Individuals: Classification of Individual Taxpayers

PART 2
Individuals
CLASSIFICATION OF INDIVIDUAL TAXPAYERS
1. Resident Citizen (RC)

2. Nonresident Citizen (NRC)
3. Resident Alien (RA)
4. Non-resident Alien (NRA)
a) Engaged in trade or business (ETB)
b) Not engaged in trade or business (NETB.)
5. Prior to TRAIN Law, include the following Special Employees:

a) Special Alien Employees (SAES)
b) Special Filipino Employees (SFES)
NONRESIDENT CITIZEN

The following are considered nonresident citizens (Section 22 (E), RA 8424):
1. A citizen of the Philippines who establishes to the satisfaction of the Commissioner one
of the fact of his physical presence abroad with a definite intention to reside therein.
2. 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;
3. 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 [for one hundred eighty-three days [(183) or more] during the taxable year;
4. A citizen who has been previously considered as nonresident citizen who arrives in the
Philippines at any time during the taxable year to reside permanently in the Philippines
shall be considered a nonresident citizen for the taxable year in which he arrives in the
Philippines with respect to income derived from sources abroad until the date of his
arrival in the Philippines.
 Citizens not classified under this category are considered Resident Citizens.
OVERSEAS CONTRACT WORKER

 Overseas Contract Workers (OCW's) refer to Filipino citizens employed in foreign
countries, commonly referred to as Overseas Filipino Workers (OFW who are physically
present in a foreign country as a consequence of their employment thereat.
 Their salaries and wages are paid by an employer abroad and is not borne by any entity
or person in the Philippines.
 To be considered as an OCW or OFW, they must be duly registered as such with the
Philippine Overseas Employment Administration (POEA) with a valid Overseas
Employment Certificate (OEC). (RR No. 1-2011).
 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 shall be treated as an overseas contract worker.
(Section 23 (C), RA 8424).
 In order for seafarers or seamen to be considered as OCW's or OFW's they must be duly
registered as such with the Philippine Overseas Employment Administration (POEA) with
a valid Overseas Employment Certificate (OEC) with a valid Seafarer's Identification
Record Book (SIRB) or Seaman's Book issued by the Maritime Industry Authority
(MARINA).

 For taxation purposes, OCWs are classified as nonresident citizens.
RESIDENT ALIEN
Resident Alien means an individual whose residence is within the Philippines and who is not a
citizen thereof (Section 22 (F), RA 8424).
Under RR No. 2, the following are considered as resident

alien: An alien who has
1. An alien actually present in the Philippines who is acquired residence in the
not a mere transient. A person who comes to the Philippines retains his
Philippines for a definite purpose which in its status as a resident until
nature may be promptly accomplished is a transient. he abandons the same
2. An alien, who comes to the Philippines for a
and actually depart from
definite purpose, which, by its nature, would require
an extended stay making his home temporarily in the Philippines.
the Philippines.
3. An alien who shall come to the Philippines with
no definite intention as to his stay.
NON-RESIDENT ALIEN
1. Engaged in trade or business (Section 25 (A), RA 8424).

 An alien individual actually engaged in trade or business in the Philippines:
 An alien who comes in the Philippines for an aggregate period of more than
180 days during the calendar year during any calendar year shall be deemed a
non-resident alien doing business in the Philippines.
2. Not engaged in trade or business - those NRAs not included above.
SPECIAL EMPLOYEES (SEs)

[Applicable to income earned prior to effectivity of TRAIN Law]
Individuals employed by any of the entities below, holding managerial and/or technical positions,
are classified as special employees:
 Regional or Area Headquarters and Regional Operating Headquarters of
Multinational Companies.
 Offshore Banking Units
 Petroleum contractors and subcontractors
Special employees are further classified as either Special Filipino Employees (SFES) or
Special Alien Employees (SAES).
PRIOR to the effectivity of RA 10963 (TRAIN Law), SEs are taxable as follows:
INCOME SAEs SFEs
Compensation 15% FWT  IF employed by
Income (preferential tax rate) ROHQ/RHQ
GR: Basic income tax unless
qualified to be taxed at 15%** at
the option of taxpayer.
 IF employed by OBUs,
Petroleum Contractors &
Subcontractors = 15%
FWT
De minimis and other Exempt Exempt
exempt benefits
Fringe Benefits 15%FBT if holding managerial 15% FBT if holding managerial position;
position; otherwise, part of otherwise, part of compensation
compensation income income ***
Other Income Apply the rules on NRA-NETB Apply the rules on RC
** Under RR 11-2010. Filipinos exercising the option to be taxed at 15% preferential rate for
occupying the same managerial or technical position as that of an alien employed in RHQ or
ROHQ must meet all the following requirements:
1. POSITION and FUNCTION TEST. Must occupy managerial or technical position.
2. COMPENSATION THRESHOLD TEST. Compensation income should be at lease P975,000 for
the taxable year.
For purposes of determining the threshold, include the following:
 Salaries, wages, remuneration, honoraria
 Annuities, other emoluments and fringe benefits not subject to FBT
Exclude the following:
 De minimis benefits
 Retirement and/or separation benefits (taxable or not)
 Fringe benefits subject to FBT
3. EXCLUSIVITY TEST. The SFE must be exclusively working for the RHQ or ROHQ as employee
and not just a consultant or contractual personnel. "Exclusivity" means just ha employer at a
time.
 The three (3) requirements above are not applicable to all SAEs and SFEs employed
by OBUs and PCs/SCs.
***The option to be subjected to 15% preferential tax rate and the coverage of
fringe benefit tax are independent to each other. Thus, there would be instances
where a Filipino employee shall enjoy 15% preferential tax rate but may not be
covered by fringe benefit tax for not being a supervisory/managerial employee (RR
11-2010).
Under TRAIN Law, special employees are now subject to graduated income tax rate on their
compensation income. Hence, the preferential tax rate for special employees shall apply only to
income derived prior to 2018 taxable year or prior to the effectivity of RA10963 (TRAIN LAW).
TYPES OF INCOME TAXES:
SOURCE(s) of TAXABLE INCOME:
TAXPAYER SOURCE(S)
 RC = within and without the Phils.
 NRC, RA, OCW, NRA-ETB, NRA-NETB = within the Phils. only

TYPES OF INCOME TAXES:
1. Basic Income Tax on regular or ordinary income
2. Final Withholding Tax on Passive income derived from Philippine sources
3.Capital Gains Tax on Sale of Shares of Stock of domestic corno
4. Capital Gains Tax on Sale of Real Properties located in the Philippines.
The total amount of the taxes above is kno he total amount of the taxes above is known
as "Total Income Tax Expense"
FINAL WITHHOLDING TAX (FWT) ON PASSIVE INCOME.
 Applicable to passive income from sources within the Philippines. Passive income
derived from outside the Philippines are subject to basic income tax under section 24(A)
of the tax code.
 It is a tax deducted from the income to be paid to the payee or seller.
 It is constituted as full and final payment of the income tax liability. Hence, the income
subjected to this tax is no longer included in the income tax return of the
individualSection 24A of the tax code.
 It cannot be credited/deducted against the basic income tax due The liability for the
payment of the tax is primarily on the pa agent.
PASSIVE INCOME derived from Philippine sources SUBJECT TO FWT.
1. Interest Income
2. Royalties
3. Dividends
4. Prizes
5. Other winnings
PASSIVE INCOME DERIVED FROM PHILIPPINE SOURCES SUBJECT TO FWT:

INTEREST INCOME
TAXPAYER
RC, RA NRC, NRANETB,
NRAET
a) Interest from any currency bank deposit; and 20% 20% 25%
Yield or any other monetary benefits from:
i. Deposit substitutes
ii. Trust funds
iii. Similar arrangements as above.
DEPOSIT SUBSTITUTE- an alternative form of
obtaining funds from PUBLIC** other than
deposits, through the issuance, endorsement, or
acceptance of “debt instrument” for the
borrower’s own account, for the purpose of re-
lending or purchasing of receivables and other
obligations, or financing their own needs or the
needs of their agent or dealer (RR 14-2012).
**Public is defined as borrowing from twenty
(20) or more individual or corporate lenders at
any one time.
b) Interest form a depositary bank under the
expanded foreign currency deposit system
 Prior to 2018 7 ½% Exempt Exempt
 Under TRAIN Law(beginning Jan.1,2018) 15% Exempt Exempt
c) Interest income from long term bank deposit
or bank investment (at least 5-years maturity).
In case of pre-termination of the long-term
deposit or investment, depending on the holding
period.
 5 years or more Exempt Exempt 25%
 4years to less than 5 years 5% 5% 25%
 3 years to less than 4 years 12% 12% 25%
 Less than 3 years 20% 20% 25%
ROYALTIES TAXPAYER
TAXPAYER
________________________
 Royalties from: RC, RA
a. Literary works _________________________
b. Books NRC NRAET NRAETB
c. Musical Composition 10% 10% 25%
 OTHER Royalties 20% 20% 25%
DIVIDENDS TAXPAYER
RC,RA NRANETB,
NRC NRAET SAE
a) Dividends actually or constructively received

from: 10% 20% 25%
I. Domestic Corporation
II. Joint Stock Company
III. Insurance or mutual fund company;
and
IV. Regional operating headquarters of
multinational company.
b)Share in the distributable net income after tax 10% 20% 25%
of partnership except (GPP)**
c) Share in the net income after tax of: 10% 20% 25%
1. Association
2. Joint Account
3. Taxable joint venture or Consortium***
**
SHARE IN THE NET INCOME OF A PARTNERSHIP
GENERAL PARTNERSHIP GENERAL “PROFESSIONAL” PARTNERSHIP
Treated as dividend income, generally Not treated as dividend income. Subject to basic
subject to 10% final withholding tax. tax under section 24 (A).
SHARE IN THE NET INCOME OF A JOINT VENTURE

CO-VENTURER TAXABLE JV ***NON-TAXABLE JV
Individual Treated as dividend income, Not Subject to basic tax
treated as dividend generally subject withholding tax. under
to 10% final withholding tax. section 24(A).
Corporation Treated as inter-corporate dividend Subject to basic corporate tax
income, hence, tax exempt (not as dividend income)
****NON-TAXABLE JV "Joint ventures or consortium organized for the following purposes:

1) Construction projects;
2) Engaged in petroleum, coal, geothermal and other energy operations pursuant to
operating or consortium agreement under a service contract with the Government.
PRIZES
TAXPAYER
RC, RA
NRC NRAET NRANETB
 Amount is more than 10,000
 Amount is not more than 10,000 20% 20% 25%
Basic Tax Basic Tax 25%
WINNINGS
TAXPAYER
RC, RA
NRC NRAET NRANETB
 OTHER Winnings* 20% 20% 25%
 PCSO/Lotto Winnings
Prior to 2018 Exempt Exempt 25%
TRAIN LAW (beginning Jan. 1,2018)
o Not more than P10k Exempt Exempt 25%
o More than P10k 20% Exempt 25%
*NOT INCLUDED are winnings exempt from income tax such as but not limited to:
 Winnings under Sec. 126 of the Tax Code [subject to OPT (only) of 4%; 10%, as the case
may be]
 Prizes and awards made primarily in recognition of religious, charitable, scientific,
educational, artistic, literary, or civic achievement but only if
- The recipient was selected without any action on his part to enter the
contest or proceeding;
- The recipient is not required to render substantial future services as a
condition to receiving the prize or award.
 All prizes and awards granted to athletes in local and international sports competitions
and tournaments whether held in the Philippines or abroad and sanctioned by their
national sports associations.
**One of the obvious errors/inconsistencies under the TRAIN Law
CAPITAL GAINS TAX (CGT) and STOCK TRANSACTION TAX (STT) ON SALE OF SHARES OF DC
-Not Through the local stock exchange TAX RATE
(sold directly to a buyer)
o Prior to 2018 CGT 1st P100,000 gain = 5% In
excess of P100,000 = 10%
o Beginning 2018 (TRAIN Law) CGT 15% of capital gain
-Through the local stock exchange
o Prior to 2018 STT ½ OF 1% of GSP
o Beginning 2018(TRAIN Law) STT 6/10 OF 1% of GSP
Sale of shares of a domestic corporation NOT Through the local stock exchange to the
buyer) is subject to CGT.
FORMULA in computing the capital gain:
Selling Price PXX Pxx
Acquisition Cost (xx)
Cost to sell Net (xx)
Capital Gain Pxx
Rate %
CGT Pxx
o Under RR 6-2013, the value of the shares of stock at the time of sale shall be the fair
market value. In determining the value of the shares, the Adjusted Net Asset Method
shall be used whereby all assets and liabilities are adjusted to market values. For
purposes of discussion in this review material, the selling price is assumed to be the
market value computed using the aforementioned method, assuming the latter is not
provided.
o All individual taxpayers are subject to CGT on shares of stock of domestic corporations
Sale of shares of a domestic corporation THROUGH THE LOCAL STOCK EXCHANGE is not subject
to income tax but to a “business tax” under Section 127(A) of the Tax Code as follows:
- Prior to 2018: STT of 12 of 1% of Gross Selling Price
- Beginning Jan. 1, 2018 (TRAIN Law): STT of 6/10 of 1% of Gross Selling Price
Sale of shares of stock of a foreign corporation is subject to basic income tax.
The CGT and STT are applicable only to shareholders/investors because for income taxation
purposes, sale of shares of stock by a dealer in securities regardless of whether the shares were
sold directly to a buyer or through the local stock exchange, is subject to basic income tax.
Moreover, issuance of shares by the issuing corporation is not subject to except DST and Stock
Transaction Tax on Initial Public Offering under Section 127(B) of the Tax Code.
CAPITAL GAINS TAX (CGT) ON SALE OF REAL PROPERTY

REQUISITES:
1. The real property must be a capital asset; and,
2. It must be located in the Philippines.
FORMULA: Capital Gains Tax = TAX BASE x 6%
TAX BASE: Highes
t
1. Selling Price
2. Fair Market Value
3. Zonal Value
4.
OPTIONS OF THE SELLER IN CASE OF SALE TO GOVERNMENT OR ANY DO SUBDIVISIONS OR
AGENCIES OR GOCC'S:
1. Pay 6% CGT; or
2. Pay Basic Income Tax
REQUISITES FOR EXEMPTION:
1. The property sold must be the principal residence of the seller,
2. Proceeds is fully utilized in acquiring or constructing a new principal residence;
3. Utilization must be made within 18 calendar months from the date of sale or
disposition,
4. Notify the BIR Commissioner within 30 days from the date of sale or disposition of the
intention to avail the exemption;
5. The said exemption can only be availed once every 10 years.
PARTIAL EXEMPTION / TAXABLE PORTION:

If 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 shall be subject to capital gains tax
as follows:
SP
Taxable = Unutilized Portion X FMV
Amount Gross Selling Price Zonal
CGT = Taxable Amount x 6%

DUE DATE:
The tax on the unutilized portion shall be paid within 30 days after the expiration of the
eighteen (18) month period.
Taxation of NRA-NETB
NRA-NETB is subject to:

1. 25% FWT ON ALL
a. Ordinary income
b. Passive income derived from sources within the Philippines (including
interest income from long-term bank deposit or investment and
PCSO/Lotto winnings except interest income on bank deposit under FCDU)
2. CGT on sale of shares of a domestic corporation directly to a buyer
3. CGT on sale of a real property classified as, capital asset located in the Philippines
BASIC INCOME TAX
 Use the graduated tax rate or tax table, as amended
 Income subject to basic tax are:
o Ordinary income (le, compensation income, business income)
o Passive income derived abroad by RCS
o Capital gains not subject to CGTs
 Income subject to basic tax is reflected in the income tax return of the taxpayer
 Generally subject to creditable withholding tax to creditable withholding taxes which
may be deducted from the basic income tax due.
 It is the payee (income earner) who has the responsibility to file the return and pay the
applicable tax.
GRADUATED TAX RATE

PRIOR to 2018 TRAIN LAW-TAXABLE YEAR 2018-2019 2023 ONWARD
INCOME TAX INCOME TAX TAX
Not over P10,000 Exempt Not over P250,000 Exempt Exempt
Over P10,000 but not P500+10% in excess Over P250,000 but 20% of excess over P250,000 15% of excess over P250,000
over P30,000 over P250,000 not over P400,000
Over P30,000 but not over P2,500+15% in excess of Over P400,000 but P30,000+25% in excess of P22,500+20% in excess of
P70,000 P30,000 not over 800,000 P400,000 P400,000
Over P70,000 but not over P8,500+20% in excess of Over P800,000 but P130,000+30% in excess of P102,500+25% in excess of
P140,000 P70,000 notover P2,000,000 P800,000 P800,000
Over P140,000 but not over P22,500+25% in excess of Over P2,000,000 but P490,000+32% in excess of P402,500+30% in excess of
P250,000 P140,000 not over P8,000,000 P8,000,000 P2,000,000
Over P250,000 but not over P50,000+30% in excess of Over P8,000,000 P2,410,000+35% in excess of P2,202,500 + 35% in excess of
P500,000 P250,000 P8,000,000 P8,000,000
Over P500,000 P125,000 + 32% in excess
of P500,000
Provided that after 2020, the taxable income tax levels in the above schedules shall be adjusted
once every five (5) years, through rules and regulations issued by the Department of Finance,
upon recommendation of the Commissioner, after considering among others, the effect of the
same of the 5-year cumulative inflation rate.
Self-Employed and/or Professionals (SEP)
Sec. 24(A)(2)(B) of the Tax Code as amended by RA10963 (TRAIN Law) provides the following
rules for SEP:
PURELY SEP MIXED INCOME EARNER
With gross sales/receipts
Business/Professional income
3M and below above P3M Compensation P3M and below Above P3M
Regular income tax Regular Regular Regular income tax Regular
OR 8%tax on Gross Income Tax Income Tax OR 8%tax on Gross Income Tax
Sale/Receipts and Sale/Receipts and
other operating other operating
income in excess of income in excess of
P250,000 IN LIEU of P250,000 IN LIEU of
the graduated tax the graduated tax
rate and Section 116 rate and Section
116
**Provided, the SEP is:

