applicable
Additional requirements may be requested for presentation during audit of the tax
case depending upon existing audit procedures.

Procedures
File the return in triplicate (two copies for the BIR and one copy for the taxpayer) with
any Authorized Agent Bank (AAB) of the RDO having jurisdiction over the place of the
domicile of the donor at the time of the transfer. In places where there are no AAB, the
return will be filed directly with the Revenue Collection Officer or duly Authorized City
or Municipal Treasurer where the donor was domiciled at the time of the transfer, or if
there is no legal residence in the Philippines, with Revenue District No. 39 - South
Quezon City.
In the case of gifts made by a non-resident alien, the return may be filed with Revenue
District No. 39 - South Quezon City, or with the Philippine Embassy or Consulate in the
country where donor is domiciled at the time of the transfer.
Submit all documentary requirements and proof of payment to the Revenue District
Office having jurisdiction over the place of residence of the donor.
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Deadlines
Within thirty days (30) after the date the gift (donation) is made. A separate return will
be filed for each gift (donation) made on the different dates during the year reflecting
therein any previous net gifts made during the same calendar year.
If the gift (donation) involves conjugal/community/property, each spouse will file
separate returns corresponding to his/ her respective share in the conjugal/community
property. This rule will also apply in the case of co-ownership over the property.
Frequently Asked Questions
1. Who are required to file the Donors Tax Return?
Every person, whether natural or juridical, resident or non-resident, who transfers or
causes to transfer property by gift, whether in trust or otherwise, whether the gift is
direct or indirect and whether the property is real or personal, tangible or intangible.
2. What are the procedures in filing the Donors Tax return?
File the return in triplicate (two copies for the BIR and one copy for the taxpayer) with
any Authorized Agent Bank (AAB) of the RDO having jurisdiction over the place of the
domicile of the donor at the time of the transfer. In places where there are no AAB, the
return will be filed directly with the Revenue Collection Officer or duly Authorized City
or Municipal Treasurer where the donor was domiciled at the time of the transfer, or if
there is no legal residence in the Philippines, with Revenue District No. 39 - South
Quezon City.
In the case of gifts made by a non-resident alien, the return may be filed with Revenue
District No. 39 - South Quezon City, or with the Philippine Embassy or Consulate in the
country where donor is domiciled at the time of the transfer.
Submit all documentary requirements and proof of payment to the Revenue District
Office having jurisdiction over the place of residence of the donor.
3. What donations are tax exempt?
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Dowries or donations made on account of marriage before its celebration or within


one year thereafter, by parents to each of their legitimate, recognized natural, or
adopted children to the extent of the first P10,000
Gifts made to or for the use of the National Government or any entity created by
any of its agencies which is not conducted for profit, or to any political subdivision
of the said Government
Gifts in favor of an educational and/or charitable, religious, cultural or social
welfare corporation, institution, accredited non-government organization, trust or
philantrophic organization or research institution or organization, provided not
more than 30% of said gifts will be used by such donee for administration purposes
Encumbrances on the property donated if assumed by the donee in the deed of
donation
Donations made to the following entities as exempted under special laws:
- Aquaculture Department of the Southeast Asian Fisheries Development Center
of the Philippines
- Development Academy of the Philippines
- Integrated Bar of the Philippines
- International Rice Research Institute
- National Social Action Council
- Ramon Magsaysay Foundation
- Philippine Inventors Commission
- Philippine American Cultural Foundation
- Task Force on Human Settlement on the donation of equipment, materials and
services

4. What are the bases in the valuation of property?


If the gift is made in property, the fair market value at that time will be considered the
amount of gift
In case of real property, the taxable base is the fair market value as determined by the
Commissioner of Internal Revenue (Zonal Value) or fair market value as shown in the
latest schedule of values of the provincial and city assessor (MV per Tax Declaration),
whichever is higher
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If there is no zonal value, the taxable base is the fair market value that appears in the
latest tax declaration
If there is an improvement, the value of improvement is the construction cost per
building permit and or occupancy permit plus 10% per year after year of construction,
or the market value per latest tax declaration.

DOCUMENTARY STAMP TAX


Description: Documentary Stamp Tax is a tax on documents, instruments, loan
agreements and papers evidencing the acceptance, assignment, sale or transfer of an
obligation, right or property incident thereto.
Tax Form: BIR Form 2000 (Documentary Stamp Tax Declaration Return)
Documentary Requirements
1) Photocopy of document(s) to which the documentary stamp shall be affixed, in case
of constructive affixture of Documentary Stamp Tax
2) For metering machine users, a schedule of the details of usage or consumption of
documentary stamp
3) Proof of exemption under special law, if applicable
4) Duly approved Tax Debit Memo, if applicable
Tax Rates
Tax
Code Document
Section

Taxable Unit

174

Debentures and P200.00 or


Certificates of
fraction
Indebtedness
thereof

175

Original Issue of
Shares of Stock
with par value
Original Issue of
Shares of Stock
without par
value

P200.00 or
fraction
thereof
P200.00 or
fraction
thereof
based on

Tax Due
Per Unit

% of
Unit

Taxable Base

P1.50

.75%

Face value of
Document

1%
1%

Par value of shares of


stocks actual
consideration for the
issuance of shares of
stocks

2.00
2.00

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118

actual
consideration

176

Sales,
Agreements to
Sell, Memoranda
of Sales,
Deliveries or
P200.00 or
Transfer of Due- fraction
bills, Certificate thereof
of Obligation, or
Shares or
Certificates of
Stock

177

Bonds,
Debentures,
Certificate of
P200.00 or
Stock or
fraction
Indebtedness
thereof
issued in foreign
Countries

1.50

Par value of such due.75% bills, certificate of


obligation or stocks

1.50

Par value of such


.75% bonds, debentures or
Certificate of Stocks

178

Certificate of
P200.00 or
Profits or Interest
fraction
in Property or
thereof
Accumulation

.50

Face value of such


.25% certificate /
memorandum

179

Bank Checks,
Drafts, Certificate
of Deposit not
On each
bearing interest Document
and other
Instruments

1.50

180

Bonds, Loan
Agreements,
Promissory
P200.00 or
Notes, Bills of
fraction
Exchange, Drafts, thereof
Instruments and
Securities Issued

.30

.15%

Face value of the


instrument/document

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119

by the
Government or
any of its
Instrumentalities,
Deposit
Substitutes Debt
Instrument,
Certificates of
Deposit bearing
interest and
others not
payable on sight
or demand
(except loan
agreement or
promissory notes
exceeding
P250,000.00 for
personal use or
family use)

181

Bills of Exchange
or order drawn in P200.00 or
foreign country fraction
but payable in
thereof
the Philippines

.30

Face value of such bill


of exchange or order
or the equivalent of
.15%
such value, if
expressed in foreign
currency

182

Foreign Bills of
Exchange and
Letter of Credit

P200.00 or
fraction
thereof

.30

Face value of such bill


of exchange or order
or the equivalent of
.15%
such value, if
expressed in foreign
currency

183

Life Insurance
Policies

P200.00 or
fraction
thereof

.50

.25%

184

Policies Of
Insurance upon

P4.00
premium or

.50

12.5% Premium charged

Amount Insured by
the Policy

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120

Property

fraction
thereof

185

Fidelity Bonds
and other
Insurance
Policies

P4.00
premium or
fraction
thereof

186

Policies of
P200.00 or
Annuities,
fraction
Annuity or other
thereof
instruments

186

Pre-Need Plans

P500.00 or
fraction
thereof

.50

12.5% Premium charged

1.50

75%

Capital of annuity, or
if unknown 33 1/3
times the annual
income

.50

.10%

Value or amount of
the Plan

187

P4.00 or
Indemnity Bonds fraction
thereof

.30

7.5% Premium charged

188

Certificates of
Damage or
otherwise and
Certificate or
document issued
by any customs
officers, marine Each
surveyor, notary Certificate
public and
certificate
required by law
or by rules and
regulations of a
public office