(1)non-vat registered; (2)not engaged in vat exempt-sales/transaction(s); and (3)not
subject to other OPT other than Sec. 116.
NOTE:
 Sec. 116 is a business tax, not an income tax. It is computed as 3% of gross sales/receipts and
other operating income, Business taxes are discussed in volume 2 of this book entitled “Transfer
and Business Taxation".
 The option to be taxed at 8%** is available only to taxpayers who are (a) non-VAT registered and
(b) liable for 3% percentage tax under Section 116 of the NIRC. As such, (a) VAT-registered
taxpayers or (b) those liable for Percentage Taxes under Title V of the NIRC (except for Sec. 116)
have no other option than to be taxed using the graduated rates.
 Unless the taxpayer signifies in the 1st Quarter Return of the taxable year the intention to elect
the 8% income tax, the taxpayer shall be considered as having availed of the graduated rates
under Section 24(A) of the Tax Code, as amended, and such election shall be irrevocable.
PROVIDED, that at any time during a given taxable year, a taxpayer's gross sales or receipts
exceeded the VAT Threshold (P3,000,000, as amended; previously P1,919,500), he/she shall
automatically be subjected to the graduated rates under Section 24(A)(2)(a) of the Tax Code, as
amended, with the following rules/guidelines: o
 The taxpayer shall be allowed an income tax credit of quarterly payments
initially made under the 8% income tax option.
 Taxpayer is likewise liable for business tax(es), in addition to income tax. A
percentage tax pursuant to Section 116 of the Tax Code, as amended, shall be
imposed on the first R3,000,000 The excess of the threshold shall be subject to
VAT.
 Percentage tax due on the R3,000,000 shall be collected without penalty, if
timely paid on the due date immediately following the month the threshold
was breached.
Minimum Wage Earners
The term "statutory minimum wage (SMW)"earner shall refer to a worker in the private sector
paid the statutory minimum wage, or to an employee in the public sector with compensation
income of not more than the statutory minimum wage in the non agricultural sector where
he/she is assigned (RR 10-2008). MWEs are exempt from income tax on:
1. Minimum wage
2. Holiday pay
3. Overtime pay
4. Night shift differential
5. Hazard pay
APPLICABLE TAXES OF MWES (RR 10-2008: Sonano vs. See of Finance with GR No 184450)
Purely MWE Exempt from income tax
MWE with additional “compensation" income exceeding Still considered MWE, hence,
Still considered MWE, hence, tax-exempt thresholds-of: Exempt from income tax
Prior to 2018: P82,000 (Soriano vs. Secretary of Finance with
Beginning 2018 (TRAIN Law): 290,000 GR No. 184450 dated Jan 24, 2017)
MWE with additional “business" income Income as MWE = Exempt
Business income = Taxable
Basic Income Tax of Married Individuals

 Married individuals (i.e., husband and wife) are required by law to file a consolidated
income tax return, but they shall compute separately their individual income tax.
 Income which cannot be definitely attributed to or identified as income exclusively
earned or realized by either of the spouses, the same shall be equally divided between
the spouses for purposes of determining their taxable income.
 If the spouses are only physically separated and there is no legal separation, the are still
required by law to file consolidated or joint returns for which they are considered as
jointly and severally liable to the tax.
Income Tax of Senior Citizens
 Senior Citizens deriving returnable income are required to file their income tax returns
and pay the tax as they file the return.
 Senior Citizens as MWE - Exempt from income tax on the said compensation income
 Aggregate gross income (prior to TRAIN Law) does not exceed the amount of his
personal exemptions (BPE and APE), he shall be exempt from income tax and shall not
be required to file income tax return.
 The exemption of a senior citizen granted under RA 9994 otherwise known as the
"Expanded Senior Citizen Act of 2010" will not extend to all types of income earned
during the taxable year.
 PRIOR TO 2018 OR BEFORE THE EFFECTIVITY OF TRAIN LAW, a benefactor of a Senior
Citizen is entitled to a basic personal exemption of P50,000 which is the allowed basic
personal exemption of all qualified individual taxpayers required to file income tax
returns as provided under RA 9504. However, a senior citizen who is not gainfully
employed, living with and dependent upon * his benefactor for chief support will not
entitle the benefactor to claim additional personal exemption of P25,000.
Fringe Benefits and De Minimis Benefits (FBT)
CRT is a final withholding tax imposed on the grossed-up monetary value of the fringe benefit
furnished, granted or paid by the employer to managerial or
Oec whether such employer is an individual, professional partnership supervisory employees,
whether such emplover is an indi or corporation, regardless of whether the corporation is taxable
or not. or the government and its Instrumentalities. (Section 33, RA 8424. RR NA 2001,
The term "Fringe Benefit” means any good, service, or other benefit furnished or
granted by an employer in cash or in kind, in addition to basic salaries to employee (except rank
and file employee) such as but not limited to the following.
a. Housing
b. Expense Account
c. Vehicle of any kind
d. Household personnel, such as maid, driver and others
e. Interest on loan at less than market rate to the extent between the market rate and
the actual rate granted
f. Membership fees, dues and other expenses borne by the employer for the employee
in social and athletic Clubs or other similar organizations
g. Holiday and vacation expenses
h. Educational assistance to the employee or his dependents
i. Life or health insurance and other non-life insurance premiums or similar
amounts in excess of what the law allows; and
j. Expenses for foreign travel
THE FOLLOWING FRINGE BENEFITS ARE NOT SUBJECT TO FBT:

1) Fringe benefits given to rank and file employees (not subject to FBT but subject to basic
income tax)
2) Housing benefits/privilege:
a. Of military officials of the Armed Forces of the Philippines (AFP).
b. Which is situated inside or adjacent (within 50 meters from the perimeter of the
business premises) to the premises of a business or factory.
c. Which are "temporary" for an employee or for a temporary housing unit of three (3)
months or less.
3) Expenses incurred by the employee which are paid by the employer and expenses paid
for by the employee but reimbursed by his employer, provided:
a. The expenditures are duly receipted for and in the name of the employer;
b. It does not partake the nature of a personal expense attributable to the employee;
4) Allowances subject to liquidation (tax exempt allowances)
 Allowances not subject to liquidation are taxable.
 Representation and transportation allowances which are fixed in amounts and are
regularly received by the employees as part of their monthly compensation (exempt
from FBT but subject to basic income tax).
5) Reasonable business travel expenses:
 Inland travel expenses (such as expenses for food, beverages and local
transportation) during foreign travel.
 Lodging cost in a hotel (or similar establishments) amounting to an average of
US$300 or less per day during foreign travel.
 Cost of economy and business class airplane ticket for "foreign" travel.
 70% of the cost of first class airplane ticket for foreign travel.
 BUSINESS travel expenses "within the Philippines" are
generally assumed to be reasonable in amount.
6) Educational assistance
 TO THE EMPLOYEE, provided:
a. The education or study is directly connected with the
employer's trade, business or profession; and
b. .There is a written contract between them that the employee
is under obligation to remain in the employ of the emplover for a
period of time they have mutually agreed upon
 TO THE DEPENDENTS OF THE EMPLOYEE, provided that the assistance
was provided through a competitive scheme under the scholarship
program of the Company.
7) Contributions of the employer for the bench of the employee on the following:
a. Pursuant to the provisions of existing law, such as under SSS and GSIS
b. Similar contributions arising from provisions of any other existing law
c. To retirement, insurance and hospitalization benefit plans
8) The cost of premiums borne by the employer for the group insurance of his employees
9) Fringe benefits which arelit:
 authorized and exempted from income tax under the Tax Code or under any special law
 The fringe benefit is required by the nature of or necessary to the trade, business or
profession of the employer,
 For the convenience or advantage of the employer;
De Minimis Benefits
The following are de minimis benefits under RR 10-2008 as amended by RA 10963
(TRAIN Law); RR &-2018, RR 11-2018, RR &-2012; RA 10653, RR 1-2015/RR 3-2015:
a. Monetized unused vacation leave credits of private employees not exceeding ten
(10) days during the year and the monetized value of leave credits paid to government
officials and employees
b. Medical cash allowance to dependents of employees not exceeding P1,500
per employee per semester or P250 per month (RR 11-2018; TRAIN Law);
c. Rice subsidy of P2,000 or one (1) sack of 50-kg. Rice per month amounting to not more
than P2,000 (RR 11-2018; TRAIN Law);
d. Uniform and clothing allowance not exceeding P6,000 per annum (RR 11-2018; TRAIN
Law);
e. Actual yearly medical benefits not exceeding P10,000 per annum;
f. Laundry allowance not exceeding P300 per month;
g. 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;
h. Gifts given during Christmas and major anniversary celebrations not exceeding P5,000
per employee per annum;
i. Daily meal allowance for overtime work and night/graveyard shift not exceeding twenty-
five percent (25%) of the basic minimum wage.
j. Starting January 1, 2015, benefits received by an employee by virtue of a collective
bargaining agreement (CBA) and Productivity incentive schemes, provided, that the total
annual monetary value received from the two (2) items combined, do not exceed
P10,000 per employee per taxable year (RR 1-2015).
13th Month Pay and "Other Benefits"

13th month pay and Other Benefits received by officials and employees of public od
private entities not exceeding 290,000 beginning January 1, 2018 under the Law (P82,000 from
2015 to 2017; 30,000 before 2015) are exempt from income tax and creditable withholding tax
on compensation income.
Amount "in excess of P90,000 (as amended) should form part of an individual’s gross
income and would be subject to income tax and applicable creditable withholding taxes.

"OTHER BENEFITS" under RR 2-98 as amended by RR 3-2015 include:
 Christmas bonus
 Productivity incentive bonus
 Loyalty awards
 Gifts in cash or in kind and other benefits of similar nature actually received by officials and
employees of both government and private offices
 Gifts given during Christmas and major anniversary celebrations not exceeding
P5,000 per employee per annum shall be treated as "de minimis" benefits.
Any excess shall be included as part of "other benefits" (RR 10-2008 as
amended by RR 5-2011, RR 8-2012 and RR 1-2015].
EXCESS OF DE MINIMIS OVER THE CEILINGS & 13 'MONTH PAY

De minimis benefits "conforming to the Tax Exempt: Excluded in determining the
“ceiling" P90,000 ceiling of "other benefits."
"Excess" of the de minimis benefits over their Included in determining the 290,000 ceiling of
respective ceilings "other benefits”
Amount in excess of P90,000 is subject to basic
Income tax
FORMULA IN COMPUTING THE FRINGE BENEFITS TAX and MONETARY VALUE PRIOR to 2018
EMPLOYEE
RC, NRC, SAEs/
RA, NRA-ET NRA-NETB SFEs**
Monetary value Pxx Рxx Pxx
Divide by GUMVF 68% 75% 85%
Grossed-up monetary value (GUMV) Pxx Pxx Pxx
x FBT Rate 32% 25% 15%
Fringe benefit tax Pxx Pxx Pxx
**PRIOR to 2018 SEFS employed by ROHQS/RHQs not qualified for the 15% income tax on otion
income shall still be subject to 15% FBI it such SHE IS holding managerial position.
The coverage of 15% fringe benefit tax and 15% tax on compensation income are
independent to each other. Thus, there would be instances where a Filipino employee shall enjoy
15% preferential tax rate but may not be covered by fringe benefit tax for not being a
supervisory/managerial employee.
Beginning January 1, 2018 under the TRAIN Law
EMPLOYEE
RC, NRC,
RA, NRA-ET NRA-NETB
Monetary value Pxx Рxx
Divide by GUMVF 65% 75%
Grossed-up monetary value (GUMV) Pxx Pxx
x FBT Rate 35% 25%
Fringe benefit tax Pxx Pxx
MONETARY VALUE: In General, the valuation of fringe benefits shall be as follows

BENEFIT MONETARY VALUE Money
 Money = Amount of money
 Non-cash property with transfer of ownership = FMV vs. ZV, if applicable Non
 Non-cash property, ownership is not transferred = Depreciation value
 Employer lends money free of interest = Principal x 12%
 Employer lends money at a rate lower than 12% = Principal x (12%-Actual Rate )
EXCEPTIONS: Monetary Value of Housing and Motor Vehicle as shown below:

HOUSING BENEFIT VALUATION
1. Employer leases a residential property for the Rental paid x 50%
use of the employee
2. Employer owns a residential property for the FMV in the Real property declaration or Zonal
use of the employee value x 5%x50%
3. Employer purchases residential property in Acq. cost, exclusive of interest x 5% x 50%
installment for use employee
4. Employer purchases residential property and acq. cost or Zonal value as determined by the CIR
transfers ownership to employee
5. Employer purchases residential property FMV in the real property declaration or Zonal
and transfers ownership to employee on a lesser as determined by the CIR less cost to the employee
amount
MOTOR VEHICLE EVALUATION

1) Employer owns and maintains a fleet of motor Acquisition cost of vehicles not normally used
vehicles for the use of the business and employees for business divided by 5 years x 50%
2) Employer leases/maintains a fleet of motor vehicles Amount of rental payments not normally used
for the use of the business and the employees for business purposes x 50%
3) Employer purchases vehicle in the name of the Acquisition cost
Employee
4) Employer provides employee with cash for the Cash received
purchase of the vehicle, and ownership is placed
in the name of the employee.
5) Employer purchases the vehicle on installment and Acquisition cost exclusive of interest divided
ownership is placed in the name of the employee. 5years
6) Employer shoulders a portion of the amount of Amount shouldered by employer
the purchase price of vehicle and ownership is
placed in the name of the employee.
FILING OF INCOME TAX RETURNS

Manner of Filing
Filing of Tax Returns may be made through:
 Manual Filing
 Electronic Filing and Payment System (EFPS)
 eBIR Forms
1. Final Withholding Tax on passive income

MANUAL FILING
January to November 10th day of the month following the month
the withholding was made December
January 15 of the succeeding year
2. Capital Gains Tax
a) Shares of stock
l. Ordinary Return - 30 days after each transaction
II. Final Consolidated Return - on or before April 15 of the following year

b) Real Property - 30 days following each sale or other disposition

3. Fringe Benefits Tax - 10th day of the month following the end of the
calendar quarter in which the fringe benefits were granted to the record
4. Basic Income Tax
 Apply calendar year Purely Compensation income earners: April 15 of the
succeeding year.
 For Business income earners including income from practice of profession: The
individual taxpayer is required to file a quarterly tax return (regardless of the
results of operations) as follows:
1st Quarter May 15 (TRAIN Law); April 15 (Prior to TRAIN Law)

2nd Quarter Aug. 15 (or 45 days after end of Quarter)
3rd Quarter Nov. 15 (or 45 days after end of Quarter)
Annual return April 15 of the succeeding year (same with 1st
quarter return for income earned prior to TRAIN
Law)
Required to File:
1. Resident citizens receiving income from sources within or outside the Philippines
2. Employees deriving purely compensation income from 2 or more
employers. Concurrently or successively at anytime during the taxable year.
3. Employees deriving purely compensation income regardless of the
amount whether from a single or several employers during the calendar year, the
income tax of which has not been withheld correctly (i.e. tax due is not equal to the
tax withheld) resulting to collectible or refundable return.
4. Self-employed individuals receiving income from the conduct of trade or business

and/or practice of profession.
5. Individuals deriving mixed income, i.e., compensation income and income from the
conduct of trade or business and/or practice of profession.
6. Individuals deriving other non-business, non-professional related income
in addition to compensation income not otherwise subject to a final tax.
7. 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
8. Marginal income earners
9. Non-resident citizens receiving income from sources within the Philippines
10. Aliens, whether resident or not, receiving income from sources within
the Philippines
NOT Required to File:

1. An individual who is a minimum wage earner.
2. An individual whose gross income does not exceed his total personal and additional
exemptions (for incomes earned prior to TRAIN Law).
3. 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 (Prior to TRAIN Law) as well non resident aliens not engaged in trade or business)
4. Those who are qualified under "substituted filing" of income tax returns.
However, substituted filing applies only if all of the following requirements are present:
a. the employee received purely compensation income (regardless of amount) during the
taxable year
b. the employee received the income from only one employer in the Philippines during the
taxable year
c. the amount of tax due from the employee at the end of the year equals the amount of
tax withheld by the employer
d. the employee's spouse also complies with all 3 conditions stated above
e. 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.
QUIZZER
Choose the letter of the correct answer.
Principles, Classification of Individual Taxpayers

1. A Filipino citizen is a natural person who is/has
I. Born by birth with father and/or mother as Filipino citizens.
II. Born before January 17, 1973 of Filipino mother who elects Philippine
citizenship upon reaching the age of majority.
III. Acquired Philippine citizenship after birth (naturalized) in accordance
with Philippine laws.
a. I only c. I and III only
b. I and II only d. l, II and III
 Answer: D
2. Individual taxpayers are