15.00

189

Warehouse
Receipts (except
Each Receipt 15.00
if value does not
exceed P200.00)

190

Jai-alai, Horse
Race Tickets,

P1.00 cost of
.10
ticket and

10%

Cost of the ticket


120

121

lotto or Other
Authorized
Number Games

Additional
P0.10 on
every P1.00
or fraction
thereof if
cost of ticket
exceeds
P1.00

191

Bills of Lading or
Receipts
Each Proxy
(except charter
party)

15.00

193

Powers of
Attorney

Each
Document

5.00

194

Lease and other


Hiring
agreements of
memorandum or
contract for hire,
use or rent of
any land or
tenements or
portions thereof

First 2,000
For every
P1,000 or
fractional
part thereof
in excess of 3.00
the first
1.00
P2,000 for
each year of
the term of
the contract
or agreement

195

First 5,000
Mortgages
On each
Pledges of lands, P5,000 or
20.00
estate, or
fractional
10.00
property and
part thereof
Deeds of Trust
in excess of
5,000

.4%
.2%

196

Deed of Sale,
instrument or
writing and
Conveyances of

Consideration or Fair
1.5% Market Value,
1.5% whichever is higher (if
government is a

First 1,000
For each
additional
P1,000 or

15.00
15.00

1.5%
1%

Amount Secured
Amount Secured

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122

Real Property
(except grants,
patents or
original
certificate of the
government)

fractional
part thereof
in excess of
P1,000

1,000 tons
and below

1,001 to
10,000 tons

party, basis shall be


the consideration)

P500.00
for the
first 6
months
PlusP50
each
month or
fraction
thereof in
excess of 6
months

Over 10,000
tons
197

Charter parties
and Similar
Instruments

P1,000 for
the first 6
months
Plus P100
each
month or
fraction
thereof in
excess of 6
months

P1,500 for
the first 6
months
Plus P150
each
month or
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fraction
thereof in
excess of 6
months
Procedures
File BIR Form No. 2000 in triplicate (two copies for the BIR and one copy for the
taxpayer) with the Authorized Agent Bank (AAB) in the Revenue District where the
seller or transferor is registered, for shares of stocks or where the property is located,
for real property. In places where there are no AAB, the return will be filed directly
with the Revenue Collection Officer or Authorized City or Municipal Treasurer.
Submit all documentary requirements and proof of payment to the Revenue District
Office having jurisdiction over the place of residence of the seller.
Deadlines
The Documentary Stamp Tax return (BIR Form 2000) shall be filed in triplicate (two
copies for the BIR and one copy for the taxpayer) within five (5) days after the close of
the month when the taxable document was made signed, issued, accepted or
transferred; when reloading a metering machine becomes necessary; or upon
remittance by Collection Agents of collection from sale of loose stamps. The
Documentary Stamp Tax shall be paid upon filing of the return.
Frequently Asked Questions
1) Who are required to file Documentary Stamp Tax Declaration Return?
a) In case of constructive affixture of documentary stamps, by the persons making,
signing, issuing, accepting or transferring documents, instruments, loan agreements
and papers, acceptances, assignments, sales and conveyances of the obligation, right or
property incident thereto wherever the document is made, signed, issued, accepted or
transferred when the obligation or right arises from Philippine sources or the property
is situated in the Philippines at the same time such act is done or transaction had;
b) By metering machine user who imprints the Documentary Stamp Tax due on the
taxable documents; and
c) By Revenue Collection Agent, for remittance of sold loose documentary stamps.
Note: Wherever one party to the taxable document enjoys exemption from the tax
imposed, the other party who is not exempt will be the one directly liable to file
Documentary Stamp Tax Declaration and pay the applicable stamp tax.
2) Where is the Documentary Stamp Tax Declaration Return filed?
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124

In the Authorized Agent Bank (AAB) within the territorial jurisdiction of the RDO which
has jurisdiction over the residence or principal place of business of the taxpayer or
where the property is located in case of sale of real property or where the Collection
Agent is assigned. In places where there is no Authorized Agent Bank, the return will be
filed with the Revenue Collection Officer or duly authorized City or Municipal Treasurer
where the taxpayer's residence or principal place of business is located or where the
property is located in case of sale of real property or where the Collection Agent is
assigned.
3) What are the documents/papers not subject to Documentary Stamp Tax?
Policies of insurance or annuities made or granted by a fraternal or beneficiary society,
order, association or cooperative company, operated on the lodge system or local
cooperation plan and organized and conducted solely by the members thereof for the
exclusive benefit of each member and not for profit
Certificates of oaths administered by any government official in his official capacity or
acknowledgement by any government official in performance of his official duty
Written appearance in any court by any government official in his official capacity
Certificates of the administration of oaths to any person as to the authenticity of any
paper required to be filed in court by any person or party thereto, whether the
proceedings be civil or criminal
Papers and documents filed in court by or for the national, provincial, city or municipal
governments
Affidavits of poor persons for the purpose of proving poverty
Statements and other compulsory information required of persons or corporations by
the rules and regulations of the national, provincial, city or municipal government
exclusively for statistical purposes and which are wholly for the use of the Bureau or
office in which they are filed, and not at the instance or for the use or benefit of the
person filing them
Certified copies and other certificates placed upon documents, instruments and papers
for the national, provincial, city or municipal governments made at the instance and for
the sole use of some other branch of the national, provincial, city or municipal
governments
Certificates of the assessed value of lands, not exceeding P200 in value assessed,
furnished by the provincial, city or municipal Treasurer to applicants for registration of
title to land
4) What are the implications of failure to stamp taxable documents?
The untaxed document will not be recorded, nor will it or any copy thereof or any
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125

record of transfer of the same be admitted or used in evidence in court until the
requisite stamp or stamps have been affixed thereto and cancelled
No notary public or other officer authorized to administer oaths will add his jurat or
acknowledgment to any document subject to Documentary Stamp Tax unless the
proper documentary stamps are affixed thereto and cancelled.

WITHHOLDING TAX
Description
Withholding Tax on Compensation is the tax withheld from income payments to
individuals arising from an employer-employee relationship.
Expanded Withholding Tax is a kind of withholding tax which is prescribed on certain
income payments and is creditable against the income tax due of the payee for the
taxable quarter/year in which the particular income was earned.
Final Withholding Tax is a kind of withholding tax which is prescribed on certain income
payments and is not creditable against the income tax due of the payee on other
income subject to regular rates of tax for the taxable year. Income Tax withheld
constitutes the full and final payment of the Income Tax due from the payee on the
particular income subjected to final withholding tax.
Withholding Tax on Government Money Payments (GMP) - Percentage Taxes - is the
tax withheld by National Government Agencies (NGAs) and instrumentalities,
including government-owned and controlled corporations (GOCCs) and local
government units (LGUs), before making any payments to non-VAT registered
taxpayers/suppliers/payees
Withholding Tax on GMP - Value Added Taxes (GVAT) - is the tax withheld by
National Government Agencies (NGAs) and instrumentalities, including governmentowned and controlled corporations (GOCCs) and local government units (LGUs), before
making any payments to VAT registered taxpayers/suppliers/payees on account of their
purchases of goods and services.