I. El Natural persons with income derived within the territorial jurisdiction of a
taxing authority.
II. Natural persons classified as citizens and aliens
a. l only c. I and II
b. ll only d. None of the above
 Answer:
3. Statement 1: The intention with regard to the length and nature of stay of an alien determines
whether he is a resident or nonresident.
Statement 2: A foreigner who has acquired residency in the Philippines shall only become a
nonresident when he actually departs with the intention of abandoning his residency in the
Philippines.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
 Answer: C
4. Determine the correct classification of the following:
I. Manny, a Filipino businessman, went on a business trip abroad and stayed there most of
the time during the year.
II. Kyla, a Filipino professional singer, held a series of concerts in various countries around
the world during the current taxable year. She stayed abroad most of the time during
the year.
lll. Efren, a Filipino “cue” artist went to Canada during the taxable year to train and
participate in the world cup of pool. He stayed there most of the time during the year
A B C D
I. NRC RC RC RC
II. NRC NRC RC RC
III. NRC NRC NRC RC
 Answer: D
 To be considered nonresident, the intention should be to stay abroad as an
immigrant or for employment on a permanent basis or whose employment
thereat requires him to be physically present abroad most of the time [for one
hundred eighty-three days (183) or more during the taxable year.
5. Statement 1: Overseas Filipino Workers duly registered as such with the Philippine
Overseas Employment Administration (POEA) with valid Overseas Employment
Certificate (OEC) refer to Filipino citizens employed in foreign countries and whose
salaries are paid employers abroad and are not borne by entities or persons in the
Philippines.
Statement 2: Filipino citizen Seafarers who receive compensation for services rendered
abroad as a member of the complement of a vessel engaged exclusively for
international trade are considered Overseas Filipino Workers provided they are duly
registered as such with the Philippine Overseas Employment Administration (POEA) with
a valid Overseas Employment Certificate (OEC) with Seafarers Identification Record Book
(SIRB) or Seaman's Book issued by the Maritime Industry Authority (MARINA).
A B C D
Statement 1 True False True True
Statement 2 True False False True
 Answer: C
6. Bu-dhoy, a Mongolian national, arrived in the Philippines on January 1, 2018 to visit his
Filipina girlfriend. He planned to stay in the country until December 31, 2020, by which
time he would go back to his legal wife and family in Mongolia. Bu-dhoy derived income
during his stay here in the Philippines. For 2018 taxable year, Bu-dhoy shall be classified
as a :
a. Resident alien
b. Non-resident alien engaged in trade or business in the Philippines
c. Non-resident alien not engaged in trade or business in the Philippines
d. Special alien employee
 Answer: A
 He was a resident of the Philippines for the entire 2018 taxable year.
7. Due to his expertise, Engr. Pedro D. Magiba (a freelancer) was hired by a foreign
petroleum contractor in Thailand to provide technical assistance for two months from
February to March. He was hired again for the months of June-July and October-
December of the same taxable year. Engr. Pedro D. Magiba is a
a. Resident citizen
b. Nonresident citizen
c. Special Filipino employee
d. None of the above
 Answer: B
 Engr. D Magiba's employment in Thailand requires him to be
physically present abroad most of the time during the taxable year
[one hundred eighty three (183) days or more).
8. On 12. October 2016, Mr. Bald Nha, an American basketball coach was hired as a team
consultant by one of the teams in the Philippine Basketball Association (PBA) for one
conference which will last for a period of not more than three (3) months from October
December 2016. His coming to the Philippines was for a definite purpose. However, he
was subsequently chosen to coach the Philippine men's basketball team for a period of
two (2) years. The American mentor intends to leave the Philippines as soon as his job is
finished. For 2016 taxable year, the American coach shall be classified as:
a. Resident alien.
b. Nonresident alien engaged in trade or business.
c. Nonresident alien not engaged in trade or business.
d. Resident citizen.
 Answer: A
 An alien who comes to the Philippines for the purpose that requires
extended stay for its accomplishment, so he makes his home
temporarily in the Philippines, is a resident, regardless of his intention
to return to his residence abroad.
9. Rihanna, an American singer, was engaged to sing for one week at the Western
Philippine Plaza after which she returned to USA. For income tax purposes, she shall be
classified as:
a. Resident alien.
 Answer: C
10. Mr. Almansor Sebastian, an Iranian and a resident of Tehran, Iran stayed in the
Philippines from July 1-15. 2018 to watch the 2019 FIBA World Qualifying tournament
held in MOA Philippines. During his stay, he bought equity investments from Alpha and
Delta Corporations (domestic corporations). He likewise invested in a mutual fund of
Banko de Isla de Pilipinas, a local bank. Mr. Almansor Sebastian is a:
a. Resident alien
 Answer: C
 Dividends from equity investments as well as interest income from investments in
mutual funds are not considered " operations" for income tax purposes. Incomes from
these investments are classified as passive incomes rather than business incomes.
Source(s) of Taxable income

11. It is important to know the source of income for income tax purposes (i.e. from within
without the Philippines) because:
a. Some individuals and corporate taxpayers are are taxable based on their worldwide
income while others are taxable only on their income from Philippines
b. The Philippines imposes income tax only on income from
c. Some individual taxpayers are citizens while others are aliens.
d. Export sales are not subject to income tax.
 Answer: A
12. Which of the following is correct?
I. A citizen of the Philippines residing therein is taxable on all income derived from sources
within and without the Philippines.
II. A non-resident citizen is taxable only on income derived from sources within the
Philippines.
III. An alien individual, whether a resident or not of the Philippines is taxable only on
income derived from sources within the Philippines.
IV. 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 engage in international
trade shall be treated as an overseas contract worker.
a. I, II and III only c. I, II and IV only
b. 1, III and IV only d. l, ll, III and IV
 Answer: D
13. Taxable only on income from sources within the Philippines, except S
a. Resident citizen c. Resident alien
b. Nonresident citizen d. Nonresident alien
 Answer: A
14. Situs of taxation is world/global taxation
A B C D
Resident citizen True False True True
Resident alien True False False False
Nonresident alien engaged in trade True False False True
 Answer: C
15. Who of the following individual taxpayers is taxable on income derived from within
and without the Philippines?.
a. Pedro, a native of Bacolod City, working as overseas contract worker in Iraq.
b. George, naturalized Filipino citizen and married to a Filipina. He had been living in
Pampanga since 1990. ,
c. Pao Gasul, Spanish citizen, a resident of Madrid, Spain, spent a one (one) Week vacation
in Boracay.
d. Lee Min Ho, Korean singer, held a 3-day concert in Manila.
 Answer: B
16. Pedro Dela Cruz, nonresident citizen, arrived in the Philippines on July 1, 2018 to reside here
permanently after working as a nurse in the United States for many years. Which on the
following statements is correct with respect to his classification for income tax purposes?
a. He shall be classified as nonresident citizen for the year 2018 with respect to
his income derived from sources abroad from January 1, 2018 until the date of
his arrival in the Philippines.
b. He shall be classified as nonresident citizen for the whole year of 2018.
c. He shall be classified as resident citizen for the whole year 2018.
d. He shall be classified as neither resident nor nonresident citizen for the year 2018.
 Answer: A
17. Individual taxpayers are subject to the following income tax

I. Basic tax based on graduated tax table
II. Final withholding tax on passive income derived from source within the Philippines
III. Capital gains tax
IV. Stock transaction tax of 6/10 of 1% of gross selling price
a. I and II only C. I, II and III only
b. I and III only d. All of the above
 Answer: C
The stock transaction tax is not an income but a business tax under Sec. 127(A) NIRC.
18. LJ, married, left the Philippines in the middle of the year on July 1, 2018 to go abroad
and work there for five (5) years. The following data were provided as of December 31, 2018:
Phis.
Gross Business Income Business Expense
PERIOD Philippines Abroad Philippines Abroad
Jan. 1 to June 30 P300,000 P200,000 P100,000 P50,000
July 1 to Dec. 31 600,000 400,000 150,000 50,000

His taxable income is:
a. P800,000 c. P1,1000,000
b. P950,000 d. P600,000
 Answer: A
TNI = P300,000 + 200,000 + 600,000 - 100,000 - 50,000 – 150,000 TNI = P800,000
Personal exemptions (basic and additional), under the TRAIN Law are no longer
allowed beginning January 1, 2018.
19. Based on the above problem, but assuming he arrived from abroad on July 1, 2018
to permanently resettle in the Philippines, after working abroad for 5 years, his taxable income as
of December 31, 2018 is:
a.R750,000 c. R1,100,000
b. P1,000,000 d. P600,000
 Answer: B
TNI = P300,000 +600,000 +400,000 – 100,000 – 150,000-50,000
TNI = P1,000,000
20. If he did not leave Philippines at all, LJ's taxable income is:
a. P750,000 c. P1,150,000
b. P950,000 d. P600,000
 Answer: C
TNI = total net income Philippines and abroad
TNI = P1,150,000
21. Chris is a Filipino immigrant living in the United States for more than 15 years. He is
retired and he came back to the Philippines as a balikbayan. Every time he comes to the
Philippines, he stays here about a month. He regularly receives a pension from his former
employer in the United States, amounting to US$2,000 a month. While in the Philippines, with his
pension pay from his former employer, he purchased three condominium units in Makati which
he is renting out for P25,000 a month each. Does the US$2,000 pension become taxable because
he is now in the Philippines?
a. Yes, income received in the Philippines by the non-resident citizens is taxable
b. Yes, income received in the Philippines or abroad by non-resident citizen is taxable.
c. No, income earned abroad by non-resident citizens are not taxable in the Philippines.
d. No, the pension is exempt from taxation being one of the exclusions from gross income.
 Answer: C
22. Floyd, an American citizen who is married to a beautiful Filipina owns a building in the United
States and leases the same to businesses owned by Filipino residents. Floyd has his residence in
the Philippines and all his children are studying in top Philippine universities. Which of the
following statements is true regarding the rental income?
a. Taxable in the Philippines because he had his residence in the Philippines.
b. Taxable in the Philippines because his wife is a resident citizen and they are all residents
of the Philippines.
c. Taxable in the Philippines because he derives his income from Filipino resident lessees.
d. Exempt in the Philippines because Floyd is resident alien. As such, he is taxable only on
income derived from sources within the Philippines.
 Answer: D

The next four (4) questions are based on the following data:
Carlo, married, with two dependent children, received the following income:
Rent, Philippines P1,000,000
Rent, Hongkong 200,000
Interest, peso deposit, MBTC 100,000
Interest, US$ deposit, BDO ($10,000 x P42) 420,000
Interest, deposit in Hongkong (HK$10,000 x P5) 50,000
Prize (cash) won in a local contest 8,000
Prize (TV) won in a local lottery 50,000
PCSO/Lotto winnings 2,000,000
Prize won in contest in U.S. 300,000
Lotto winning in U.S. 100,000
Dividend, domestic company 600,000

23. Assuming the taxable year is 2017, determine the taxable net income assuming he is:
RC NRC RA NRA-ETB
a. P80,000 P180,000 P830,000 P180,000
b. 180,000 80,000 1,000,000 1,000,000
c. 1,558,000 908,000 908,000 908,000
d. 1,658,000 1,008,000 1,008,000 1,008,000
 Answer: C
Solution:
RC NRC, RA, NRA-ET
Rent, Philippines P1,000,000 P1,000,000
Rent, Hongkong 200,000 -
Interest, peso deposit, MBTC 20% FWT 20% FWT
Interest, US$ deposit, BDO 7.5% FWT 7.5% FWT for RA
Exempt foNRC&NRAET
Interest, deposit in Hongkong 50,000 -
Prize (cash) won in a local contest 8,000 8,000
Prize (TV) won in a local lottery 20%FWT 20%FWT
PCSO/Lotto winnings Exempt Exempt
Prize won in contest in U.S. 300,000 -
Lotto winning in U.S. 100,000 -
Dividend, domestic company 10% FWT 10%FWT for RA&NRC
20% for NRAET
Basic exemption (50,000) (50,000)
Additional exemption (50,000) (50,000)
Taxable net income P1,558,000 P908,000
NOTE:
• Taxable income:
= generally pertaining to incomes subject to basic income tax and included in
the income tax return of the taxpayer
• Passive income subject to final withholding taxes and capital gains subject to CGTs are
nonreturnable income.
• Passive income subject to FWT shall refer only to those derived from Philippine sources.
Passive incomes derived from abroad received by RCs are subject to basic tax.
• The final tax on interest income earned under FCDS (7.5% prior to 2018; 15% beginning Jan. 1,
2018) is applicable only to resident taxpayers.
• Prior to TRAIN Law, PCSO/Lotto winnings are exempt, except if received by NRANETB
• Prizes:
o Not more than P10,000 = basic tax
o More than P10,000 = 20%FWT; 25% FWT for NRANETB
Winnings:
o PCSO/Philippine Lotto
Prior to TRAIN Law; Exempt, except if received by NRANETB Beginning 2018;
 Not more than P10,000 = Exempt
 More than P10,000 = 20% FWT (RC, NRC, RA);
 Received by NRAETB = Exempt regardless of amount; not revised under TRAIN Law; one
of the obvious errors under the TRAIN Law
 Received by NRANETB = 25% FWT regardless of amount. All income received from
sources within the Philippines by NRANETB is subject to 25% FWT except for interest
income received under FCDS or FCDU
24. Assuming the taxable year is 2018, determine the taxable net income assuming he is:
RC NRC RA NRA-ETB
a. P80,000 P180,000 P830,000 P180.000
b. 180,000 80,000 1,000,000 ,000,000
c. 1,558,000 908,000 908,000 908,000
d. 1,658,000 1,008,000 1,008,000 1,008,000
Answer: D
RC NRC, RA, NRA-ET

Rent, Philippines P1,000,000 P1,000,000
Rent, Hongkong 200,000 -
Interest, peso deposit, MBTC 20% FWT 20% FWT
Interest, US$ deposit, BDO 15% FWT 15% FWT for RA
Exempt foNRC&NRAET
Interest, deposit in Hongkong 50,000 -
Prize (cash) won in a local contest 8,000 8,000
Prize (TV) won in a local lottery 20%FWT 20%FWT
PCSO/Lotto winnings Refer to NOTES above
Prize won in contest in U.S. 300,000 -
Lotto winning in U.S. 100,000 -
Dividend, domestic company 10% FWT 10%FWT for RA&NRC
20% for NRAET
Basic exemption NA NA
Additional exemption NA NA
Taxable net income P1,658,000 P1,008,000
Under RA No. 10963 (TRAIN Law), personal exemptions (basic and additional) as
deductions from gross income are no longer allowed beginning January 1, 2018.
25.
RC NRC NRAET NRA-ET
a. P553,000 P490,000 P550,000 P150,500
b. 121,500 90,000 150,000 687,500
c. 131,000 90,000 90,000 90,000
d. 142,000 90,000 150,000 150,000
Answer: B
Solution: RC&RA NRC NRA NRA-NET
Interest, peso deposit, MBTC @ 20%; 25% P20,000 P20,000 P20,000 P25,000
Interest, US$ deposit, BDO @ 71% 31,500 exempt exempt exempt
Prize (TV) won in a local lottery @ 20%; 25% 10,000 10,000 10,000 12,500
PCSO/Lotto winnings exempt exempt exempt 500,000
Dividend, domestic company @ 10% 60,000 60,000 - -
Dividend, domestic company @ 20% - - 120,000 -
Dividend, domestic company @ 25% - - - 150,000
Total FWT P121,500 P90,000 P150,000 P687,500
26. Assuming the taxable year is 2018, determine the total final tax assuming he is:
RC NRC RA NRA-ET
a. P553,000 P490,000 P150,000 P687,500
b. 121,500 90,000 121,500 150,000
c. 131,000 90,000 90,000 90,000
d. P553,000 P490,000 P550,000 P687,500
 Answer: A
Solution:
RC&RA NRC NRA NRA-NET
Interest, peso deposit, MBTC @ 20%; 25% P20,000 P20,000 P20,000 P25,000
Interest, US$ deposit, BDO @ 71% 31,500 exempt exempt exempt
Prize (TV) won in a local lottery @ 20%; 25% 10,000 10,000 10,000 12,500
PCSO/Lotto winnings exempt exempt exempt 500,000
Dividend, domestic company @ 10% 60,000 60,000 - -
Dividend, domestic company @ 20% - - 120,000 -
Dividend, domestic company @ 25% - - - 150,000
Total FWT P121,500 P90,000 P150,000 P687,500
***The exemption of PCSO/Lotto winnings for NRA-ETB was not repealed under TRAIN Law
Use the following data for the next two (2) questions:
Ana, a resident citizen of the Philippines, provided the following data for year current taxable
year:
Gross income from business P700,000
Business Expenses 300,000
Royalty from books 40,000
Gain on direct sale to buyer of shares of stock of a domestic corporation
held as capital asset 70,000
Loss on sale of land in the Philippines held as capital asset with cost of
P1,500,000 when the zonal value is P1,200,000 500,000
27. Assuming the taxable year is 2017, how much is the total income tax expense of Ana?
a. P116,500 c. P159,500
b. P207,500 d. P156,000
 Answer: C
Solution:
 Basic Income Tax P80,000***
 Final Tax on Passive Income (40,000 x 10%) 4,000
 CGT on shares of stock (P70,000 x 5%) 3,500
 CGT on real properties (P1.2M x 6%) 2,000
SP = Cost - Loss = P1.5M - 5M = P1M
ZV = P1,200,000
TOTAL Income Tax Expense P159,500

Business Expenses (300,000)
Basic personal exemption (50,000)
Taxable Net Income P350,000
Tax Due; old graduated rate
[(P50,0000 + (P100,000 x 30%)] P80,000**
INCOME TAX EXPENSE = basic income tax + FWT on passive income + CGTaxes
28. Assuming the taxable year is 2018, how much is the total income tax expense of Ana?
a. P116,500 c. P159,500
b. P207,500 d. P156,000
 Answer: A
Solution:
 Basic Income Tax P30,000**
 CGT on real properties (P1.2M x 6%) 73,000
SP = Cost - Loss = P1.5M - .5M = P1M
ZV = P1,200,000
Basic personal exemption NA
Tax Due (TRAIN Law) P30.000
Use the following data for the next eight (8) questions:
Juan, married, supporting his three (3) minor children had the following data for The current
taxable year (Exchange Rate $1 = P50);
Philippines Abroad
Business income P1,000,000 $20,000
Professional income 400,000 10,000
Salaries 200,000 -
Business and professional expenses 250,000 8,000
Income tax paid - 4,000
29. If Juan is a resident citizen and taxable year is 2017, his income tax payable is:
a. P434,000 c. P589,000
b. P570,500 d. P509,000
 Answer: D
PHILIPPINES ABROAD TOTAL

Business income (Philippines and abroad) P1,000,000 P1,000,000 P2,000,000
Professional income 400,000 500,000 900,000
Salaries 200,000 - 200,000
Business and professional expenses (250,000) (400,000) (650,000)
P1,350,000 1,100,000
Additional personal exemption (3 x P25,000) (75,000)
Taxable net income P2,325,000
Income Tax Due (old tax table) P709,000
Less: INCOME TAX CREDIT
Actual ($4,000 x P50) = 200,000
Vs. Limit = 1,100/2,325 x P709,000 = P331,872
Allowed = Lower amount Income (200,000)
Tax Payable P509,000
A resident citizen is taxable on income within and without
 Income tax paid abroad by a resident citizen is allowed as a tax credit against
the income tax due, unless the taxpayer opted to classify the tax payment
abroad as part of operating expenses.
30. If Juan is a resident citizen and taxable year is 2018, his income tax payable is:
a. P434,000 c. P589,000
b. P570,500 d. P509,000
 Answer: A
PHILIPPINES ABROAD TOTAL
Business income (Philippines and abroad) P1,000,000 P1,000,000 P2,000,000
Professional income 400,000 500,000 900,000
Salaries 200,000 - 200,000
Business and professional expenses (250,000) (400,000) (650,000)
P1,350,000 1,100,000
Basic personal exemption -

Additional personal exemption) -
Less: INCOME TAX CREDIT
Actual ($4,000 x P50) = 200,000
Vs. Limit = 1,100/2,325 x P709,000 = P331,872
Allowed = Lower amount Income (200,000)
Tax Payable P434,000
 Personal expenses are no longer allowed under the TRAIN Law.

31. If he is a resident alien and the taxable year is 2017, his income tax payable is:
a. P360,580 c . P384,380
b. P358,020 d. P357,000
 Answer: D
Solution:
Business income (Philippines only) P1,000,000
Professional income 400,000
Salaries 200,000
Business and professional expenses (250,000)
Income Tax Due/Payable (old table) P357,000
 A resident alien is taxable on income within only.

 Tax credit is applicable only to RCS
32. If he is a non-resident citizen and the taxable year is 2017. his income tax due after tax credit,
if any is:
a. P360,580 c. P384,380
b. P358,020 d. P357,000
 Answer: D
 Same solution in the preceding paragraph

33. If he is a resident citizen and the taxable year is 2018, his income tax payable is:
a. P295,000 c. P384,380
b. P358,020 d. P357,000
 Answer: A
Salaries 200,000
Basic personal exemption -
Additional personal exemption (3 x P25,000) -
34. If he is a non-resident alien engaged in trade or business in the Philippines but without
the benefit of Reciprocity Law, the income tax payable assuming the taxable year is 2017 should
be:
a. P397,000 c. P405,500
b. P378,500 d. P338,500
 Answer: A
Salaries 200,000
 Prior to 2018, NRA-ETB is entitled to personal exemptions only if

there is reciprocity
35. If he is a non-resident alien not engaged in trade or business, disregarding
professional business data, the total income tax that should be withheld from his income is:
a. P50,000 c. P31,500
b. P18,500 d. P338,500
 Answer: A
 Income Tax Due = Salaries of P200,000 x 25% = P50.000
 Regardless of the taxable period (before or after TRAIN Law)
36. If he is a Special Alien Employee, disregarding professional and business data, the
total income tax that should be withheld from his income assuming the taxable year is 2017
should be: a. P18,500 c. P11,500
b. P30,000 d. None
 Answer: B
 Income Tax Due = Salaries of P200,000 x 15% = P30,000
 Prior to 2018, Special Alien Employees are taxable at 15% on
their compensation income.
 Beginning January 1, 2018, Special Employees are already subject to basic
income tax on their compensation income.
37. Mr. and Mrs. Dela Cruz, both CPA's and residents of the Philippines, with 5 minor
children. Had the following data for taxable year 2015:
Salaries, wife P150,000
Bonus (13th month pay), wife 42,000
Professional Fees, (net of 10% withholding tax) 450,000
Expenses – Practice of profession (15% nondeductible) 120,000
Rental income (net of 5% withholding tax 190,000
Rental expenses 80,000
Other income, husband (20% non-taxable) 80,000
The taxable income of Mr. Dela Cruz is:

a. P173,000 c. P266,000
b. P275,000 d. P234,000
 Answer: A
38. The taxable income of Mrs. Dela Cruz is:
a. P371,000 c. P419,000
b. P359,000 d. P410,000
 Answer: B
Mr. Mrs.
Salaries P- P150,000
Professional fees (P450,000/90%)/2 250,000 250,000
Rental income (P190,000/95%)/2 100,000 100,000
Other income (P80,000 x 80%) 64,000
Professional expenses (P120,000 x 85%)/2 (51,000) (51,000)
Rental expenses (P80,000/2) (40,000) (40,000)
Basic personal exemption (50,000) (50,000)
Additional personal exemption (100,000) -
Taxable Net Income P173,000 P359,000
 The tax exempt 13th month pay and other bonuses prior to 2018 is P82,000.
SELF-EMPLOYED and/or PROFESSIONALS

Use the following data for the next four (4) questions:
Ana, a self-employed resident citizen provided the following data for 2018 taxable year:
Sales P2,800,000
Cost of sales 1,125,000
Interest income from peso bank deposit 80,000
Interest income from bank deposit under FCDS 120,000
Gain on direct sale to buyer of shares of stock of a domestic
corporation held as capital asset 150,000
Gain on sale of land in the Philippines held as capital asset
with cost of P1,500,000 when the zonal value is P1,200,000 500,000
39. How much is the total income tax expense of Ana for the year?
a. P321,500 c. P351,500
b. P342,500 d. P358,000
 Answer: C
 Interest income from FCDS (P120,000 x 15%) 18,000
 CGT on real properties (P2M x 6%) 120,00
SP = Cost + Gain = P2M vs.
ZV = P1,200,000
Gross income from business P1,675,000
Taxable Net Income P1,025,000
Tax Due [P130,0000 + (P225,000 x 30%)] P197,500**
40. How much is the total income tax of Ana assuming she opted to be taxed at 8%?
a. P321,500 c. P351,500
b. P342,500 d. P358,000
 Answer:
 CGT on real properties (P2M X 6%) 120,000
ZV = P1,200,000
Gross Sales P2,800,000
Less: Tax exempt income (250,000)
Taxable Net Income P2,550,000
Tax Due (P2,550,000 x 8%) P204,000**
 The 8% income tax rate is based on Gross Sales and/or receipts and other non
operating income in excess of P250,000.
41. Assuming Ana is a vat-registered taxpayer, how much is her total income tax
expense assuming she opted to be taxed at 8% income tax rate?
a. P321,500 c. P351,500
b. P342,500 d. P358,000
 Answer: C
 Same solution with the 1st question. because she is not allowed to avail the 8% tax for
being a vat registered taxpayer. The 8% tax is IN LIEU of Basic Income Tax (Graduated
Tax Rate) and 3% OPT under Section 116 of the Tax Code, as amended Ana, is subject
to vat, not 3% OPT under Section 116.
42. Using the same data except that her gross sales for the year was P3,800,000, how much is her
total income tax expense assuming she opted to be taxed at 8% income tax rate?
a. P321,500 c. P351,500
b. P342,500 d. P652,000
 Answer: D
Solution:
 Basic Income Tax P498,000
 CGT on real properties (P2M x 6%) 120,000
ZV = P1,200,000
 Gross income from business P2,675,000
 Business Expenses (650,000)
 Taxable Net Income P2,025,000
 Tax Due [P490,0000 + (P25,000 x 32%)], P498,000**
 Ana is not allowed to avail the 8% tax because her gross sales for the year exceeded
the revised vat threshold of P3,000,000. Hence, she is subject to vat (business tax) in
addition to income tax. The 8% tax is IN LIEU of Basic Income Tax (Graduated Tax Rate)
and 3% OPT under Section 116 of the Tax Code, as amended. Ana, is subject to vat, not
3% OPT under Section 116.
43. Ana is a mixed income earner. She is a self-employed resident citizen and currently the
Finance manager of Omega Corporation. The following data were provided for 2018 taxable
year:
Compensation income P1,800,000
Sales 2,800,000
Cost of sales 1,125.000
Interest income from bank deposit under FCDS 120,000
120,000 Gain on direct sale to buyer of shares of stock of a
domestic corporation held as capital asset 150,000
Gain on sale of land in the Philippines held as capital asset with
cost of P1,500,000 when the zonal value is P1,200,000 500,000
How much is her total income tax expense assuming she opted to be taxed at 8%?
a. P321,500 c. P808,000
b. P788,500 d. P358,000
 Answer: C
Solution:
 Basic Income Tax P654,000
 Final Tax on Passive Income (80,000 x 20%) 16,000
 CGT on shares of stock (P120,000 x 15%) 18,000
 CGT on real properties (P2M x 6%) 120,000
ZV = P1,200,000

X 8%
8% Tax P224,000
Add: Basic tax on compensation income
1st P800,000 = P130,000
Excess over P800,000 @ 30% = P300,000 430,000
Total Basic Income Tax Due P654,000**

 If the self-employed or practitioner is a mixed income earner, the 8% income tax rate is
based on Gross Sales and/or receipts and other non-operating income without
deducting P250,000.
The compensation income is not subject to 8% tax rate.

44. PURELY S.E.P. using 8% tax rate but whose gross sales/receipts and other non-
operating income exceeded the revised VAT threshold of P3,000,000 during the year.
In 2018, Pedro signified his intention to be taxed at 8% income tax rate on gross sales in his 1st
quarter income tax return.
His gross sales during the year exceeded the vat threshold of P3M as follows:
Q1 Q2 Q3 Q4/Annual
(8% tax) (8% tax) (8% tax) (Graduated)
Sales P500,000 P500,000 P2,000,000 P3,500,000
Cost of sales (300,000) (300,000) (1,200,000) (1,200,000)
Gross Income 200,000 200,000 800,000 1,800,000
Operating expense (120,000) (120,000) (480,000) (720,000)
Net taxable expense P80,000 P80,000 P320,000 P1,080,000
How much is Pedro's annual income tax payable?

a. P220,000 c. P509,200
b. 289,200 d. P2,060,000
 Answer: B
Solution:
Sales P6,500,000
Cost of sales (3,00,000)
Gross Income 3,500,000
Operating expenses (1,440,000)
Net taxable income P2,060,000
Income Tax due using graduated rate P509,200

Less: Quarterly tax payments (01-03) based on 8%
tax rate ([P3M-250,000)*8%) (220,000)
Annual Income Tax Payable P98,200
NOTE:
 Unless the taxpayer signifies in the 1 Quarter Return of the 21st year intention to elect
the 8% income tax, the taxpayer shall be con 39 anno availed of the graduated rates
under Section 241A) of the Tax code, as it and such election shall be irrevocable.
Provided that, at any time during a given taxable year, a taxpayers grosses receipts
exceeded the VAT Threshold (P3,000,000, as amended previously P1,919,500), he/she
shall automatically be subjected to the graduated rates under Section 24(A)(2)(a) of the
Tax Code, as amended, with the following rules/guidelines
 The taxpayer shall be allowed an income tax credit of quarterly payments initially made
under the 8% income tax option.
 Taxpayer is likewise liable for business tax/es), in addition to income a A percentage tax
pursuant to Section 116 of the Ta. Code as amended shall be imposed on the first
P3,000,000. The excess of the threshold shall be subject to VAT .
 Percentage tax due on the P3,000,000 shall be collected without penalty if timely paid
on the due date immediately following the month the threshold was breached,
Special Alien Employees (SAES) and Special Filipino Employees or Filipino Counterparts
45. As a rule, the following individuals are liable for final income tax equal to 15% of their
gross compensation income prior to 2018 taxable year, except
a. An alien employee of an Offshore Banking Unit
b. An alien employee of Petroleum Service Contractors and Subcontractors
c. An alien employee of Regional, or Area Headquarters of Multinational Companies
d. An alien employee of a Resident Foreign Corporation
 Answer: D
46. Statement 1: Prior to 2018 taxable year. SAEs as well as SFES of regional or area headquarters
established in the Philippines by multinational companies shall be subject final tax of 15% on
their gross compensation income in the Philippines.
Statement 2: Generally, a nonresident alien not engaged in trade or business is subject to 25%
creditable withholding tax on their gross income in the Philippines.
 Answer: D
Statement 1: The statement is False. Refer to the following rules:
 Prior to 2018, SAEs are subject to 15% preferential income tax rate on
 SFEs employed in PCs and OBUs are likewise subject to 15% preferential income tax rate
on their compensation income. However, compensation income of SFES employed by
RHQs/ROHQs may be taxed under section 24A of the tax code (basic income tax) or 15%
preferential income tax rate at the option of the SFE provided the three (3) conditions
provided under RR11-2010 were all complied with. Refer to the next question for the
three (3) requirements to qualify for 15% preferential income tax rate.
Statement 2: The statement is False.

 NRA-NETB is subject to final withholding tax of 25% rather than creditable withholding
tax.
47. Prior to 2018 taxable year, Filipino counterparts of aliens employed by regional or area
headquarters and regional operating headquarters of multinational companies in the
Philippines, which are engaged in international trade with affiliates and subsidiary branch
offices in the Asia-Pacific region may be taxed at 15% preferential tax rate subject to the
following rules:
I. The employee must occupy managerial or technical position and must be exercising
such functions pertaining to said position.
II. The employee must have received or is due to receive under a contract of employment,
a gross taxable compensation income of at least P975,000 (actually/constructively
received).
III. The employee must be exclusively working for the RHQ or ROHQ as a regular employee
and not just a consultant or contractual personnel.
a. I and II only c. All of the above
b. I and III only d. None of the above
 Answer: C
48. Statement 1: Prior to 2018 taxable year, a change in the compensation income of a
Filipino employee employed by a regional or area headquarters and regional operating
headquarters of multinational companies in the Philippines, as a consequence of which, the
employee subsequently receiving less than the compensation threshold for the calendar year
when the change becomes effective, result in the employee being subject to the regular income
tax rate.
Statement 2: Prior to 2018 taxable year, a special Filipino employee employed by an Offshore
Banking Unit or Petroleum Contractors/Subcontractors receiving gross compensation income
lower than P975,000 for the calendar year shall result in the employee being subject to the
regular income tax rate.
A B C D
Statement 1 True False True False
 Answer: C
 The three (3) requirements (position test, compensation threshold test and exclusivity
test) to qualify for the fifteen percent (15%) preferential tax rate on compensation
income shall apply only to SFEs employed by a regional or area headquarters or regional
operating headquarters of multinational companies in the Philippines.
 BEGINNING JAN. 1. 2018, SAES AND SFES ARE NOW SUBJECT TO BASIC INCOME TAX ON
THEIR COMPENSATION INCOME. HENCE, FOR INCOME TAXATION PURPOSES, THEY
SHALL NO LONGER BE CLASSIFIED AS SPECIAL EMPLOYEES.
49. For purposes of computing the P975,000 compensation threshold of SFEs employed by
a regional or area headquarters and regional operating headquarters of multinational companies
in the Philippines prior to 2018 taxable year, "gross compensation income” shall include:
I. Salaries, wages and compensation
II. Annuities and remuneration
III. Other emoluments such as honoraria and allowances, including income subject to fringe
benefit tax
a. I and II only c. II and III only
b. I and III only d. I, II and III
 Answer: A
 Item Ill" is wrong, it shall exclude FBs subject to FBT
 Under the Tax Code, EXCLUDE the following:
 FBs subject to FBTs
 Retirement benefits (taxable or not)
 Separation pay (taxable or not)

50. Statement 1: An employee occupying “managerial position" is one who is vested with powers
or prerogatives to lay down and execute management policies and/or employees.
Statement 2: "Exclusivity" means just having one employer at a time.
 Answer: C
51. "Technical Position" as described in RMC 41-09 (as amended) are limited only to positions
that are:
I. Highly technical in nature
II. Where there are no Filipinos who are competent, able and willing to perform
the services for which the aliens are desired.
a. I only c. Both I and II
b. ll only d. Neither I nor II
 Answer: C
52. The 15% preferential tax imposed upon aliens and qualified Filipinos, prior to 2018
taxable year, should be treated as:
A B C D
Final withholding tax, True False True False
Creditable W. Tax True False False True
 Answer: C
53. In 2017, Jaime (resident citizen) is employed by an offshore banking unit holding
managerial position. His compensation income is subject to a preferential tax rate of 15%.
Assume that Jaime likewise earned interest income from a depository bank under the Expanded
Foreign Currency Deposit System in the Philippines, the applicable tax on such income shall be:
a. 7.5% FWT c. 20% FWT
b. 15% FWT d. graduated rate

 Answer: A
 Prior to the effectivity of TRAIN Law, "other income" of Special
Filipino Employees (SFEs) shall be taxable in the same manner as resident
citizens.

Use the following data for the next six (6) questions
Hajib, a Russian national who is an employee in the regional area headquarter of a multinational
corporation, occupying “managerial position, had the following data for taxable year 2016:
Salaries received P600,000
Allowances and honoraria 50,000
Other emoluments 100,000
Monetary value of fringe benefits subject to fringe benefit tax 170,000
De minimis benefits (within the ceiling) 50,000
Dividend income from a domestic corporation 40,000
Interest income from foreign currency deposit under FCDS 20,000
PCSO winnings (gross) 1,000,000
Raffle draw winnings 80,000
Gain from sale of shares of a domestic corporation sold directly to a buyer 150,000
Gain from sale of a vacant lot in Quezon City held as investment 500,000
(SP=P1,500,000; Cost=P1,000,000; Zonal Value=P2,500,000)
54. The amount of income subject to a preferential tax rate of 15% should be:
a. P0 c. P750,000
b. P650,000 d. P910,000
 Answer: C
Solution:
Total P750,000
55. The capital gain's tax is:

a. P10,000 b. P160,000
b. P40,000 d. P165,000
 Answer: C
On shares of stock = P100,000 x 5% + (50,000 x 10%) P10,000
On real property = P2.5M x 6% 150,000
TOTAL CGT P160,000

56. The total income tax expense of Hajib in the Philippines is:
a. P535,000 c. P570,000
b. P595,000 d. P315,000
 Answer: B
Solution:
Subject to preferential tax rate = P750,000 x 15% P112,500
Subject to 15% FBT = P170,000/85% x 15% 30,000
CGT (as computed in the preceding number) 160,000
Income subject to 25% FWT:
Dividend income from DC P40,000
Interest income - FCDS Exempt
PCSO winnings 1,000,000
Total 1,170,000
Tax Rate 25% 292,500
TOTAL INCOME TAX EXPENSE P595,000
 Income Tax Expense = Basic Tax + FWT on Passive Income + CGTS

 De minimis benefits are tax exempt Interest income from bank deposit under FCDS is
exempt.
 Prior to 2018, SAEs are treated as NRAS-NETB with respect to their other income.
Consequently, such interest income is tax exempt.
57. Assuming the taxpayer is a Special Filipino Employee, the amount of income subject to
a preferential tax rate of 15% should be:
a. P0 c. P650,000
b. P600,000 d. P750,000
 Answer: A
 Since the total compensation composed of salaries, allowances/honoraria and one
emoluments is not at least P975,000. The SFE shall be subject to basic income tax under
section 24(A) instead of 15% preferential tax rate.
58. Using the assumption above, the SFE's total combined taxes on all income from the
Philippines is:
a. P380,500 c. P595,000
b. P304,000 d. P410,500
 Answer: D
CGT (as computed in the foregoing number) P160,000
FBT (P170,000/85% x 15%***) 30,000
FWT on Passive incomes:
Dividend income from DC @ 10% P4,000
Interest income from peso bank deposit @ 20% 10,000
Interest income-FCDS @ 7.5% 1,500
PCSO winnings Exempt
Raffle draw winnings @ 20% 16,000 31,500
BASIC INCOME TAX:
Salaries, allowances, honoraria P750,000
Basic Personal exemption (50,000)
Basic Tax under Section 24(A) 189,000
 ***The SFE (as discussed in preceding numbers) is not qualified for the 15% preferential
tax rate. However, the fringe benefits received shall still be subject to 15% FBT because
under RR 11-2010, the option to be subject to 15% preferential tax rate and the
coverage of fringe benefit tax are independent to each other. Thus, as provided in the
aforementioned RR, there would be instances where a Filipino employee shall enjoy
15% preferential tax rate. But may not be covered by fringe benefit tax for not being a
supervisory/managerial employee. Likewise, there would be instances where such SFE
may not be subject to 15% preferential tax rate due to failure to meet any of the three
(3) tests discussed earlier but may be subject to 15% FBT for being a "managerial"
employee. The taxpayer in this particular case is occupying a managerial position.
59. Assuming the taxpayer is a Special Filipino Employee employed by an Offshore Banking
Unit, the amount of income subject to a preferential tax rate of 15% should be:
a. P0 c. P650,000
b. P600,000 d. P750,000
 Answer: D
Prior to the effectivity of TRAIN Law, if the SFE is employed by an OBU or PC/SC, the
compensation income shall be subject to 15% preferential tax rate. The option to be
taxed at 15% preferential tax rate if the SFE is an employee of ROHQ/RHQ is not
applicable for SFEs employed by OBUs and PCs/SCs.