Monthly Remittance of Taxes Withheld on Compensation


Tax Form
BIR Form 1601-C : Monthly Remittance Return of Income Taxes Withheld on
Compensation
Who Are Required To File
Every registered withholding agent on compensation, which includes, but not limited to
the following:
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126

1) Individuals engaged in business or practice of profession with employees subject to


income tax
2) All Juridical persons (e.g., Corporations, general partnerships, associations,
etc.) whether or not
engaged in business.
3) Government Agencies and Instrumentalities (e.g.,NGAs, GOCCs, etc.), including local
government units (LGUs)
Documentary Requirements/Attachments to the tax return:
1) For amended return, proof of remittance and the return previously filed.
2) For those with advance payments, BIR Form No. 0605
3) For Private Sector, copy of the list of MWEs who received hazard pay submitted to
the DOLE Regional/Provincial Offices-Operations Division/Unit, for the return period
March, June, September and December, if applicable.
4) For Public Sector, copy of Department of Budget and Management (DBM) circular/s
or equivalent on MWEs allowed to receive hazard pay, for the return period March,
June, September and December, if applicable.
5) Electronic Tax Remittance Advice (eTRA) previously Tax Remittance Advice (TRA) for
National Government Agencies (NGAs) as required under DOF-DBM Joint Circular No.
1-2000A and RR 1-2003 .
Procedures for Filing and Payment
1. Read instructions indicated in the tax return.
2. Accomplish correctly BIR Form 1601-C in triplicate copies.
3. If there is tax required to be remitted:
- Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office
(RDO) where you are registered or withholding agent is registered and present the duly
accomplished BIR Form No. 1601-C, together with the required attachments (if
applicable) and your payment.
- In places where there are no AABs, proceed to the Revenue Collection Officer or duly
Authorized City or Municipal Treasurer located within the Revenue District Office
where you are registered or withholding agent is registered and present the duly
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127

accomplished BIR Form No. 1601- C, together with the required attachments (if
applicable) and your payment.
- Receive your copy of the duly stamped and validated form from the teller of the
AAB's/Revenue Collection Officer/duly Authorized City or Municipal Treasurer.
4. If there is no tax required to be remitted:
- Proceed to the Revenue District Office where you are registered or where the
withholding agent is registered and present the duly accomplished BIR Form 1601-C,
together with the required attachments.
- Receive your copy of the duly stamped and validated form from the RDO
representative
Deadline
Filing Via EFPS
Group A - Fifteen (15) days following end of the month
Group B - Fourteen (14) days following end of the month
Group C - Thirteen (13) days following end of the month
Group D - Twelve (12) days following end of the month
Group E - Eleven (11) days following end of the month
Note: The staggered manner of filing is only allowed to taxpayers using the Electronic
Filing and Payment System (EFPS) based on the industry classification groupings per RR
No. 26-2002.
However, the staggered filing of returns allowed for withholding agents/taxpayers
enrolled in the EFPS facility of the Bureau shall not apply in the case of the NGAs per RR
1-2013.
Payment Via EFPS
On or before the fifteenth (15th) day of the month following the month
withholding was made, except for taxes withheld for the month of December
which shall be paid on or before January 20 of the succeeding year.
Provided however that, in the case of NGAs, all returns must be electronically
filed (e-filed) and payment of the tax due must also be made on the same day
the return is e-filed which shall be on or before the 10th day following the month
in which withholding was made, except for taxes withheld for the month of
December of each year, which shall be filed on or before January 15 of the
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128

succeeding year.

Manual Filing and Payment


On or before the tenth (10th) day of the month following the month the withholding
was made, except for taxes withheld for the month of December which shall be filed
and paid on or before January 15 of the succeeding year
Tax Rates
REVISED WITHHOLDING TAX TABLES
Effective JANUARY 1, 2009 (See BIR Schedule)

Monthly Remittance Of Income Taxes Withheld (Expanded) [Except for Transactions


Involving Onerous Transfer of Real Property Classified as Ordinary Asset]
Tax Form
BIR Form No. 1601-E : Monthly Remittance Return of Income Taxes Withheld
(Expanded) [Except for Transactions Involving Onerous Transfer of Real Property
Classified as Ordinary Asset]
Who Are Required To File
Every registered withholding agent on Expanded Withholding Tax, which may include,
but not limited to the following:
1) In general, any juridical person, whether or not engaged in trade or business
2) An individual, with respect to payments made in connection with his trade or
business. However, insofar as taxable sale, exchange or transfer of real property is
concerned, individual buyers who are not engaged in trade or business are also
constituted as withholding agents.
3) Government agencies and instrumentalities (e.g., National Government Agencies,
Government-Owned or Controlled Corporations, Local Government Units, etc.)
4) All individuals, juridical persons and political parties, with respect to their income
payments made as campaign expenditures and/or purchase of goods and services
intended as campaign contributions.
Documentary Requirements
1. Return previously filed and proof of remittance, if amended return
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129

2. Monthly Alphalist of Payees (MAP), except income payments made by political


parties, candidates and income payments made by individual or juridical person on the
purchase of goods and services as campaign contributions to political parties and
candidates
3. For advance payment, BIR Form No. 0605
4. Electronic Tax Remittance Advice (eTRA) previously Tax Remittance Advice (TRA) for
National Government Agencies (NGAs) as required under DOF-DBM Joint Circular No.
1-2000A and RR 1-2003
Procedures for Filing and Payment
1. Read instructions indicated in the tax return.
2. Accomplish BIR Form No. 1601-E in triplicate copies.
3. If there is tax required to be remitted:
- Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office
where you are registered or taxpayer concerned is registered and present the duly
accomplished BIR Form No. 1601- E, together with the required attachments and your
payment.
- In places where there are no AABs, proceed to the Revenue Collection Officer or duly
Authorized City or Municipal Treasurer located within the Revenue District Office
where you are registered or taxpayer concerned is registered and present the duly
accomplished BIR Form 1601-E, together with the required attachments and your
payment
- Receive your copy of the duly stamped and validated form from the teller of the
AABs/Revenue Collection Officer/duly Authorized City or Municipal Treasurer.
4. If there is no tax required to be remitted:
- Proceed to the Revenue District Office where you are registered and present the duly
accomplished BIR Form 1601-E, together with the required attachments.
- Receive your copy of the duly stamped and validated form from the RDO
representative.
Deadline
Filing Via EFPS
Group A - Fifteen (15) days following end of the month
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Group B - Fourteen (14) days following end of the month


Group C - Thirteen (13) days following end of the month
Group D - Twelve (12) days following end of the month
Group E - Eleven (11) days following end of the month
Note: The staggered manner of filing is only allowed to taxpayers using the Electronic
Filing and Payment System (EFPS) based on the industry classification groupings per RR
No. 26-2002.
However, the staggered filing of returns allowed for withholding agents/taxpayers
enrolled in the EFPS facility of the Bureau shall not apply in the case of the NGAs per RR
1-2013.
Payment Via EFPS
On or before the fifteenth (15th) day of the month following the month
withholding was made, except for taxes withheld for the month of December
which shall be paid on or before January 20th of the succeeding year.
Provided however that, in the case of NGAs, all returns must be electronically
filed (e-filed) and payment of the tax due must also be made on the same day
the return is e-filed which shall be on or before the 10th day following the month
in which withholding was made, except for taxes withheld for the month of
December of each year, which shall be filed on or before January 15 of the
succeeding year.
Manual Filing and Payment
On or before the tenth (10th) day of the month following the month the withholding
was made, except for taxes withheld for the month of December which shall be filed
and paid on or before January 15 of the succeeding year
Tax Rates (see BIR Table)