60. Bryan is a Filipino executive employed by a regional operating headquarters (ROHQ) in the
Philippines, begins his employment on June 1, 2015. His employment contract stipulates that he
shall receive an annual compensation income of P975,000 inclusive of 13th month pay. At the
end of the year, he received P568,750 composed of P525,000 basic pay (P975,000/13 x 7months)
and P43,750 as 13th month pay. Based on the above data, can Bryan choose to be taxed at 15%
preferential rate?
a. Yes, because his employment contract states that he shall receive an
annual compensation income that meets the threshold, whether he actually receives
this or not
b. Yes, because an employee of ROHQ is qualified to be taxed at 15% preferential rate.
c. No, because his total gross compensation income at the end of the year does not meet
the threshold amount.
d. No, Filipinos employed by ROHQs do not have the option to be taxed at 15% preferential
tax rate,
 Answer: C.
61. Leomar, resident citizen, is the Head for Operations of a regional operating
headquarters (ROHQ) in the Philippines. His compensation income during 2018 amounted to
P1,800,000 exclusive of 13th month pay and other bonuses. Can Leomar choose to be taxed at
15% preferential rate?
a. Yes, because he is expected to receive an annual compensation income that exceeds the
threshold
b. b. Yes, because an employee of ROHQ is qualified to be taxed at 15% preferential
rate even during the effectivity of RA No. 10963 (TRAIN Law).
c. No, because his total gross compensation income at the end of the year does not meet
the threshold amount
d. No, the 15% preferential tax rate is no longer applicable beginning January 1, 2018 as
provided for under RA No. 10963, otherwise known as the TRAIN Law.
 Answer: D
62. A Malaysian occupying a managerial position in an Offshore Banking Unit located in

Taguig had the following data for taxable year 2015.
De minimis benefits 5,000
Interest income from deposit substitutes 20,000
Interest income from long-term Philippine Bank Deposit 10,000
Gain from sale of shares of stock of a domestic corporation
held as investment sold outside of the local stock exchange 175,000
The total income tax expense of the taxpayer is:

a. P73,000 c. P63,000
b. P70,500 d. P83,000
 Answer: D
15% Preferential Tax (P170k x 15%) P25,500
25% on other income (P180k x 25%) 45,000
CGT [(100k x 5%) + (75k x 10%)] 12,500
Total taxes expense P83,000
 NRAs-NETB and SAEs are not exempt from tax on their interest income derived from
long-term bank deposit in the Philippines.
63. Assuming the taxpayer is a Special Filipino employee, his total income tax expense is:
a. P56,500 c. P57,000
b. P58,500 d. P83,000
 Answer: C
15% Preferential. Tax (P170k x 15%) P25,500
Final Tax on deposit substitute (P20,000 x 20%) 4,000
Interest income on long-term deposit exempt
Dividend income from DC (P150,000 x 10%) 15,000
CGT(as previously computed) 12,500
 As previously discussed, SFEs employed by OBUs and PCs/SCs shall always be subject to
15% preferential tax rate on their gross compensation income.
64. Abdul, a foreign national employed by a regional area head quarter of a

multinational corporation, occupying managerial position, had the following data for taxable year
2018:
Gain from sale of shares of a domestic corporation sold directly to a 150,000
buyer
Gain from sale of shares of a domestic corporation listed in the local
stock exchange 85,000
The total income tax expense of Abdul in the Philippines is:

a. P127,500 c. P140,510
b. P140,000 d. P152,7500
 Answer: B
Solution:
Basic income tax based on P750,000 P117,500
[P30,0000 + (P350,000 x 25%)]
CGT (P150,000 x 15%) 22,500
 The de minimis benefits (within the ceiling) is tax-exempt

 The sale of shares of domestic corporation listed in the local stock exchange is exempt
from income tax. However, it is subject to a business tax of 6/10 of 1% of gross selling
price.
Use the following data for the next three (3) questions:
Jaime (resident citizen) is employed by an offshore banking unit holding managerial position. His
compensation income is subject to a preferential tax rate of 15%.
65. Assuming 2017 as the taxable year and Jaime likewise earned interest income from
a depository bank under the Expanded Foreign Currency Deposit System in the Philippines, the
applicable tax on such income shall be:
a. 7.5% FWT c. 20% FWT
b. 15% FWT d. 25% FWT
 Answer: A
 As “income other than compensation", Jaime shall be taxed as a resident
citizen.
66. Assume that Jaime is an alien employee, the applicable tax on his interest income from
FCDS deposit shall be:
a. 7.5% FWT c. 20% FWT
b. 15% FWT d. 25% FWT
 Answer: D
 As to his income “other than compensation income", a Special Alien Employee
(for taxable year prior to 2018 shall be taxed as a nonresident alien not
engaged in trade or business .
a. 7.5% FWT c. 20% FWT
b. 15% FWT d. 25% FWT
 Answer: B
Final Taxes on Passive Income derived from Philippine Sources

68. Statement 1: Passive incomes are subject to separate and final tax rates.
Statement 2: Passive incomes are included in the computation of taxable income from
compensation or business/professional income.
A B C D
Statement 2. True False False True
 Answer: C
Statement 2 is False. The liability of the taxpayer for passive incomes subjected to the
withholding taxes is already PO because the taxes withheld already constitute final and
te payment of the applicable tax. Hence, shall not be included anymore in the
determination of "taxable income" of the taxpayer subject to basic income tax
under Section 24A of the tax code. Consequently, such income shall be excluded in the
ITR of the taxpayer.
69.Statement 1: Tax on certain passive income is a capital gains tax

Statement 2: Other income, for income tax purposes, is excluded in the determination of an
individual taxpayer's returnable income.
A B C D
 Answer: B
 Certain passive incomes are subject to final taxes
 Other incomes are returnable (included in the computation of the taxpayers
taxable income subject to graduated tax rate)
70. Which of the following shall not be subject to the 20% final tax beginning January 1, 2018?
a. Amount of interest from any currency bank deposit and yield or any other
monetary benefit from deposit substitutes and from trust funds and similar
arrangements
b. Winnings other than Philippine Charity Sweepstakes and Lotto winnings,
regardless of amount
c. Philippine Charity Sweepstakes and Lotto winnings exceeding P10,000
d. Prizes amounting to ten thousand pesos (P10,000) or less
 Answer: D
 “D” is subject to basic tax
71. Which of the following statements is incorrect?

a. To be subject to final tax, passive income must be from Philippine sources.
b. An income which is subject to final tax is excluded from the computation of
income subject to Section 24 (A) of the tax code.
c. Lotto winnings in foreign countries are exempt from income tax in the
Philippines.
 Answer: C
 Subject to basic tax if the taxpayer is a resident citizen.
72. Which of the following statements is correct?

I. Beginning January 1, 2018, PCSO/Lotto winnings of not more than P10.000 received by
citizens, residents and non-resident aliens engaged in trade or business are exempt from
income tax.
II. Beginning January 1, 2018, PCSO/Lotto winnings of more than P10,000 received by
citizens, residents and non-resident aliens engaged in trade or business are subject to
20% final withholding tax.
III. Beginning January 1, 2018, PCSO/Lotto winnings of not more than P10.000 received by
non-resident aliens not engaged in trade or business are exempt from income tax.
IV. Beginning January 1, 2018, PCSO/Lotto winnings of more than P10,000 receiver by non-
resident aliens not engaged in trade or business are subject to 25% final withholding tax.
a. I only c. I and IV only
b. I and II only d. All of the above
 Answer: A
 "ll" is wrong. PCSO and Lotto winnings are exempt from income tax under
TRAIN Law if the taxpayer is classified as NRANETB.
 “III and IV" are false. NRANETB is subject to 25% regardless of the amount of
PCSO and Lotto winnings.

I. Prizes of not more than P10,000 received by citizens, residents and non-resident aliens
engaged in trade or business are exempt from income tax.
II. Prizes of more than P10,000 received by citizens, residents and non-resident aliens
engaged in trade or business are subject to 20% final withholding tax.
III. Prizes of not more than P10,000 received by non-resident aliens not engaged in trade or
business are exempt from income tax. IV.
IV. Prizes of more than P10,000 received by non-resident aliens not engaged in trade or
business are subject to 25% final withholding tax.
a. Il only c. II and III only
b. I and II only d. II and IV only
 Answer: A
 "l"is wrong. It is subject to basic income tax.
 “lll and lV" are wrong. Prizes received by NRANETB are subject to 25% FWT
regardless of amount.
 If silent, assume the income is derived from sources within the Philippines.
74. Statement 1: All royalty income derived from sources within the Philippines are subject
to final withholding tax.
Statement 2: All royalty income derived from sources outside of the Philippines received by
resident citizens are subject to basic income tax.
 Answer: C
How much is her total income tax expense assuming she opted to be taxed at 8%?
a. P321,500 c. P808,000
b. P788,500 d. P358,000
 Answer: C
Solution:
 Basic Income Tax P654,000
 Final Tax on Passive Income (80,000 x 20%) 16,000
 CGT on shares of stock (P120,000 x 15%) 18,000
 CGT on real properties (P2M x 6%) 120,000
ZV = P1,200,000

X 8%
8% Tax P224,000
Add: Basic tax on compensation income
1st P800,000 = P130,000
Excess over P800,000 @ 30% = P300,000 430,000
Total Basic Income Tax Due P654,000**

 If the self-employed or practitioner is a mixed income earner, the 8% income tax rate is
based on Gross Sales and/or receipts and other non-operating income without
deducting P250,000.
The compensation income is not subject to 8% tax rate.

44. PURELY S.E.P. using 8% tax rate but whose gross sales/receipts and other non-
operating income exceeded the revised VAT threshold of P3,000,000 during the year.
In 2018, Pedro signified his intention to be taxed at 8% income tax rate on gross sales in his 1st
quarter income tax return.
His gross sales during the year exceeded the vat threshold of P3M as follows:
Q1 Q2 Q3 Q4/Annual
(8% tax) (8% tax) (8% tax) (Graduated)
Sales P500,000 P500,000 P2,000,000 P3,500,000
Cost of sales (300,000) (300,000) (1,200,000) (1,200,000)
Gross Income 200,000 200,000 800,000 1,800,000
Operating expense (120,000) (120,000) (480,000) (720,000)
Net taxable expense P80,000 P80,000 P320,000 P1,080,000
How much is Pedro's annual income tax payable?
a. P220,000 c. P509,200
b. 289,200 d. P2,060,000
 Answer: B
Solution:
Sales P6,500,000
Cost of sales (3,00,000)
Gross Income 3,500,000
Operating expenses (1,440,000)
Net taxable income P2,060,000
Income Tax due using graduated rate P509,200

Less: Quarterly tax payments (01-03) based on 8%
tax rate ([P3M-250,000)*8%) (220,000)
Annual Income Tax Payable P98,200
NOTE:
 Unless the taxpayer signifies in the 1 Quarter Return of the 21st year intention to elect
the 8% income tax, the taxpayer shall be con 39 anno availed of the graduated rates
under Section 241A) of the Tax code, as it and such election shall be irrevocable.
Provided that, at any time during a given taxable year, a taxpayers grosses receipts
exceeded the VAT Threshold (P3,000,000, as amended previously P1,919,500), he/she
shall automatically be subjected to the graduated rates under Section 24(A)(2)(a) of the
Tax Code, as amended, with the following rules/guidelines
 The taxpayer shall be allowed an income tax credit of quarterly payments initially made
under the 8% income tax option.
 Taxpayer is likewise liable for business tax/es), in addition to income a A percentage tax
pursuant to Section 116 of the Ta. Code as amended shall be imposed on the first
P3,000,000. The excess of the threshold shall be subject to VAT .
 Percentage tax due on the P3,000,000 shall be collected without penalty if timely paid
on the due date immediately following the month the threshold was breached,
Special Alien Employees (SAES) and Special Filipino Employees or Filipino Counterparts
45. As a rule, the following individuals are liable for final income tax equal to 15% of their
gross compensation income prior to 2018 taxable year, except
a. An alien employee of an Offshore Banking Unit
b. An alien employee of Petroleum Service Contractors and Subcontractors
c. An alien employee of Regional, or Area Headquarters of Multinational Companies
d. An alien employee of a Resident Foreign Corporation
 Answer: D
46. Statement 1: Prior to 2018 taxable year. SAEs as well as SFES of regional or area headquarters
established in the Philippines by multinational companies shall be subject final tax of 15% on
their gross compensation income in the Philippines.
Statement 2: Generally, a nonresident alien not engaged in trade or business is subject to 25%
creditable withholding tax on their gross income in the Philippines.
 Answer: D
Statement 1: The statement is False. Refer to the following rules:
 Prior to 2018, SAEs are subject to 15% preferential income tax rate on
 SFEs employed in PCs and OBUs are likewise subject to 15% preferential income tax rate
on their compensation income. However, compensation income of SFES employed by
RHQs/ROHQs may be taxed under section 24A of the tax code (basic income tax) or 15%
preferential income tax rate at the option of the SFE provided the three (3) conditions
provided under RR11-2010 were all complied with. Refer to the next question for the
three (3) requirements to qualify for 15% preferential income tax rate.
Statement 2: The statement is False.

 NRA-NETB is subject to final withholding tax of 25% rather than creditable withholding
tax.
47. Prior to 2018 taxable year, Filipino counterparts of aliens employed by regional or area
headquarters and regional operating headquarters of multinational companies in the Philippines,
which are engaged in international trade with affiliates and subsidiary branch offices in the Asia-
Pacific region may be taxed at 15% preferential tax rate subject to the following rules:
IV. The employee must occupy managerial or technical position and must be exercising
such functions pertaining to said position.
V. The employee must have received or is due to receive under a contract of employment,
a gross taxable compensation income of at least P975,000 (actually/constructively
received).
VI. The employee must be exclusively working for the RHQ or ROHQ as a regular employee
and not just a consultant or contractual personnel.
a. I and II only c. All of the above
b. I and III only d. None of the above
 Answer: C
48. Statement 1: Prior to 2018 taxable year, a change in the compensation income of a
Filipino employee employed by a regional or area headquarters and regional operating
headquarters of multinational companies in the Philippines, as a consequence of which, the
employee subsequently receiving less than the compensation threshold for the calendar year
when the change becomes effective, result in the employee being subject to the regular income
tax rate.
Statement 2: Prior to 2018 taxable year, a special Filipino employee employed by an Offshore
Banking Unit or Petroleum Contractors/Subcontractors receiving gross compensation income
lower than P975,000 for the calendar year shall result in the employee being subject to the
regular income tax rate.
A B C D
 Answer: C
 The three (3) requirements (position test, compensation threshold test and exclusivity
test) to qualify for the fifteen percent (15%) preferential tax rate on compensation
income shall apply only to SFEs employed by a regional or area headquarters or regional
operating headquarters of multinational companies in the Philippines.
 BEGINNING JAN. 1. 2018, SAES AND SFES ARE NOW SUBJECT TO BASIC INCOME TAX ON
THEIR COMPENSATION INCOME. HENCE, FOR INCOME TAXATION PURPOSES, THEY
SHALL NO LONGER BE CLASSIFIED AS SPECIAL EMPLOYEES.
49. For purposes of computing the P975,000 compensation threshold of SFEs employed by
a regional or area headquarters and regional operating headquarters of multinational companies
in the Philippines prior to 2018 taxable year, "gross compensation income” shall include:
IV. Salaries, wages and compensation
V. Annuities and remuneration
VI. Other emoluments such as honoraria and allowances, including income subject to fringe
benefit tax
a. I and II only c. II and III only
b. I and III only d. I, II and III
 Answer: A
 Item Ill" is wrong, it shall exclude FBs subject to FBT
 Under the Tax Code, EXCLUDE the following:
 FBs subject to FBTs
 Retirement benefits (taxable or not)
 Separation pay (taxable or not)

50. Statement 1: An employee occupying “managerial position" is one who is vested with powers
or prerogatives to lay down and execute management policies and/or employees.
Statement 2: "Exclusivity" means just having one employer at a time.
 Answer: C
51. "Technical Position" as described in RMC 41-09 (as amended) are limited only to positions
that are:
III. Highly technical in nature
IV. Where there are no Filipinos who are competent, able and willing to perform
the services for which the aliens are desired.
b. ll only d. Neither I nor II
 Answer: C
52. The 15% preferential tax imposed upon aliens and qualified Filipinos, prior to 2018
taxable year, should be treated as:
A B C D
Final withholding tax, True False True False
Creditable W. Tax True False False True
 Answer: C
53. In 2017, Jaime (resident citizen) is employed by an offshore banking unit holding
managerial position. His compensation income is subject to a preferential tax rate of 15%.
Assume that Jaime likewise earned interest income from a depository bank under the Expanded
Foreign Currency Deposit System in the Philippines, the applicable tax on such income shall be:
a. 7.5% FWT c. 20% FWT
b. 15% FWT d. graduated rate

 Answer: A
 Prior to the effectivity of TRAIN Law, "other income" of Special
Filipino Employees (SFEs) shall be taxable in the same manner as resident
citizens.

Use the following data for the next six (6) questions
Hajib, a Russian national who is an employee in the regional area headquarter of a multinational
corporation, occupying “managerial position, had the following data for taxable year 2016:
Monetary value of fringe benefits subject to fringe benefit tax 170,000
Interest income from foreign currency deposit under FCDS 20,000
PCSO winnings (gross) 1,000,000
Gain from sale of shares of a domestic corporation sold directly to a buyer 150,000
Gain from sale of a vacant lot in Quezon City held as investment 500,000
(SP=P1,500,000; Cost=P1,000,000; Zonal Value=P2,500,000)
54. The amount of income subject to a preferential tax rate of 15% should be:
a. P0 c. P750,000
b. P650,000 d. P910,000
 Answer: C
Solution:
Total P750,000
55. The capital gain's tax is:

a. P10,000 b. P160,000
b. P40,000 d. P165,000
 Answer: C
On shares of stock = P100,000 x 5% + (50,000 x 10%) P10,000
On real property = P2.5M x 6% 150,000
TOTAL CGT P160,000

56. The total income tax expense of Hajib in the Philippines is:
a. P535,000 c. P570,000
b. P595,000 d. P315,000
 Answer: B
Solution:
Subject to preferential tax rate = P750,000 x 15% P112,500
Subject to 15% FBT = P170,000/85% x 15% 30,000
CGT (as computed in the preceding number) 160,000
Income subject to 25% FWT:
Dividend income from DC P40,000
Interest income - FCDS Exempt
PCSO winnings 1,000,000
Total 1,170,000
Tax Rate 25% 292,500
 Income Tax Expense = Basic Tax + FWT on Passive Income + CGTS

 De minimis benefits are tax exempt Interest income from bank deposit under FCDS is
exempt.
 Prior to 2018, SAEs are treated as NRAS-NETB with respect to their other income.
Consequently, such interest income is tax exempt.
57. Assuming the taxpayer is a Special Filipino Employee, the amount of income subject to
a preferential tax rate of 15% should be:
a. P0 c. P650,000
b. P600,000 d. P750,000
 Answer: A
 Since the total compensation composed of salaries, allowances/honoraria and one
emoluments is not at least P975,000. The SFE shall be subject to basic income tax under
section 24(A) instead of 15% preferential tax rate.
58. Using the assumption above, the SFE's total combined taxes on all income from the
Philippines is:
a. P380,500 c. P595,000
b. P304,000 d. P410,500
 Answer: D
CGT (as computed in the foregoing number) P160,000
FBT (P170,000/85% x 15%***) 30,000
FWT on Passive incomes:
Dividend income from DC @ 10% P4,000
Interest income from peso bank deposit @ 20% 10,000
Interest income-FCDS @ 7.5% 1,500
PCSO winnings Exempt
Raffle draw winnings @ 20% 16,000 31,500
BASIC INCOME TAX:
Salaries, allowances, honoraria P750,000
Basic Personal exemption (50,000)
Basic Tax under Section 24(A) 189,000
 ***The SFE (as discussed in preceding numbers) is not qualified for the 15% preferential
tax rate. However, the fringe benefits received shall still be subject to 15% FBT because
under RR 11-2010, the option to be subject to 15% preferential tax rate and the
coverage of fringe benefit tax are independent to each other. Thus, as provided in the
aforementioned RR, there would be instances where a Filipino employee shall enjoy
15% preferential tax rate. But may not be covered by fringe benefit tax for not being a
supervisory/managerial employee. Likewise, there would be instances where such SFE
may not be subject to 15% preferential tax rate due to failure to meet any of the three
(3) tests discussed earlier but may be subject to 15% FBT for being a "managerial"
employee. The taxpayer in this particular case is occupying a managerial position.
59. Assuming the taxpayer is a Special Filipino Employee employed by an Offshore Banking
Unit, the amount of income subject to a preferential tax rate of 15% should be:
a. P0 c. P650,000
b. P600,000 d. P750,000
 Answer: D
Prior to the effectivity of TRAIN Law, if the SFE is employed by an OBU or PC/SC, the
compensation income shall be subject to 15% preferential tax rate. The option to be
taxed at 15% preferential tax rate if the SFE is an employee of ROHQ/RHQ is not
applicable for SFEs employed by OBUs and PCs/SCs.

60. Bryan is a Filipino executive employed by a regional operating headquarters (ROHQ) in the
Philippines, begins his employment on June 1, 2015. His employment contract stipulates that he
shall receive an annual compensation income of P975,000 inclusive of 13th month pay. At the
end of the year, he received P568,750 composed of P525,000 basic pay (P975,000/13 x 7months)
and P43,750 as 13th month pay. Based on the above data, can Bryan choose to be taxed at 15%
preferential rate?
e. Yes, because his employment contract states that he shall receive an
annual compensation income that meets the threshold, whether he actually receives
this or not
f. Yes, because an employee of ROHQ is qualified to be taxed at 15% preferential rate.
g. No, because his total gross compensation income at the end of the year does not meet
the threshold amount.
h. No, Filipinos employed by ROHQs do not have the option to be taxed at 15% preferential
tax rate,
 Answer: C.
61. Leomar, resident citizen, is the Head for Operations of a regional operating
headquarters (ROHQ) in the Philippines. His compensation income during 2018 amounted to
P1,800,000 exclusive of 13th month pay and other bonuses. Can Leomar choose to be taxed at
15% preferential rate?
e. Yes, because he is expected to receive an annual compensation income that exceeds the
threshold
f. b. Yes, because an employee of ROHQ is qualified to be taxed at 15% preferential
rate even during the effectivity of RA No. 10963 (TRAIN Law).
g. No, because his total gross compensation income at the end of the year does not meet
the threshold amount
h. No, the 15% preferential tax rate is no longer applicable beginning January 1, 2018 as
provided for under RA No. 10963, otherwise known as the TRAIN Law.
 Answer: D
62. A Malaysian occupying a managerial position in an Offshore Banking Unit located in

Taguig had the following data for taxable year 2015.
De minimis benefits 5,000
Interest income from deposit substitutes 20,000
Interest income from long-term Philippine Bank Deposit 10,000
Gain from sale of shares of stock of a domestic corporation
held as investment sold outside of the local stock exchange 175,000
The total income tax expense of the taxpayer is:
a. P73,000 c. P63,000
b. P70,500 d. P83,000
 Answer: D
15% Preferential Tax (P170k x 15%) P25,500
25% on other income (P180k x 25%) 45,000
CGT [(100k x 5%) + (75k x 10%)] 12,500
 NRAs-NETB and SAEs are not exempt from tax on their interest income derived from
long-term bank deposit in the Philippines.
63. Assuming the taxpayer is a Special Filipino employee, his total income tax expense is:
a. P56,500 c. P57,000
b. P58,500 d. P83,000
 Answer: C
15% Preferential. Tax (P170k x 15%) P25,500
Final Tax on deposit substitute (P20,000 x 20%) 4,000
Interest income on long-term deposit exempt
CGT(as previously computed) 12,500
 As previously discussed, SFEs employed by OBUs and PCs/SCs shall always be subject to
15% preferential tax rate on their gross compensation income.
64. Abdul, a foreign national employed by a regional area head quarter of a

multinational corporation, occupying managerial position, had the following data for taxable year
2018:
Gain from sale of shares of a domestic corporation sold directly to a 150,000
buyer
Gain from sale of shares of a domestic corporation listed in the local
stock exchange 85,000
The total income tax expense of Abdul in the Philippines is:
a. P127,500 c. P140,510
b. P140,000 d. P152,7500
 Answer: B
Solution:
Basic income tax based on P750,000 P117,500
[P30,0000 + (P350,000 x 25%)]
CGT (P150,000 x 15%) 22,500
 The de minimis benefits (within the ceiling) is tax-exempt

 The sale of shares of domestic corporation listed in the local stock exchange is exempt
from income tax. However, it is subject to a business tax of 6/10 of 1% of gross selling
price.
Jaime (resident citizen) is employed by an offshore banking unit holding managerial position. His
compensation income is subject to a preferential tax rate of 15%.
a. 7.5% FWT c. 20% FWT
b. 15% FWT d. 25% FWT
 Answer: A
 As “income other than compensation", Jaime shall be taxed as a resident
citizen.
66. Assume that Jaime is an alien employee, the applicable tax on his interest income from
FCDS deposit shall be:
a. 7.5% FWT c. 20% FWT
b. 15% FWT d. 25% FWT
 Answer: D
 As to his income “other than compensation income", a Special Alien Employee
(for taxable year prior to 2018 shall be taxed as a nonresident alien not
engaged in trade or business .
a. 7.5% FWT c. 20% FWT
b. 15% FWT d. 25% FWT
 Answer: B
Final Taxes on Passive Income derived from Philippine Sources
68. Statement 1: Passive incomes are subject to separate and final tax rates.
Statement 2: Passive incomes are included in the computation of taxable income from
compensation or business/professional income.
A B C D
Statement 2. True False False True
 Answer: C
Statement 2 is False. The liability of the taxpayer for passive incomes subjected to the
withholding taxes is already PO because the taxes withheld already constitute final and
te payment of the applicable tax. Hence, shall not be included anymore in the
determination of "taxable income" of the taxpayer subject to basic income tax
under Section 24A of the tax code. Consequently, such income shall be excluded in the
ITR of the taxpayer.
69.Statement 1: Tax on certain passive income is a capital gains tax

Statement 2: Other income, for income tax purposes, is excluded in the determination of an
individual taxpayer's returnable income.
A B C D
 Answer: B
 Certain passive incomes are subject to final taxes
 Other incomes are returnable (included in the computation of the taxpayers
taxable income subject to graduated tax rate)
70. Which of the following shall not be subject to the 20% final tax beginning January 1, 2018?
e. Amount of interest from any currency bank deposit and yield or any other
monetary benefit from deposit substitutes and from trust funds and similar
arrangements
f. Winnings other than Philippine Charity Sweepstakes and Lotto winnings,
regardless of amount
g. Philippine Charity Sweepstakes and Lotto winnings exceeding P10,000
h. Prizes amounting to ten thousand pesos (P10,000) or less
 Answer: D
 “D” is subject to basic tax

e. To be subject to final tax, passive income must be from Philippine sources.
f. An income which is subject to final tax is excluded from the computation of
income subject to Section 24 (A) of the tax code.
g. Lotto winnings in foreign countries are exempt from income tax in the
Philippines.
h. None of the above
 Answer: C
 Subject to basic tax if the taxpayer is a resident citizen.

V. Beginning January 1, 2018, PCSO/Lotto winnings of not more than P10.000 received by
citizens, residents and non-resident aliens engaged in trade or business are exempt from
income tax.
VI. Beginning January 1, 2018, PCSO/Lotto winnings of more than P10,000 received by
citizens, residents and non-resident aliens engaged in trade or business are subject to
20% final withholding tax.
VII. Beginning January 1, 2018, PCSO/Lotto winnings of not more than P10.000 received by
non-resident aliens not engaged in trade or business are exempt from income tax.
VIII. Beginning January 1, 2018, PCSO/Lotto winnings of more than P10,000 receiver by non-
resident aliens not engaged in trade or business are subject to 25% final withholding tax.
a. I only c. I and IV only
b. I and II only d. All of the above
 Answer: A
 "ll" is wrong. PCSO and Lotto winnings are exempt from income tax under
TRAIN Law if the taxpayer is classified as NRANETB.
 “III and IV" are false. NRANETB is subject to 25% regardless of the amount of
PCSO and Lotto winnings.

I. Prizes of not more than P10,000 received by citizens, residents and non-resident aliens
engaged in trade or business are exempt from income tax.
II. Prizes of more than P10,000 received by citizens, residents and non-resident aliens
engaged in trade or business are subject to 20% final withholding tax.
III. Prizes of not more than P10,000 received by non-resident aliens not engaged in trade or
business are exempt from income tax. IV.
IV. Prizes of more than P10,000 received by non-resident aliens not engaged in trade or
business are subject to 25% final withholding tax.
a. Il only c. II and III only
b. I and II only d. II and IV only
 Answer: A
 "l"is wrong. It is subject to basic income tax.
 “lll and lV" are wrong. Prizes received by NRANETB are subject to 25% FWT
regardless of amount.
 If silent, assume the income is derived from sources within the Philippines.
74. Statement 1: All royalty income derived from sources within the Philippines are subject
to final withholding tax.
Statement 2: All royalty income derived from sources outside of the Philippines received by
resident citizens are subject to basic income tax.
 Answer: C
75. A non-resident alien not engaged in trade or business derived P50.000 interest income I his
long-term bank deposit here in the Philippines. How much is the income tax due said alien?
a. P10,000 c. P5,000
b. P12,500 d. nil
 Answer: B
 FWT = P50,000 x 25% = P12,500.
 Tax exemption on long-term bank deposit or investment is not applicable to NRANETB

a. Interest income on bank deposit or investment with maturity period of at least five
years is exempt from income tax.
b. Interest income on treasury-bond with maturity period of at least five (5) years is
exempt from income tax.
c. The tax exemption on long term bank deposit or investment extends to all types of
taxpayers.
d. All of the above
 Answer: A
“B” is subject to 20% FWT. The exemption is applicable only to long-term bank deposit
or investment “C” is wrong. The exemption is not applicable to NRANETBS
77. Which of the following income of an individual taxpayer is subject to final tax?
a. P10,000 prize in Manila won by a resident citizen.
b. Dividend received by a resident citizen from a resident foreign corporation.
c. Shares in the net income of a general professional partnership received by a resident
citizen.
d. Dividend received by a non-resident alien from a domestic corporation.
 Answer: D
"A" is subject to basic income tax. The amount is not more than P10,000
“B” and “C” are likewise subject to basic income tax
78. Which of the following interest income derived within the Philippines is subject to basic
income tax?
a. Interest income from bank deposits
b. Interest income from loans
c. Interest income from deposit substitutes
d. Interest income from trust funds
 Answer: B
 A, C and D are subject to 20% FWT
79. Statement 1: "Deposit Substitutes", as defined in Section 22(Y) of the NIRC of 1997. amended
means an alternative form of obtaining funds from the public other than deposits through the
issuance, endorsement, or acceptance of debt instruments for the borrower's own account, for
the purpose of re-lending or purchasing of receivables and other obligations, or financing their
own needs or the needs of their agent or dealer.
Statement 2: "Public", is defined as borrowing from twenty (20) or more individual or corporate
lenders at any one time.
A B C D
Statement 1 True True True False
Statement 2. True True False False
 Answer: A
80. Statement 1: Any income of nonresident individual taxpayers from transactions

with depository banks under the expanded foreign currency deposit system shall be exempt from
income tax.
Statement 2: Any income of nonresident individual taxpayers from transactions with offshore
banking units shall be exempt from income tax.
 Answer: C
81. Which of the following interest income by a resident taxpayer is subject to 15%?
a. Interest income from peso bank deposits
b. Interest income from deposit substitutes
c. Interest income trust funds
d. Interest income on dollar deposits
 Answer: D
The tax rate prior to 2018 was 7 12%
82. Which of the following statements is true?

a. The final tax on compensation income of special aliens is 25% of the gross income.
b. Interest income from a foreign currency depository unit in the Philippines of a non
resident alien is not subject to final tax
c. Prizes exceeding P10,000 derived by non-resident alien not engaged in trade of
business here in the Philippines is subject to a final tax of 20%
d. Share in earnings received by non-resident alien from a domestic partnership is
subject to basic tax.