Monthly Remittance Of Value-Added Taxes And Other Percentage Taxes Withheld


Tax Form

BIR Form No. 1600 - Monthly Remittance Return of Value-Added Taxes and Other
Percentage Taxes Withheld
Who Are Required To File
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1. All government offices, bureaus, agencies or instrumentalities, local government


units, government owned and controlled corporation on money payments made to
private individuals, corporations, partnerships, associations and other judicial/artificial
entities as required under RA Nos. 1051, 7649, 8241, 8424 and 9337.
2. Payors of income subject to Value-Added Tax to Non-residents.
3. Payors of income to persons, natural or juridical, who opted to remit his/its VAT or
percentage tax through the withholding and remittance of the same by the withholding
agent/payor which option is manifested by filing the Notice of Availment of the option
to Pay the Tax through the Withholding Process, copy furnished the withholding
agent-payor and the revenue district offices of both the payor and payee.
Documentary Requirements
1. Alphabetical list of payees (MAP) indicating the following:
- Month and Year
- TIN of withholding agent
- Name of Withholding Agent
- TIN of Payee
- ATC
- Nature of Payment
- Name of Payee
- Amount of Payment
- Tax Rate
- Tax Required to be Withheld
2. Return previously filed and proof of tax payments, if amended return
3. Certificate of Tax Treaty Relief, if applicable
4. Authorization Letter, if the return is filed by the authorized representative
5. Electronic Tax Remittance Advice (eTRA) previously Tax Remittance Advice (TRA) for
National Government Agencies (NGAs) as required under DOF-DBM Joint Circular No.
1-2000A and RR 1-2003
6. BIR Form 0605, for advance payment.
Procedures for Filing and Payment
1. Read instructions indicated at the back of the tax return.
2. Accomplish BIR No. Form 1600 in triplicate copies.
3. If there is tax required to be remitted:
- Proceed to the nearest Authorized Agents Banks (AABs) of the Revenue District Office
where you are registered or taxpayer concerned is registered and present the duly
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accomplished BIR Form No.1600, together with the required attachments and your
payment.
- In places where there are no AABs, proceed to the Revenue Collection Officer or duly
Authorized City or Municipal Treasurer located within the Revenue District Office
where you are registered or taxpayer concerned is registered and present the duly
accomplished BIR Form No. 1600, together with the required attachments and your
payment.
- Receive your copy of the duly stamped and validated form from the teller of the AABs
/Revenue Collection Officer/duly authorized City or Municipal Treasurer.
4. If there is no tax required to be remitted:
- Proceed to the Revenue District Office where you are registered and present the duly
accomplished BIR Form No. 1600, together with the required attachments.
- Receive your copy of the duly stamped and validated form from the RDO
representative.
Deadline
On or before the tenth (10th) day of the month following the month the withholding
was made, whether EFPS or manual filing and payment.
Tax Rates (see BIR Table)

Monthly Remittance of Final Income Taxes Withheld


Tax Form

BIR Form 1601-F : Monthly Remittance Return of Final Income Taxes Withheld
Who Are Required To File

Every withholding agent/payor who is either an individual or non-individual required to


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deduct and withhold taxes on income payments subject to Final Withholding Taxes
Documentary Requirements
1. Return previously filed and proof of remittance, if amended return
2. Monthly Alphalist of Payees (MAP)
3. For advance payment, BIR Form No. 0605
4. Electronic Tax Remittance Advice (eTRA) previously Tax Remittance Advice (TRA) for
National Government Agencies (NGAs) as required under DOF-DBM Joint Circular No.
1-2000A and RR 1-2003
Procedures for Filing and Payment
1. Read instructions indicated in the tax return.
2. Accomplish BIR Form No. 1601-F in triplicate copies.
3. If there is tax required to be remitted:
- Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office
where you are registered or taxpayer concerned is registered and present the duly
accomplished BIR Form No. 1601 F, together with the required attachments and your
payment.
- In places where there are no AAB, the return shall be filed and the tax paid with the
Revenue Collection Officer or duly Authorized City or Municipal Treasurer within the
Revenue District Office where the withholding agents place of business/office is
located who will issue a Revenue Official Receipt (BIR Form No. 2524) therefor;
4. If there is no tax required to be remitted:
- Proceed to the Revenue District Office where you are registered and present the duly
accomplished BIR Form 1601-F, together with the required attachments.
- Receive your copy of the duly stamped and validated form from the RDO
representative.

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Deadlines
Filing Via EFPS
Group A - Fifteen (15) days following end of the month
Group B - Fourteen (14) days following end of the month
Group C - Thirteen (13) days following end of the month
Group D - Twelve (12) days following end of the month
Group E - Eleven (11) days following end of the month
Note: The staggered manner of filing is only allowed to taxpayers using the Electronic
Filing and Payment System (EFPS) based on the industry classification groupings per RR
No. 26-2002.
However, the staggered filing of returns allowed for withholding agents/taxpayers
enrolled in the EFPS facility of the Bureau shall not apply in the case of the NGAs per RR
1-2013.
Payment Via EFPS
On or before the fifteenth (15th) day of the month following the month
withholding was made, except for taxes withheld for the month of December
which shall be paid on or before January 20 of the succeeding year.
Provided however that, in the case of NGAs, all returns must be electronically
filed (e-filed) and payment of the tax due must also be made on the same day
the return is e-filed which shall be on or before the 10th day following the month
in which withholding was made, except for taxes withheld for the month of
December of each year, which shall be filed on or before January 15 of the
succeeding year.
Manual Filing and Payment
On or before the tenth (10th) day of the month following the month the withholding
was made, except for taxes withheld for the month of December which shall be filed
and paid on or before January 15 of the succeeding year
Tax Rates

Remittance Return of Percentage Tax On Winnings And Prizes Withheld By Race Track
Operators
Tax Form

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BIR Form 1600-WP : Remittance Return of Percentage Tax on Winnings and Prizes
Withheld by Race Track Operators
Who Are Required To File

- Operators of race tracks


Documentary Requirements

1. Alphalist of Payees indicating the following:


- Tax Year and Month
- TIN of withholding agent
- Name of Withholding Agent
- TIN of Payee
- Name of Payee
- ATC
- Nature of Payment
- Amount of Payment
- Tax Rate
- Tax Required to be Withheld

2. Return previously filed and proof of tax payments, if amended return


Procedures for Manual Filing and Payment
1. Accomplish BIR Form 1600-WP in triplicate copies.
2. If there is tax required to be remitted:
- Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office
where you are registered or taxpayer concerned is registered and present the duly
accomplished BIR Form No. 1600-WP, together with the required attachments and
your payment.
- In places where there are no AAB, proceed to the Revenue Collection Officer or duly
Authorized City or Municipal Treasurer located within the Revenue District Office
where you are registered or taxpayer concerned is registered and present the duly
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136

accomplished BIR Form No. 1600-WP, together with the required attachments and
your payment
- Receive your copy of the duly stamped and validated form from the teller of the
AABs/Revenue Collection Officer/duly Authorized City or Municipal Treasurer.
3. If there is no tax required to be remitted:
- Proceed to the Revenue District Office where you are registered or taxpayer
concerned is registered and present the duly accomplished BIR Form No. 1600-WP,
together with the required attachments.
- Receive your copy of the duly stamped and validated form from the RDO
representative
Deadline
Within twenty (20) days from the date the tax was deducted and withheld