 Answer: B
The 15% FWT on interest income derived from a foreign currency bank deposit under
FCDS or FCDU (previously 7 22%) is applicable only to "resident" taxpayer "nonresident”
taxpayers are exempt from such tax.
83. If an account in a depository bank under the foreign currency deposit system is jommy" name
of a nonresident citizen such as an overseas contract worker, or a Filipino seaman, and his spouse
or dependent who is a resident of the Philippines, the interest on such deposit shall be (assume
2018 taxable year):
a. Exempted in its entirety.
b. Subject to final withholding tax of 15% in its entirety.
c. 50% exempt and 50% subject to final withholding tax of 15%.
d. Subject to regular income tax rates for individuals.
 Answer: C
Interest income on foreign currency deposits under FCDS/FCDU is subject to 15% FW.
beginning January 1, 2018 under TRAIN Law (previously 7 12%) except if the depositor is
a nonresident as discussed in the preceding number. Since the deposit in this particular
case is "jointly” in the name of a resident and a nonresident, only 50% of the income
shall be taxable.
84. A non-resident alien derived interest income only in his bank deposit here in the Philippines
under the FCDU system of a domestic bank. The interest amounted to $500. How much is the
income tax due of the said alien? ($1=Php50)
a. P0 c. P8,000
b. P3,000 d. P10,000
 Answer: A
85. A taxpayer received during the taxable year the following passive income derived from
within the Philippines:
Interest on bank deposit under FCDU (net) P231,250
Royalty on a software application (gross) 95,000
Dividend income RFC (gross) 150,000

If taxpayer is a non-resident alien engaged in business, the final tax on the above passive income
would amount to
a. P52,750 c. P28,250
b. P19,000 d. P37,750
 Answer: B
Solution:
FCDU Exempt
Royalty (P95 x 20%) 19,000FWT
DI from FC Subject to basic tax
86. Which of the following passive income is exempt from tax when received by resident or
citizen and nonresident aliens engaged in trade or business in the Philippines but subject to 25%
final tax when received by nonresident aliens not engaged in trade or business?
a. Prizes of more than P10,000
b. Interest income from long-term deposit or instrument evidenced by certificates
prescribed by Bangko Sentral ng Pilipinas
c. Yield or any other monetary benefit from trust funds and similar arrangements
d. Other winnings
 Answer: B
Interest income derived from long-term bank deposit or investment in the Philippines is
exempt from income tax. Nonetheless, such exemption is not applicable to NRAS-NETB
and SAEs.
87. Which of the following statements about interest income from long-term deposit is false?
a. Interest income from long-term deposit or investment is exempt from income tax.
b. If a long-term deposit or investment is pre-terminated, the applicable tax rate on the
interest income is 0% if the holding period is 5 years or more.
c. If a long-term deposit is pre-terminated, the applicable tax rate on the interest
income is 0% if the holding period is 4 years to less than 5 years.
d. If a long-term deposit is pre-terminated, the applicable tax rate on the interest
income is 12% if the holding period is 3 years to less than 4 years.
 Answer: C
88. An instrument with a maturity period of ten (10) years was held by juan (resident citizen)
for two (2) years and was transferred to Smith (resident alien), who, in turn, held it for eight (8)
years. The final withholding tax should be as follows:
A B C D
Juan - 12% final tax True True True False
Smith – exempt True False False True

 Answer: A
89. An instrument with a maturity period of ten (10) years was held by Juan (nonresident, went
citizen) for three (3) years and transferred it to Smith, a resident alien. Smith held it for two (2)
years before subsequently transferring it to Pedro (resident citicen who held it until the day of
maturity or for a period of five (5) years. The final withholding tax should be as follows:
A B C D
Juan - 12% final tax True True True True
Smith - 20% final tax True True False False
Pedro - exempt True False False True
 Answer: A
90. An instrument with a maturity period of ten (10) years was held by Smith (nonresident
alien engage in trade or business) for three (3) years and transferred it to Juan, a resident citizen.
Juan held it for two (2) years before subsequently transferring it to James (resident alien) who
pre-terminated it after four (4) years. The final withholding tax are as follows:
A B C D
Smith – 12% final tax True True True True
Juan - 20% final tax True True False False
James - exempt True False False True
 Answer: B
91. Mr. X, a resident citizen, appoints Bank A-Trust Department to manage his money created
through a trust agreement. Bank A Trust Department then invests said money in a long term
investment (10-year corporate bond) of XYZ Corporation under the account name “Bank A - Trust
Department". Mr.X did not withdraw his money from such trust agreement for at least five (5)
years. The interest of Mr. X from the corresponding trust agreement is.
a. Exempt from income tax
b. Subject to 15% preferential tax rate
c. Subject to 20% final tax
d. Subject to basic income tax
 Answer: C
The long-term deposits or investment certificates should be under the name of an
individual and not under the name of a corporation or a bank or a trust department unit
of a bank.
92. On January 1, 2016, Pedro purchased at face value 1,000 P1,000 face value bonds of San
Miguel Corporation, a domestic corporation. The bonds were dated January 1, 2016 and mature
on January 1, 2028. The bonds pay 10% annual interest every December 31. Pedro sold the
investment directly to Juan on December 31, 2018 at 102. Which of the following statements is
true?
a. The interest income from the investment is subject to a final withholding tax of 5%
b. The interest income from the investment is subject to a final withholding tax of 12%
c. The gain on sale is subject to a final withholding tax rate of 20%
d. The gain on sale is subject to basic income tax
 Answer: D
 The interest income is subject to 20% FWT (deposit substitute)
 Gain on sale is subject to basic tax, unless qualified for exemption (sale of long-
term debt securities with maturity period of more than five years). Since the
investment was sold within two (2) years from purchase, any gain on sale is
taxable.
93. On January 1 2014. Lorna invested P1,000,000 to BDO's 5-year, tax-free time deposit. The
long-term deposit pays 10% annual interest every January 1. In need of cash, Lorna pre
terminated her investment on July 1, 2017. How much is the final tax due?
a. P6,000 c. P17,500
b. P12,000 d. P42,000
 Answer: D
 FWT = P1M X. 10% x 3.5 years x 12% tax rate on pre-termination = P42,000
In case of pre-termination of the long-term

deposit or investment, depending
on the holding period: Exempt Exempt 25%
 5 years or more 5% 5% 25%
 Less than 3 years

94. Assuming the same information in the problem above, except that the investment was
made by a domestic corporation, how much final tax is withheld in the year of pre-termination?
a. P2,500 c. P10,000
b. P6,000 d. P12,000
 Answer: C
 FWT = P1M x 10% x.5 year x 20% = P10,000
 The investment is not under the name of an individual taxpayer, hence, not
subject to tax rules on pre-termination.
95. Which of the following royalties earned within the Philippines is not subject to 10%
final withholding tax?
a. Royalties from computer software
b. Royalties from books
c. Royalties from literary works
d. Royalties from musical compositions
 Answer: A
96. Which of the following statements is not correct?
a. Interest income from long term deposit is exempt from income tax.
b.Winnings from Philippine Charity Sweepstakes prior to 2018 taxable year are
exempt from income tax.
c. Royalties on books, literary works and musical compositions are subject to 10% non
creditable withholding tax.
d. A prize of P10,000 is subject to 20% final tax.
 Answer: D
 The amount is not more than P10,000, hence, subject to basic income tax.
 Royalty income is subject to final tax, hence, non-creditable.
97. Lebron James received royalty fee from Viva Records Corporation, a domestic corpora for his
musical compositions under the album "Whatever it Takes". James is an Amell composer and has
never set foot in the Philippines.

The royalty fee shall be subject to:
a. 15% FWT c. 25% FWT
b. 20% FWT d. 5%-32% graduated tax rate
 Answer: C James is classified as NRA-NETB in the Philippines.

98. If the amount of prize received did not exceed P10.000, what type of income tax will apply?
a. Final withholding tax on passive income
b. Capital gains tax
c. Basic income tax
d. Fringe benefit tax
 Answer: C
99. If the amount of prize in the preceding number was received by a non-resident alien
not engaged in trade or business, what type of income tax will apply?
a. Final withholding tax
c. Basic income tax
 Answer: A

100. The following winnings are exempt from income tax prior to the effectivity of RA No.
10963 (TRAIN Law), except?
a. Lotto winnings
b. Winnings from PCSO
c. Winnings from raffle of a private company
d. None of the choices
 Answer: C
101. If the amount of PCSO/Philippine lotto winnings received by a resident citizen in 2018
did not exceed P10,000, what type of income tax will apply?
c. Basic income tax
d. Exempt
 Answer: D
Exempt from income tax
102. If the amount of PCSO/Philippine lotto winnings received by a nonresident alien
not engaged in trade or business did not exceed P10,000, what type of income tax will apply?
C. Basic income tax
d. Exempt
 Answer: A
If the recipient is NRANET, it shall be subject to 25% FWT regardless of the amount of
the winnings.

103. If the amount of PCSO/Philippine lotto winnings received by a resident citizen and
resident alien in 2018 is more than P10,000 , what type of income tax will apply?
c. Basic income tax
d. Exempt
 Answer: A; 20%FWT
104. If the PCSO/Lotto winning in the preceding number was received by a non-resident
alien engaged in trade or business, what type of income tax liability will apply?
c. Basic income tax
d. Exempt
 Answer: D; the provision on PCSO/Lotto winnings received by NRA-ETB was not

amended under the TRAIN Law.
105. The following taxpayers who received a dividend income from a domestic corporation
will received net of 10% final withholding tax, except:
a. Resident citizen
b. Non-resident citizen
c. Resident alien
d. Non-resident alien engaged in trade or business
 Answer: D
RECEIVED BY
RC NRC RA NRAET NRANET
Cash and/or Property Dividend from
 Domestic Corporation 10% FWT 20% FWT 25% FWT
 From Foreign Corp. (RFC, NRFC) Basic Tax Basic Tax 25% FWT
Stock dividend/ Liquidating Dividend from
 Domestic Corporation Generally non-taxable
 From Foreign Corp. (RFC, NRFC)
106. Which of the following cash and/or property dividends actually or constructively received by
an individual shall not be subject to final tax but to regular income tax for individuals?
a. Cash and/or property dividends from a domestic corporation or from a joint
stock company
b. Cash and/or property dividends from insurance or mutual fund companies
c. Cash and/or property dividends from regional operating headquarters o
companies operating headquarters of multinational companies
d.Cash and/or property dividends from a nonresident foreign corporation
 Answer: D
 A Subject to basic tax (refer to table above)
107. Which of the following income of a non-resident citizen will be taxed differently if
the taxpayer is non-resident alien engage in trade or business?
a. Interest income
b. Royalties
c. Dividends
d. Prizes
 Answer: C
108. Which of the following income will be taxed in the same manner regardless of
the classification of the taxpayer?
a. Capital gain on sale of land and/or building
b. Capital gain on sale of shares of stock of a domestic corporation
c. Ordinary gain on sale of land and/or building
d. Ordinary gain on sale of shares of stock of a domestic corporation
 Answer: B
Situs of Dividend Income

Sandara, a nonresident Korean stockholder, received a dividend income of P300,000 in 2018
from Super Bowl Corporation, a foreign corporation doing business in the Philippines. The gross
income of the foreign corporation from sources within and without the Philippines for the past
three years preceding 2018 is provided as follows:
Source 2015 2016 2017
Philippines P16,000,000 P15,000,000 P17,000,000
Abroad 8,000,000 11,000,000 13,000,000
109. The amount of income subject to tax should be:

a. P0 c. P180,000
b. P120.000 d. P300,000
 Answer: C
 Dividend income is a passive income, not a business income. Hence. Sandara is
a nonresident alien not engaged in trade or business. She is taxable on "gross"
income derived from Philippine sources.
SITUS of Dividend Income .

 IF from DC = income within (in all cases)
 IF from Foreign Corp = GR: income without
However, if the ratio of gross income from Philippine sources over world income for the past
three (3) years is available, the following rules shall apply:
 Ratio is less than 50% = treated as derived purely from without the Philippines
 Ratio is at least 50% = treated as derived partly from within and without the Philippines.

 In the problem provided, the ratio of gross income from within the Philippines
over world income for the past three (3) years of the foreign corporation is 60%
computed as follows: Ratio of GL Phls./GI world = P48,000/80,000 = 60%
Therefore, income derived from within the Philippines = P300,000 x 60% =
P180,000

110. Sandara is subject to:
a. Basic income tax on P180,000
b. Basic income tax on gross income of P300,000
c. Final withholding tax of 25% on P180,000
d. Final withholding tax of 25% on gross income of P300,000
 Answer: C
 A nonresident alien not engaged in trade or business in the Philippines is
subject to 25% final withholding tax based on gross income.
111. Assuming Super Bowl is a domestic corporation, the amount of income subject to tax
should be:
a. P0 c. P180,000
b. P120,000 d. P300,000
 Answer: D
 Dividend income received from a domestic corporation is considered income
derived purely from Philippine sources.
112. Sandara, a nonresident citizen, received a dividend income of P300.000 in 2018 from
Super Bowl Corporation, a foreign corporation doing business in the Philippines. The gross
income of the foreign corporation from sources within and without the Philippines for the past
three years preceding 2018 is provided as follows:
Source 2015 2016 2017
Philippines P14,000,000 P10,000,000 P12,000,000
Abroad 10,000,000 16,000,000 18,000,000
113. The amount of income subject to tax should be:

a. P0 c. P165,000
b. P135,000 d. P300,000
 Answer: A
 The taxpayer is a nonresident citizen hence, taxable only on income derived
from Philippine sources.
 The ratio of gross income from within the Philippines over world income for the
past three (3) years of the foreign corporation is 45% (ratio = P36,000/80,000),
If the ratio is at less than 50%, the dividend income shall be treated as derived
purely from sources without the Philippines,
Share in the Net Income of a Partnership and Joint Venture

114. Share in the net distributable income of a general co-partnership by a resident citizen
is subject to:
a. 10% final withholding tax
b. 20% final withholding tax
c. 6% capital gains tax
d. Basic income tax
 Answer: A
 General partnerships or commercial/trading partnerships are treated as
corporate taxpayers for tax purposes. Therefore, share in income from such
partnerships shall be treated as dividend income.
115. Share in the net distributable income of a general professional partnership by a
resident citizen is subject to:
a. 10% final withholding tax
b. 20% final withholding tax
c. 6% capital gains tax
d. Basic income tax
 Answer: D
 General “professional" partnerships are tax exempt and not treated as
“corporate" taxpayers for tax purposes. Therefore, share in income from such
partnerships shall be not treated as dividend income.
116. If a non-resident citizen received his share in the income of a taxable joint venture,
what type of income tax that will apply on the said income?
c. Basic income tax
 Answer: A
 A The share in income from a taxable joint venture is treated as
dividend income.
117. Based on the preceding number, except that the joint venture is exempt from income
tax. what type of income tax will apply on the said income?
c. Basic income tax
 Answer: "C"
 The share in income from a tax-exempt joint venture is not treated as dividend
income
 TWO (2) types of tax exempt joint ventures:
 Joint venture formed for the purpose of undertaking construction projects pursuant to
Presidential Decree (PD) No. 929 (dated 4 May 1976) to assist local contractors in
achieving competitiveness with foreign contractors by pooling their resources in
undertaking big construction projects.
 Joint venture or consortium for engaging in petroleum, coal, geothermal and other
energy operations pursuant to an operating consortium agreement under a service
contract with the government.
118. LJ and Fermin formed a joint venture. They agreed to share profit or loss in the ratio of
70% and 30%, respectively. The results of operations for 2017 taxable year were provided below:
Joint Venture LJ Fermin
Gross income P5,000,000 3,000,000 2,000,000
Business expenses 3,000,000 2,000,000 1,000,000
The total income tax expense of LJ in 2017 is:

a. P0 c. P269,000
b. P367,000 d. P582,600
 Answer: B
Joint Venture LJ Fermin
Gross income 5,000,000 3,000,000 2,000,000
Business Expense (3,000,000) (2,000,000) (1,500,000)
Basic Personal exemption – (50,000) (50,000)
Taxable Net income P2,000,000 P950,000 P450,000
Tax rate/ tax table 30%
• Corporate Income Tax P60,000
• Basic Tax using the Old Tax Table P268,000 P110,000
Distributable income (P2M-.6M) = P1.4M

Final tax @10% on share in income of JV
LJ = P1.4M x 70% x 10% 98,000
Fermin = P1.4M X 30% x 10% 42,000
Total income tax expense P600,000 P367,000 P152,000
119. Assume the joint venture is nontaxable, the total income tax expense of LJ is
a. PO c. P301,000
b. P367,000 d. P717,000
 Answer: D
Solution:
Joint LJ Fermin
Venture
Gross income P5,000,000 P3,000,000 P2,000,000
Business expenses (3,000,000) (2,000,000) (5,000,000)
Net Income P1,000,000 P1,000,000 P500,000
P2,000,000
Distributable income P2,000,000
Share in income
LJ = P2M x 70% 1,400,000
Patricia = P2M x 30% 600,000
Basic Personal Exemption (50,000) (50,000)
Taxable income P2,350,000 P1,050,00
Income Tax Expense (OLD Tax Table) P717,000 301,000
Capital Gains Tax
120. Which of the following sale transactions will be subject to capital gains tax?
a. Sale of shares of stock by a dealer in securities
b. Sale of shares of stock during an Initial Public Offering
c. Sale of shares of stock not through the local stock exchange by a person who is not
a dealer in securities
d. Sale of shares of stock through the local stock exchange by a person who is not
a dealer in securities
 Answer: C
Use the following data for the next four (4) questions:
Bryan sold the following shares of stock of domestic corporations which he bought for
investment purposes:
Listed and Traded Not Listed and Traded
Selling price 250,000 143,680
Selling expense 12,000 3,680
Cost 118,000 80,000
121. Determine the capital gains tax assuming the sale was made in 2017 (before effectivity
of TRAIN Law) and 2018 (upon effectivity of TRAIN Law)
2017 2018
a. P3,000 P9,000
b. 3,184 9,552
c. 3,184 9,000
d. 3,000 9,552
Answer: A
2017:
 CGT = 5% on 1st P100,000 gain; 10% in excess of P100,000 gain
 CGain = P143,680 - 3,680 - 80,000 = P60,000
 CGT = P60,000 x 5% = P3,000
2018 (TRAIN Law):

 CGT = 15% of capital gain
 CGT = P60,000 x 15% = P9,000
122. Bryan's total income tax expense for 2017 and 2018 is:
2017 2018
a. P3,000 P9,000
b. 4,250 30,552
c. 3,0552 9,000
d. 9,000 4,250
 Answer: A
 Income tax expense = Basic income tax + FWT on passive income + CGT.
 The sale of listed shares is not subject to income tax, but to stock transaction
tax of 12 of 1% of GSP prior to 2018 6/10 of 1% of GSP beginning Jan. 1, 2018
(TRAIN Law)
123. Assume Bryan is a dealer in securities, the capital gains tax in 2017 and 2018 is
2017 2018
a. P3,000 P9,000
b. 9,000 3,000
c. 0 9,000
d. 0 0
 Answer: D
 If the seller is a dealer in securities, the shares involved are assumed to be for
sale in the ordinary course, hence, the sale is subject to vat and the income on
both cases (listed or not) is subject to basic income tax. Likewise, the sale is not
subject to capital gains tax nor to stock transaction tax of 1/6 of 1% (as
amended) of gross selling price.
124. Assume the shares sold are shares issued by foreign corporations, the capital gains tax
in 2017 and 2018 is:
a. 2018
a. P3,000 P9,000
b. 9,000 3,000
c. 0 9,000
d. 0 0
 Answer: D
 Sale of shares of foreign corporations is subject to basic income tax.
Next three (3) questions are based on the following data:

Alex, a resident citizen, disposed the following shares of stock of a domestic corporation
whose ores are not listed and traded in the local stock exchange:
Date of Sale Cost Selling Price
Jan. 15, 2017 P80,000 135,000
Feb. 14, 2017 175,000 150,000
March 30, 2017 256,000 360,000
125. The capital gains tax on the Jan. 15, 2017 sale is -
a. P675 c. P2,750
b. P1,375 d. P55,000
 Answer: C
 Capital gain = P135,000 – 80,000 = P55,000
 CGT = P55,000 x 5% = P2,750
126. The capital gains tax on the Feb. 14, 2017 sale is -
a.P0 c. P3,000
b. P1,500 d. P4,500

 Answer: A; The transaction resulted to a capital loss of P25,000.
127. The capital gains tax on the March 30, 2017 sale is -
a. P0 c. P5,400
b. P5,200 d. P10,400
 Answer: C
 Capital gain = P360,000 - 256,000 = P104,000
 CGT = (P100,000 x 5%) + (P4,000 x 10%) = P5,400
128. The capital tax payable(refundable) when the consolidated return is filed on or before
April 15, 2017
a. PO c. P8,150
b. P250 d. P8,400
 Answer: B
 Consolidated Capital gain = P134000
 CGT on consolidated capital gains = [(P100k x 5%) + (34,000 x 10%)] = P8.400
 CGT Payable = P8,400 – payments of P2,750 and P5,400 = P250
 Filing of Tax Return for CGT on Shares of stock: Ordinary Return - 30 days after
each transaction Final Consolidated Return - on or before April 15 of the
following year
129. Statement 1: Tax CGT on sale of real properties shall be paid within 30 days from sale or
disposition,
Statement 2: The CGT on the unutilized portion of the proceeds in case of sale of a property
classified as a principal residence shall be paid within 30 days after the expiration of the eighteen
(18) month period.
A B C D
 Answer: A
130. Which of the following transactions is subject to 6% capital gains tax:
a. Sale of condominium units by a real estate dealer
b. Sale of real property utilized for office use
c. Sale of apartment houses
d. Sale of vacant lot by an employee
 Answer: D
 The real properties in “A”, “B” and “C” are ordinary assets, hence, subject to
value added tax and the income derived is subject to basic income tax.
 Only real properties classified as capital assets located in the Philippines are
subject to CGTs on real properties.
131. Statement 1: The determination of 6% capital gains tax on sale of real property is based on
net capital gains realized by the seller of real property.
Statement 2: Except for certain passive income, a nonresident alien not engaged in trade or
business shall be taxed at 25% of his gross income derived from sources within the Philippines
 Answer: B
 A Statement 1 is false. The basis of 6% capital gains tax is the higher between
the selling price and fair market value (FMV). FMV shall refer to the higher
between the fair market value as determined by the city or provincial assessors
(assessed value) and the zonal value as determined by the BIR.
132. Mike, a resident citizen taxpayer owns a property converted into apartment units with
a monthly rental of P10,000 per unit. He subsequently sold the property to Leomar, a resident
alien taxpayer. The sale shall be subject to:
a. 6% Capital gains tax
b. Basic income tax
c. 6% capital gains tax or basic income tax at the option of Mike
d. 6% capital gains tax or basic income tax at the option of Leomar
 Answer: B The property sold is classified as ordinary asset.