Tax Rates (see Table)

Quarterly Remittance Of Final Income Taxes Withheld On Fringe Benefits Paid To


Employees Other Than Rank And File
Tax Form

BIR Form No. 1603 - Quarterly Remittance Return of Final Income Taxes Withheld on
Fringe Benefits Paid to Employees Other than Rank and File
Who Are Required To File

Every withholding agent/payor who is either an individual or non-individual required to


deduct and withhold taxes on fringe benefits furnished to employees other than rank
and file employees subject to Final Withholding Tax
Documentary Requirements

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137

1. Return previously filed and proof of tax payments , if amended return


2. Electronic Tax Remittance Advice (eTRA) previously Tax Remittance Advice (TRA) for
National Government Agencies (NGAs) as required under DOF-DBM Joint Circular No.
1-2000A and RR 1-2003
Procedures for Filing and Payment
1. Read instructions indicated in the tax return.
2. Accomplish BIR Form No. 1603 in triplicate copies.
3. If there is tax required to be remitted:
- Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office
where you are registered or taxpayer concerned is registered and present the duly
accomplished BIR Form No. 1603, together with the required attachments and your
payment.
- In places where there are no AAB, proceed to the Revenue Collection Officer or duly
Authorized City or Municipal Treasurer located within the Revenue District Office
where you are registered or taxpayer concerned is registered and present the duly
accomplished BIR Form No. 1603, together with the required attachments and your
payment.
- Receive your copy of the duly stamped and validated form from the teller of the
AABs/Revenue Collection Officer/duly Authorized City or Municipal Treasurer.
4. If there is no tax required to be remitted:
- Proceed to the Revenue District Office where you are registered or taxpayer
concerned is registered and present the duly accomplished BIR Form No. 1603,
together with the required attachments.
- Receive your copy of the duly stamped and validated form from the RDO
representative
Deadline

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Filing and Payment Via EFPS

On or before the fifteenth (15th) day of the month following the end of the calendar
quarter in which the fringe benefits were granted to the recipient. Provided however
that, in the case of NGAs, it shall be e-filed and paid on or before the 10th day of the
month following the quarter.
Manual Filing and Payment

On or before the tenth (10th) day of the month following the end of the calendar
quarter in which the fringe benefits were granted to the recipient.
Tax Rates (see Table)

Monthly Remittance Of Final Income Taxes Withheld On Interest Paid And Yield On
Deposit Substitutes, Trust, Etc.
Tax Form

BIR Form No. 1602 - Monthly Remittance Return of Final Income Taxes Withheld on
Interest Paid and Yield on Deposit Substitutes/Trust/Etc.
Who Are Required To File
Banks, non-bank financial intermediaries, finance corporations, investment and trust
companies and other institutions required to withhold final income tax on interest
paid/accrued on deposit and yield or any other monetary benefit from deposits
substitutes and from trust fund and similar arrangements.
Documentary Requirements

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139

Return previously filed and proof of tax payments, if amended return


Procedures (for Manual filing of tax returns)
1. Accomplish BIR Form No. 1602 in triplicate copies.
2. If there is tax required to be remitted:
- Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office
where you are registered or taxpayer concerned is registered and present the duly
accomplished BIR Form No. 1602, together with the required attachments and your
payment.
- In places where there are no AAB, proceed to the Revenue Collection Officer or duly
Authorized City or Municipal Treasurer within the Revenue District Office where the
withholding agents place of business/office is located and present the duly
accomplished BIR Form No. 1602, together with the required attachments and your
payment who will issue a Revenue Official Receipt (BIR Form No. 2524) therefor.
- Receive your copy of the duly stamped and validated form from the teller of the
AAB's/Revenue Collection Officer/duly Authorized City or Municipal Treasurer.
3. If there is no tax required to be remitted:
- Proceed to the Revenue District Office where you are registered or taxpayer
concerned is registered and present the duly accomplished BIR Form No. 1602,
together with the required attachments.
Deadline
Filing Via EFPS
On or before the fifteenth (15th) day of the month following the month withholding
was made
Payment Via EFPS
On or before the fifteenth (15th) day of the month following the month withholding
was made, except for taxes withheld for the month of December which shall be paid on
or before January 20th of the succeeding year
Manual Filing and Payment
On or before the tenth (10th) day of the month following the month the withholding
was made, except for taxes withheld for the month of December which shall be filed
and paid on or before January 15 of the succeeding year.
Tax Rates

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140

Annual Information Return On Creditable Income Taxes Withheld (Expanded)/Income


Payments Exempt From Withholding Tax
Tax Form

BIR Form No. 1604-E : Annual Information Return of Creditable Income Taxes Withheld
(Expanded)/Income Payments Exempt from Withholding Tax
Who Are Required To File

Every withholding agent/payor who is either an individual or non-individual required to


deduct and withhold taxes on income payments subject to Expanded/Creditable
Withholding Taxes
Documentary Requirements
1. Alphalist of Payees subjected to Expanded Withholding Tax
2. Alphalist of Other Payees Whose Income Payments Are Exempt from Withholding
Tax but subject to Income Tax

3. Return previously filed and proof of tax payment for amended return
Note: Above alphalists are to be submitted in accordance with RR 3-2002 as amended.
Procedures for Manual Filing

1. Accomplish BIR Form No. 1604-E in triplicate copies.


2. Proceed to the Revenue District Office where you are registered and present the
duly accomplished BIR Form No. 1604-E, together with the required attachments.
3. Receive your copy of the duly stamped and validated form from the RDO
representative
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141

Deadline

On or before March 1 of the year following the calendar year in which the income
payments subjected to expanded withholding taxes or exempt from withholding tax
were paid.

Annual Information On Income Taxes Withheld On Compensation And Final


Withholding Taxes
Tax Form

BIR Form No. 1604-CF : Annual Information Return of Income Taxes Withheld on
Compensation and Final Withholding taxes.
Who Are Required To File

Every withholding agent/payor who is either an individual or non-individual required to


deduct and withhold taxes on:
- compensation paid to employees
- income payments subject to Final Withholding Taxes
Documentary Requirements
1. Alphalist of Employees as of December 31 With no Previous Employer within the
year

2. Alphalist of Employees as of December 31 with Previous Employer/s within the year

3. Alphalist of Employees Terminated Before December 31

4. Alphalist of Employees Whose Compensation Income Are Exempt from Withholding


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Tax But Subject to Income Tax


5. Alphalist of Minimum Wage Earners

6. Alphalist of Employees other than Rank and File Who Were Given Fringe Benefits
During the Year

7. Alphalist of Payees Subjected to Final Withholding Tax

8. Return previously filed and proof of tax payment for amended return
Note: Above alphalists are to be submitted in accordance with RR 3-2002 as amended.
Procedures
1. Accomplish BIR Form No. 1604-CF in triplicate copies and attach the necessary
schedules in prescribed form (hard and soft copy)
2. Proceed to the Revenue District Office where you are registered and present the
duly accomplished BIR Form No. 1604-CF, together with the required attachments.
3. Receive your copy of the duly stamped and validated form from the RDO
representative.
Deadline
On or before January 31 following the calendar year in which the compensation
payment and other income payments subjected to final withholding taxes were paid or
accrued.

Frequently Asked Questions


1) What are the types of Withholding Taxes?
There are two main classifications or types of withholding tax. These are:
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a) Creditable Withholding Tax


- Withholding Tax on Compensation
- Expanded Withholding Tax
- Withholding of Business Tax (VAT and Percentage)
b) Final Withholding Tax
2) What is compensation?
It means any remuneration received for services performed by an employee from his
employer under an employee-employer relationship.
3) What are the different kinds of compensation?
a) Regular compensation - includes basic salary, fixed allowances for representation,
transportation
and others paid to an employee
b) Supplemental compensation - includes payments to an employee in addition to the
regular
compensation such as but not limited to the following:
- Overtime Pay
- Fees, including director's fees
- Commission
- Profit Sharing
- Monetized Vacation and Sick Leave
- Fringe benefits received by rank & file employees
- Hazard Pay
- Taxable 13th month pay and other benefits
- Other remunerations received from an employee-employer relationship
4) What are exempted from Withholding Tax on Compensation?
1. Remuneration as an incident of employment, such as the following:
a. Retirement benefits received under RA 7641
b. Any amount received by an official or employee or by his heirs from the employer
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144

due to
death, sickness or other physical disability or for any cause beyond the control of
the said
official or employee such as retrenchment, redundancy or cessation of business
c. Social security benefits, retirement gratuities, pensions and other similar benefits
d. Payment of benefits due or to become due to any person residing in the
Philippines under
the law of the US administered by the US Veterans Administration
e. Payment of benefits made under the SSS Act of 1954, as amended
f. Benefits received from the GSIS Act of 1937, as amended, and the retirement
gratuity
received by the government official and employees

2. Remuneration paid for agricultural labor and paid entirely in products of the farm
where the labor
is performed
3. Remuneration for domestic services

4. Remuneration for casual labor not in the course of an employer's trade or business

5. Compensation for services by a citizen or resident of the Philippines for a foreign


government or
an international organization
6. Payment for damages
7. Proceeds of Life Insurance
8. Amount received by the insured as a return of premium
9. Compensation for injuries or sickness
10. Income exempt under Treaty

11. Thirteenth (13th) month pay and other benefits (not to exceed P 30,000)
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12. GSIS, SSS, Medicare and other contributions


13. Compensation Income of Minimum Wage Earners (MWEs) with respect to their
Statutory
Minimum Wage (SMW) as fixed by Regional Tripartite Wage and Productivity Board
(RTWPB)/National Wage and Productivity Commission (NWPC), including overtime
pay, holiday
pay, night shift differential and hazard pay, applicable to the place where he/she is
assigned.
14. Compensation Income of employees in the public sector if the same is equivalent to
or not
more than the SMW in the non-agricultural sector, as fixed by RTWPB/NWPC,
including
overtime pay, holiday pay, night shift differential and hazard pay, applicable to the
place where
he/she is assigned.
5) What are De Minimis Benefits?
-These are facilities and privileges of relatively small value and are offered or furnished
by the employer to his employees merely as means of promoting their health, goodwill,
contentment or efficiency. The following shall be considered "De Minimis" benefits not
subject to income tax, hence not subject to withholding tax on compensation income
of both managerial and rank and file employees:
Monetized unused vacation leave credits of private employees not exceeding ten
(10) days during the year;
Monetized value of vacation and sick leave credits paid to government officials and
employees.
Medical cash allowance to dependents of employees, not exceeding P750.00 per
employee per semester or P125.00 per month;
Rice subsidy of P1,500 or one (1) sack of 50 kg. rice per month amounting to not
more than P1,500;
Uniform and clothing allowance not exceeding P5,000 per annum;
Actual medical assistance, e.g. medical allowance to cover medical and healthcare
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needs, annual medical/executive check-up, maternity assistance, and routine


consultations, not exceeding P10,000 per annum;
Laundry allowance not exceeding P300.00 per month;
Employees achievement awards, e.g., for length of service or safety achievement,
which must be in the form of a tangible personal property other than cash or gift
certificate, with an annual monetary value not exceeding P10,000 received by the
employee under an established written plan which does not discriminate in favor of
highly paid employees;
Gifts given during Christmas and major anniversary celebration not exceeding
P5,000.00 per employee perannum;
Daily meal allowance for overtime work and night/graveyard shift not exceeding
twenty-five percent (25%) of the basic minimum wage on a per region basis;

DOCUMENTARY STAMP TAX


Description: Documentary Stamp Tax is a tax on documents, instruments, loan
agreements and papers evidencing the acceptance, assignment, sale or transfer of an
obligation, right or property incident thereto.
Tax Form: BIR Form 2000 (Documentary Stamp Tax Declaration Return)
Documentary Requirements
1) Photocopy of document(s) to which the documentary stamp shall be affixed, in case
of constructive affixture of Documentary Stamp Tax
2) For metering machine users, a schedule of the details of usage or consumption of
documentary stamp
3) Proof of exemption under special law, if applicable
4) Duly approved Tax Debit Memo, if applicable
Tax Rates
Tax
Code Document
Section

Taxable Unit

Tax Due Per % of


Unit
Unit

Taxable Base

P200.00 or
fraction
thereof

P1.50

.75%

Face value of
Document

1.50

.75% Par value of such due-

174

Debentures and
Certificates of
Indebtedness

176

Sales, Agreements P200.00 or

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147

to Sell,
Memoranda of
Sales, Deliveries
or Transfer of
Due-bills,
Certificate of
Obligation, or
Shares or
Certificates of
Stock

fraction
thereof

bills, certificate of
obligation or stocks

178

Certificate of
P200.00 or
Profits or Interest
fraction
in Property or
thereof
Accumulation

.50

Face value of such


.25% certificate /
memorandum

180

Bonds, Loan
Agreements,
Promissory Notes,
Bills of Exchange,
Drafts,
Instruments and
Securities Issued
by the
Government or
any of its
P200.00 or
Instrumentalities, fraction
Deposit
thereof
Substitutes Debt
Instrument,
Certificates of
Deposit bearing
interest and
others not
payable on sight
or demand
(except loan

.30

.15%

Face value of the


instrument/document

147

148

agreement or
promissory notes
exceeding
P250,000.00 for
personal use or
family use)

P4.00
premium or
fraction
thereof

184

Policies Of
Insurance upon
Property

186

Policies of
P200.00 or
Annuities, Annuity
fraction
or other
thereof
instruments

1.50

75%

187

P4.00 or
Indemnity Bonds fraction
thereof

.30

7.5% Premium charged

188

Certificates of
Damage or
otherwise and
Certificate or
document issued
by any customs
officers, marine Each
surveyor, notary Certificate
public and
certificate
required by law or
by rules and
regulations of a
public office

15.00

.50

12.5% Premium charged

Capital of annuity, or if
unknown 33 1/3 times
the annual income

148

149

189

Warehouse
Receipts (except if
Each Receipt 15.00
value does not
exceed P200.00)

190

P1.00 cost of
ticket and
Jai-alai, Horse
Additional
Race Tickets, lotto P0.10 on
or Other
every P1.00 .10
Authorized
or fraction
Number Games thereof if cost
of ticket
exceeds P1.00

191

Bills of Lading or
Receipts
(except charter
party)

Each Proxy

15.00

193

Powers of
Attorney

Each
Document

5.00

194

Lease and other


Hiring
agreements of
memorandum or
contract for hire,
use or rent of any
land or tenements
or portions
thereof

First 2,000
For every
P1,000 or
fractional part
thereof in
3.00
excess of the
1.00
first P2,000
for each year
of the term of
the contract
or agreement

195

First 5,000
Mortgages
On each
Pledges of lands, P5,000 or
20.00
estate, or
fractional part
10.00
property and
thereof in
Deeds of Trust
excess of
5,000

10%

Cost of the ticket

1.5%
1%

.4%
.2%

Amount Secured
Amount Secured

149

150

196

Deed of Sale,
instrument or
writing and
Conveyances of
Real Property
(except grants,
patents or original
certificate of the
government)

First 1,000
For each
additional
P1,000 or
15.00
fractional part 15.00
thereof in
excess of
P1,000

Consideration or Fair
Market Value,
1.5% whichever is higher (if
1.5% government is a party,
basis shall be the
consideration)

Procedures
File BIR Form No. 2000 in triplicate (two copies for the BIR and one copy for the
taxpayer) with the Authorized Agent Bank (AAB) in the Revenue District where the
seller or transferor is registered,
Deadlines
The Documentary Stamp Tax return (BIR Form 2000) shall be filed in triplicate (two
copies for the BIR and one copy for the taxpayer) within five (5) days after the close of
the month when the taxable document was made signed, issued, accepted or
transferred;
Frequently Asked Questions
1) Who are required to file Documentary Stamp Tax Declaration Return?
a) In case of constructive affixture of documentary stamps, by the persons making,
signing, issuing, accepting or transferring documents, instruments, loan agreements
and papers, acceptances, assignments, sales and conveyances of the obligation, right or
property incident thereto wherever the document is made, signed, issued, accepted or
transferred when the obligation or right arises from Philippine sources or the property
is situated in the Philippines at the same time such act is done or transaction had;
b) By metering machine user who imprints the Documentary Stamp Tax due on the
taxable documents; and
c) By Revenue Collection Agent, for remittance of sold loose documentary stamps.
Note: Wherever one party to the taxable document enjoys exemption from the tax
imposed, the other party who is not exempt will be the one directly liable to file
Documentary Stamp Tax Declaration and pay the applicable stamp tax.
2) Where is the Documentary Stamp Tax Declaration Return filed?
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151

In the Authorized Agent Bank (AAB) within the territorial jurisdiction of the RDO which
has jurisdiction over the residence or principal place of business of the taxpayer or
where the property is located in case of sale of real property or where the Collection
Agent is assigned. In places where there is no Authorized Agent Bank, the return will be
filed with the Revenue Collection Officer or duly authorized City or Municipal Treasurer
where the taxpayer's residence or principal place of business is located or where the
property is located in case of sale of real property or where the Collection Agent is
assigned.
3) What are the documents/papers not subject to Documentary Stamp Tax?
Policies of insurance or annuities made or granted by a fraternal or beneficiary society,
order, association or cooperative company, operated on the lodge system or local
cooperation plan and organized and conducted solely by the members thereof for the
exclusive benefit of each member and not for profit
Certificates of oaths administered by any government official in his official capacity or
acknowledgement by any government official in performance of his official duty
Written appearance in any court by any government official in his official capacity
Certificates of the administration of oaths to any person as to the authenticity of any
paper required to be filed in court by any person or party thereto, whether the
proceedings be civil or criminal
Papers and documents filed in court by or for the national, provincial, city or municipal
governments
Affidavits of poor persons for the purpose of proving poverty
Statements and other compulsory information required of persons or corporations by
the rules and regulations of the national, provincial, city or municipal government
exclusively for statistical purposes and which are wholly for the use of the Bureau or
office in which they are filed, and not at the instance or for the use or benefit of the
person filing them
Certified copies and other certificates placed upon documents, instruments and papers
for the national, provincial, city or municipal governments made at the instance and for
the sole use of some other branch of the national, provincial, city or municipal
governments
Certificates of the assessed value of lands, not exceeding P200 in value assessed,
furnished by the provincial, city or municipal Treasurer to applicants for registration of
title to land
4) What are the implications of failure to stamp taxable documents?
The untaxed document will not be recorded, nor will it or any copy thereof or any
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record of transfer of the same be admitted or used in evidence in court until the
requisite stamp or stamps have been affixed thereto and cancelled
No notary public or other officer authorized to administer oaths will add his jurat or
acknowledgment to any document subject to Documentary Stamp Tax unless the
proper documentary stamps are affixed thereto and cancelled.

Local Taxation
Real Property Tax, Idle Land Tax, and Special Levy on Land
PRESIDENTIAL DECREE NO. 464 (ENACTING A REAL PROPERTY TAX CODE).
(Effectivity of Code. June 1, 1974)
(Presidential Decree No. 1812, Amending Presidential Decree No. 464, As Amended, Otherwise
Known As The Real Property Tax Code, By Granting Special Authority To The President To Provide
Flexibility In The Real Property Tax System To Meet Economic Exigencies And/Or Promote The
General Welfare.)

Declaration of principles and policies


The country cannot progress steadily if the LGUs are not contributing their
proportionate shares to national progress.. The past decades saw the passage of the
Local Autonomy Act, the Barrio Charter, the Decentralization Act and other laws
intended to make LGUs financially self-reliant. In spite of all these laws, local
governments still find difficulty in providing adequate funds with which to provide
basic and essential public services within their respective jurisdictions. One reason
behind this is the failure of LGUs to fully tap the income potentialities of the real
property tax.
There is, therefore, an urgent need to upgrade assessment techniques, procedures
and practices to bring about equitable distribution of the realty tax burden among real

property owners throughout the country.


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REAL ESTATE TAXATION UNDER LGU REVENUE CODE (where


the property and/or the real estate-related business/service practice is
located)

Real Property Taxes (in Makati City)


For our purpose of defining the imposition of the real property tax we will make use of
the above-cited Makati Revenue Code as an example. The real estate practitioner may
have to refer to the applicable local revenue code where the property is located.

Makati Real Property Tax (Article A)


Sec. 2A.02. imposes the basic real property tax, as an annual ad valorem tax on the
assessed value of the real property such as land, buildings, machinery and other
improvements affixed or attached to real property located in Makati City, at the
following rates:
Class of Property
Rate of Levy %
Residential
1.50%
Commercial
2.00%
2,000,000 5,000,000
40%
5,000,00 10,000,000
50%
10,000,000
60%
(B) Commercial/Industrial
Over Not Over Assessment Level
P300,000
30%
P300,000 500,000 35%
500,000 750,000 40%
750,000-1,000,000 50%
1,000,000
2,000,000 60%
2,000,000
5,000,000 70%
5,000,000
10,000,000 75%
10,000,000
80%
3. On Machineries
Class
Assessment Level
Residential
50%
Commercial
80%
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Industrial

80%

4. On Special Classes
Assessment Level
Actual Use
15%
Cultural
15%
Scientific
15%
Hospital 15%
Local water districts 10%
Government-owned or controlled.ect. 10%

Sec. 2A.08 provides the following exemptions from the payment of the basic real
property tax and SEF tax:
(a) Real property owned by the Philippine Government or any of its political
subdivisions except when the beneficial owner thereof has been granted for
consideration or otherwise to a taxable person;
(b) Charitable institutions, churches, and personages or convents appurtenant thereto,
mosques, non-profit or religious cemeteries and all lands, buildings and improvements
actually, directly, and exclusively used for religious, charitable and educational
purposes;
(c) All machineries and equipment that are actually and exclusively used by local water
districts and government owned or controlled corporations engaged in supply and
distribution of or water and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives under R.A. No. 65938; and
(e) Machinery and equipment used for pollution control and environmental
protection.
Sec. 2A.10. Time of payment of both the basic tax and SEF tax are due and payable on
January 1, but may be paid in four equal installments without interest/penalty: on or
before March 31, June 30, September 30, and December 31, respectively. A 10%
discount is granted if paid in full on or before January 20 and 5% discount if paid on or
before the first 20 days of the quarter of the installment schedule. These discounts are
granted only to property without ant delinquency .
Sec. 2A.26 The City Assessor may recommend to the Sanguniang Panglungsod
amendments to correct errors in valuation in the schedule of fair market value, which
recommendation shall be acted upon within 30 days thereof.

Makati Tax on Idle Land (II Article B)


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Sec. 2B.01. Coverage: For purposes of real property taxation, idle lands include all lands
located in the city more than one thousand (1,000) square meters in area, of which
remain unutilized or unimproved by the owner of the property or person having legal
interest therein. Regardless of land area, this coverage likewise apply to residential lots
in subdivisions duly approved by proper authorities, the ownership of which has been
transferred to individual owners, who shall be liable for the additional tax; individual;
lots, the ownership of which has not been transferred to the buyer shall be considered
as part of the subdivision owner or operator.
Sec.2B.02 Tax imposed: annual tax on idle lands at the rate of 5% of the assessed value
of the property, in addition to the basic real property tax, payable at the same time and
in the same manner as that of the basic real property tax (Sec.2b.04).
Sec.2B.03.Exemptions apply to idle lands wherein the landowner is physically or legally
prevented from improving, or utilizing the same person by reason of force majeure,
civil disturbance, natural calamity, or any justifiable cause or circumstance. Exemption
application may be filed with the City Treasure.

Makati Special Levy on Lands (Article C)


Special levy is a form of taxation (based on the benefit principle) imposed upon the
land supposed to have derived some special benefit in terms of higher values from the
improvements (such as public work projects or improvements) introduced by the
government. The levy is at the rate not to exceed 60% of the actual cost of such other
real property in connection therewith (SEC. 2C.02). Exemption applies to lands exempt
for the basic real property tax. The special is payable on the first day of the quarter
next following the effectivity of the ordinance imposing such levy.
Definitions Under the Makati Revenue Code (Sec. 2A.01)
Actual use refers to the purpose for which the property is principally or predominantly
utilized by the person in possession thereof.
Ad Valorem Tax is a levy on real properties determined on the basis of a fixed
proportion of the appraised value of the property.
Appraisal is the act or process of determining the value of the property as of specific
date for specific purposes
Assessment is the act or process of determining the value of a property, or a portion
thereof subject to tax, including the discovery, listing classification and appraisal of
properties. Assessment level is the percentage applied to the fair market value to
determine the taxable value of the property. Assessed value (or taxable value) is the
appraised value of the real property multiplied by the assessment level
Fair Market Value is the price at which a property may be sold by a seller who is not
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compelled to sell and bought by a buyer who is not compelled to buy.


Improvement is a valuable addition made to a property or amelioration in its condition,
amounting to more than a mere repair or replacement of parts involving capital
expenditures and labor of which is intended to enhance its value, beauty and utility or
to adapt it for new or further purposes.
Commercial Land is land devoted principally for the abject of profit and is not classified
as agricultural, industrial, mineral, timber, or residential land. Industrial land is land
devoted principally

ACCOUNTING AND TAXATION FOR REAL ESTATE TRANSACTIONS


By DOMINGO D. DE VERA

Problems in accounting and taxation could be subjects for real estate service practice,
where the corporate and individual clients objective is related to faithful compliance
to financial accountability and prompt and correct payment of tax obligations to local
and national government.

Accounting
Proper accounting is often overlooked until management is confronted with problems
related to financial condition and results of operations. Because of the relatively
sizeable investment involved in real estate development, both in equity and debt, it is
gross imprudence to overlook the standard requirement of good management to
include financial analysis as a tool to measure the projects financial viability, which
may not be shown by simply measuring profitability. A project may look very profitable
and yet find itself saddled by financial problems which may soon pre-empt project
viability.
The installation of an accounting system and procedures (in accordance with generally
accepted accounting standards and tax rules and regulations) is a must. The
accounting and tax peculiarities in the real estate transactions (like installment sales,
construction in progress, deferred income tax, capital gains tax, withholding tax, valueadded tax, valuation, impairment in asset values, etc.) require particular
attention. Proper financial and tax accounting should start right in the planning stage
of a project, especially in projecting the financial condition, results of operation and
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cash flows.
Likewise, proper accounting that also complies with financial reporting standards
required by government agencies (like the SEC, BIR and Banko Sentral) and lending
institutions must be observed. External audits undertaken in compliance with
government regulations and generally accepted auditing standards may result in
unnecessary issues with the auditors and the stakeholders in the company (or project)
if the auditors are unable to conclude and acceptable opinion as to the financial
condition and results of operation due to improper and deficient bookkeeping and
accounting.
The experienced consultant should be able to provide advice and direction on how to
accomplish the proper design and installation of appropriate systems for accounting
and tax planning. The necessary professional skills, on the other hand, may be
provided by an experienced CPA and tax lawyer.
With regards to the engagement of an external audit service, one wrong perception
must be dispelled as to the principal scope of responsibility in the preparation of the
basic financial reports. How often have we observed company officers avoiding of
evading questions about the financial statements (basically the Balance Sheet,
Statement of Income and Retained Earnings, and Cash Flow Statement) by answering
that FS are yet to be audited, implying wrongly that it is the external auditors
responsibility to prepare the same.

Management Responsibility for the Financial Statements


The By-laws of a corporation usually requires the periodic preparation of financial
reports or financial statements (FS) and the engagement of an external auditor. The
SEC regulation requires that the FS reported or submitted to it be audited by and
independent CPA accredited by the Board of Accountancy under PRC. Therefore,
management is responsible for the preparation and fair presentation of the financial
statements in accordance with accounting principles generally accepted in the
Philippines. This responsibility includes: designing, implementing and maintaining
internal control relevant to the preparation and fair presentation of financial
statements that are free from material misstatement, whether due to fraud or error;
selecting and applying appropriate accounting policies, and making accounting
estimates that are reasonable in the circumstances.
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Auditors Responsibility
The auditors responsibility is to express an opinion on the management-prepared FS,
based on the audit conducted in accordance with Philippine Standards on Auditing,
which require the auditors compliance with ethical requirement and plan and perform
the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts
and disclosures in the FS. The procedures selected depend on the auditors judgment,
including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the
auditor considers internal control relevant to the entitys preparation and fair
presentation of the FS in order to design audit procedures that are appropriate in the
circumstances, bud not for the purpose of expressing an opinion on the effectiveness
of the entitys internal control. And audit also includes evaluation the appropriateness
of accounting policies used and the reasonableness of the accounting estimates made
by management, as well as evaluating the overall FS presentation.
In the light of the foregoing statements of management responsibility in the
preparation and presentation of the FS, the appropriate advice to management is to
adopt an Accounting Manual recommended by an objective expert for use
companywide. Such manual, supported by an organization chart (to show lines of
authority, responsibility and communication) duly approved by management, basically
contains the following:
1. Functional organization of the bookkeeping-accounting unit/s
2. Chart of accounts classified in accordance with prescribed Financial Statement
and supporting schedules
3. Description of the individual accounts in the Chart of Accounts
4. Pro-forma Financial Reports, including supporting reports
5. Pro-forma accountable forms and how these are accomplished to achieve
internal control and proper record-keeping
6. Frequency and time table of report completion and official distribution of report
copies
7. Computer program (software and hardware) for bookkeeping and reporting as
may be required by circumstances.
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The Accounting Manual will greatly assist the external and internal auditors in their
functions and work plans. Review and updating of the manual should also be
programmed.

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