133. Statement 1: Proceeds of sale of real property classified as capital asset may be
exempt from the 6% capital gains tax.
Statement 2: Gain from sale of real property real property classified as capital asset to the
Government may be taxed under Section 24 (A) at the option of the individual taxpayer.
 Answer: C
 If the real property sold is a "principal residence" and the requirements 10
exemption were all complied with, such sale is exempt from CGT.
134. Vincent sold a residential house and lot held for P10.000.000 to his friend. Its FMV when he
inherited it from his father was P12,000,000 although its present FMV is P15,000,000. The tax on
the above transaction is:
a. P720,000 capital gains tax
b. P900,000 capital gains tax
c. 30% donor's tax
d. d. Value added tax
 Answer: B
 CGT = P15M x 6% = P900,000
 Although GSP is substantially lower than its FMV, the excess of FMV over SP is
not considered part of Gross Gift for donor's tax purposes (relate to donor's
tax–rules on insufficient consideration).

135. Assuming the house and lot was Vincent's principal residence and he used 12 of
the proceeds to buy a new principal residence within eighteen (18) months after the above sale.
Assume further that Vincent properly informed the BIR about the sale. It shall be:
a. Exempt from capital gains tax
b. Subject to P300,000 capital gains tax
c. Subject to R450,000 capital gains tax
d. Subject to P600,000 capital gains tax
 Answer: C
Solution:
CGT = Unutilized Proceeds

Selling Price x(Highest among SP, FMV and)x 6%
CGT = P10M X 12/P10M x P15,000,000 x 6%

CGT = P450,000
136. Based on the above problem, but assuming the residential house is located abroad,
the capital gains tax is:
a. P0 c. P450,000
b. P300,000 d. P480,000
 Answer: A Sale of RP abroad = Subject to basic income tax
137. Gain from sale of real property classified as capital asset located abroad by a resident citizen
is subject to
A B C D
6% capital gains tax True False True False
Section 24A of the tax code True False False True
 Answer: D
Personal Exemptions, Premium Payment on Health/Hospitalization insurance NOTE: THESE ARE

NO LONGER DEDUCTIBLE FROM GROSS INCOME BEGINNING JAN. 1, 2018.
138. An exemption allowed to a taxpayer who has qualified legitimate, illegitimate or

legally adopted children (Prior to 2018).
a. Additional personal exemption.
b. Special additional personal exemption.
c. Optional standard deduction.
d. Basic personal exemption.
 Answer: A
139. Under the Tax Code, who of the spouse is the proper claimant of the additional
exemption with respect to any of the dependent children?
a. The husband if his income is higher than the income of the wife.
b. The spouse who has the bigger income.
c. The husband.
d. The wife if her income is higher than the income of the husband.
 Answer: C
140. During 2017, a married taxpayer from Isabela province supports the following:
 Juan, legitimate child who turned 21 years old during the taxable year.
 Ana (recognized natural child), 18 years old, student of Excellent College in Manila. Ana
stayed most of the time during the year in Manila.
 Fe (illegitimate child), 20 years old, who got married during the year.
 BJ, a qualified foster child
 JJ, stepchild, son of Pedro's wife by a former marriage, 15 years old.
 Marta, widowed mother of his wife, 62 years old.
For income tax purposes, the taxpayer can claim:
Basic exemption Additional exemption
a. P50,000 P100,000
b. P50,000 P75,000
c. P50,000 P50,000
d. P50,000 P0
 Answer: A
 If the spouse or any of the dependents dies or if any of such dependents marries,
becomes twenty-one (21) years old or becomes gainfully employed during the taxable
you!" cialm the same exemptions as if the spouse or any of the dependents died,
married, became twenty-one (21) years old or became gainfully employed alle close of
such year.
 A foster, under RA 10165 (An Act to Strengthen and Propagate Foster Care) shall be
allowed to claim a foster child as qualified dependent subject to the following
conditions.
 The total number of qualified dependents, including a foster child and PWD, as the case
may be, for additional exemption purposes shall not exceed tour (4).
 The period of foster care is a continuous period of at least one (1) taxable year.
 Only one foster parent can treat the foster child as a dependent for a particular taxable
year.
The following terms for tax purposes were defined under the Foster Child Act as follows:
 “Child” refers to a person below eighteen (18) years of age, or one who is over
eighteen (18) but is unable to fully take care of or protect oneself from abuse, neglect,
cruelty, exploitation or discrimination because of a physical or mental disability or
condition.
 “Foster Care” refers to the provision of planned temporary substitute parental care to a
child by a foster parent. "Foster Child” refers to a child placed under foster care.
 “Foster Parent” refers to a person, duly licensed by the DSWD, to provide foster care
141. Pedro, single has the following dependents who live with him in 2016:
 Eddie, brother, 30 years old, mentally impaired
 Leah, sister, 16 years old, college student
 Faith, legally adopted child, gainfully employed.
 Robert, not related to the taxpayer, 70 years old, qualified senior citizen.
For income tax purposes, Pedro can claim in 2016:
a. 250,000 Zero
b. P50,000 P25,000
c. P50,000 250,000
d. P50,000 275,000
 Answer: A Eddie, his brother (within 4th civil degree of consanguinity) is a PWD under
RA 10754. hence, Pedro is entitled to additional exemption of P25,000.
Persons with Disability as defined under the Implementing Rules and Regulation 10754,
otherwise known as “An Act Expanding the Benefits and Privileges of Person Disability (PWD)",
are those who have long-term physical, mental, intellectus sensory impairments which in
interaction with various barriers may hinder their fu effective participation in society on an equal
basis with others. For purposes of these Rul and Regulations, persons with disability shall be
classified by the Department of He (DOH) through an issuance.
A benefactor of a senior citizen is entitled to a basic personal exemption of P50.000 wh is the

allowed basic personal exemption of all qualified individual taxpayers required to income tax
returns as provided under RA 9504. However, a senior citizen who is gainfully employed, living
with and dependent upon his benefactor for chief support will not entitle the benefactor to claim
additional personal exemption of P25,000.
142. Using the same data in the immediately preceding number except that the taxable year
is 2018, Pedro can claim:
a. Zero Zero
b. P50,000 P25,000
c. P50,000 P50,000
d. P50,000 P75,000
 Answer: A
143. Juan, a widower, supports the following dependents living with him:
 Martha, mother of his deceased wife, 68 years old, unemployed
 BJ, legitimate child of his wife from her first husband, 20 years old
 Ana, legitimate child, 18 years old
 Lorna, newly born child
 Loreto, brother, 24 years old, physically defective, gainfully employed
 Fe, nephew, 2 years old with hearing disability, illegitimate son of his deceased sister
 Magda, 26 years old sister, widow, with speech impairment, unemployed
 Gloria, legitimate daughter of his widowed sister, 3 years old
 Clifford, a 5 year old foster child During 2016, Ana got married and Magda became
gainfully employed
What is Juan's personal exemptions for taxable year 2016 and 2017?
2016 2017
a. P150,000 P150,000
b. P150.000 P125,000
c. P125,000 P125,000
d. P125,000 P100,000
 Answer: B
Qualified Dependents for 2016:
 Juan has 5 qualified dependents (Ana, Lorna, Fe, Magda and Clifford) but can
claim a maximum of 4 for the taxable year. Juan may still claim additional exempt on
Ana and Magda during 2016 because for personal exemption purposes, 1 18 assumed
that Ana got married as of the close of 2016 and as if Magda became gainfully employed
only as of the close of 2016.
 BJ is a qualified dependent only if Juan legally adopts him
 Martha is a senior citizen within 4th civil degree by affinity but not a PWD
 Loreto is a relative within 4th civil degree by consanguinity and a PWD, but gainfully
employed
Qualified Dependents for 2017:
 Juan has 3 qualified dependents (Lorna, Fe and Clifford)
 Ana and Magda are no longer qualified dependents for 2017 taxable year.
144. For taxable periods prior to 2018, one of the following is not qualified as dependent
for income tax purposes:
a. illegitimate child, 16 years old, living in the United States due to his studies.
b. Senior citizen, mother of the taxpayer, with a yearly income of P60,000, living with and
taken cared of by the taxpayer.
c. Legitimate child, 21 years old, with a monthly income of P2,000, living with the taxpayer
d. Brother, 30 years old, incapable of self support because of physical disability or being a
PWD.
 Answer: D The PWD (brother) is two civil degrees away from the taxpayer. The
requirement is within fourth civil degree by consanguinity or affinity .
145. During 2017, James Jones (an American, resident of California, USA) has P100,000 dividend
income from a domestic corporation in the Philippines. If he is married and his country's tax law
is allowing P30,000 tax exemption for Filipino businessmen doing business in his country, his
income earned in the Philippines is allowed in 2017 with this personal exemption of:
a. P30,000 c. 32,000
b. P50,000 d. P0
 Answer: D
146. An individual taxpayer, whose personal exemption allowed is the lower amount
provided between the Philippine Tax Code and his country's tax code (assume taxable year is
prior to 2018)
Citizenship Residency Business income
a. Filipino Within No
b. Filipino Outside Yes
c. Alien Within No
d. Alien Outside Yes
 Answer: D
147. Prior to 2018 taxable year, which of the following taxpayers is subject to the rule
on reciprocity under the Tax Code with respect to their allowed personal exemption?
a. Nonresident citizen with respect to his income derived from outside the Philippines
b. Nonresident alien who shall come to the Philippines and stay herein for an aggregate
period of more than 180 days during any calendar year.
c. Resident alien deriving income from a foreign country.
d. Nonresident alien not engaged in trade or business in the Philippines whose
country allows personal exemption to Filipinos who are not residing but are deriving income
from said country
 Answer: B
148. Prior to 2018 taxable year, a nonresident alien deriving income from Philippine sources
claims that he is entitled to personal exemptions. Which of the following is not a condition for
the allowance of personal exemptions to said taxpayer?
a. That he has stayed in the Philippines for an aggregate period of more than 180 days.
b. That his country has an income tax law that allows personal exemptions to
Filipinos not residing therein.
e. That he has filed a true and accurate return of his total income from all sources
within the Philippines. d. That he is married to a Filipina.
 Answer: D
149. The taxpayer is a married nonresident alien engaged in business in the Philippines with two
(2) qualified dependent children. His country gives a nonresident Filipino with income there from
a basic personal exemption of P25,000 & P12,500 additional personal exemptions for each
qualified dependent child. He is entitled to total personal exemptions in 2017 of:
a. P50,000 c. P75,000
b. P100,000 d. nil
 Answer: A
Total Personal exemption = Basic P25,000 and additional of P12,500 x 2 = P50,000
150. The following may claim personal exemption prior to 2018, except:
a. Nonresident alien not engaged in trade or business.
c.Resident alien.
d. Citizens.
 Answer: A
151. An overseas contract worker is allowed an additional exemption prior to 2018:
a.When he has no income from Philippines sources, and he has not waived his right
over the additional exemption for his dependent children.
b. When he has dependent children in the Philippines whom he provides chief
support with on a regular basis from his income wholly earned outside the Philippines.
c. When he and his wife have income from common property situated in the Philippines
that provides chief support to his minor dependents.
d.Only when his qualified minor dependent children actually live with him abroad.
 Answer: C
152. Armando, a resident citizen, is employed as a manager of a Regional
Operating Headquarters of a multinational company in the Philippines. His annual taxable
compensation income in 2016 is P1,000,000 He is married but estranged from his wife. He has,
living with him and fully dependent for support, his five (5) minor children, who are all unmarried
and not gainfully employed. What amount could Armando claim as his additional exemptions
assuming he opted to be taxed at 15% of his gross income?
a. P150,000 c. P50,000
b. P100,000 d. P0
 Answer: D
If he opted to be taxed at a preferential tax rate of 15% (a final withholding tax), he is no
longer entitled to personal exemptions.
153. Using the same data in the immediately preceding number but assuming he opted to
be taxed using the graduated tax rate, what amount could he claim as his total personal
exemptions?
a. P150,000 c. P50,000
b. P100,000 d. P0
 Answer: A
If he opted to be taxed using the graduated tax rate, he is entitled to personal
exemptions.
154. 1st Statement: If a taxpayer marries or has dependents during the year, or dies during
the year, or his spouse dies during the year, he/his estate may claim personal exemption (prior to
2018) in full for such year.

2nd Statement: If a dependent child dies within the year, or becomes twenty-one years old
within the year, the taxpayer may still claim additional exemption (prior to 2018).
A B C D
Basic personal exemption True True False False
Additional personal exemption True False True False
 Answer: A
155. Pedro, single, is a benefactor of a senior citizen, a 'relative within 4th civil degree
of consanguinity. Pedro is entitled to (taxable year – prior to 2018):
A B C D
Basic personal exemption Yes Yes No No
Additional personal exemption Yes No Yes No
 Answer: B
156. Ana, 35 year-old PWD is living with and dependent upon Pedro, her uncle. Ana is
the daughter of Pedro's first cousin. Pedro is entitled to (taxable year - prior to 2018):
A B C D
 Answer: B
Ana is five civil degrees apart from Pedro. The requirement is within fourth civil degree
by consanguinity or affinity.
157. Pedro, single, provides chief support for one (1) year to Ana (20 years old foster child).
Pedro is entitled to:
A B C D
 Answer: B
The age requirement for a foster child to qualify as dependent for purposes of additional
exemption is below eighteen (18) years of age, or one who is over eighteen (18) but is
unable to fully take care of or protect oneself from abuse, neglect, cruelty, exploitation
or discrimination because of a physical or mental disability or condition.
158. Deduction from gross income for Premium payment on health and/or
hospitalization insurance taken out by the individual taxpayer for his family is allowed if the
taxpayer is classified as:
I. Resident citizen
II. Nonresident citizen
III. Resident alien
IV. Nonresident alien engaged in trade
V. Nonresident alien not engaged in trade
a. I and II only c. l, ll, III and IV only
b. I, II and III only d. All of the above
 Answer: C
203. The income tax payable of Juan is:

a. P0 c. P43,250
b. P30,000 d. P73,250
 Answer: A
 Income Tax Payable = Basic Tax -- CWTx = P73.250 - 73,250 = PO
204. Statement 1: Meal allowance and lodging furnished by the employer to the employees are
exempt from tax if furnished for the "advantage or convenience of the employer".
Statement 2: Tax exempt meal allowance should be furnished within the premises employer.
 Answer: C
205. The amount of de minimis benefits conforming to the ceiling of de minimis benefits shall
be:
I. Exempt from income tax, regardless of the rank of the employee
II. Not be considered in determining the P82,000 ceiling of other benefits excluded from
the gross income under the Code, as amended.
b. Il only d. Neither I nor II
 Answer: C
206. The excess of the de minimis benefits over their respective ceilings prescribed under
the regulations shall be
a. Considered as part of other benefits subject to tax only on the excess over the
P90,000 ceiling.
b. Not be considered in determining the P90,000 ceiling of other benefits excluded from
the gross income under the Code, as amended.
c. Both "a" and "b"
d. Neither "a" nor "b"
 Answer: A; Prior to 2018 taxable year, the ceiling was P82,000
207. The amount of P90,000 under "other benefits” which are excluded from gross income shall
1. Not be applicable to self-employed individuals. II. Not be applicable to income generated from
the conduct of trade or business. III. Shall be applicable to all types of income
a. I only c. l, II and III
b. I and II only d. None of the above
 Answer: B
208. "Other Benefits" under revenue regulations include

I. Christmas bonus
II. Productivity incentive bonus
lll. Loyalty awards
lV. Gifts in cash or in kind and other benefits of similar nature actually received by
officials and employees of both government and private offices
a. I only c. I, II and III
b. I and III only d. I, II, III and IV
 Answer: D
Minimum Wage Earners and Senior Citizens

209. Minimun Wage Earners (MWEs) receiving "other benefits” exceeding P90,000 limit shall be
a. Taxable on the excess benefits only
b. Taxable on the excess benefits as well as his salaries, wages and allowances, just like
an employee receiving compensation income beyond the statutory minimum wage.
c. Exempt from income tax
 Answer: B
Prior to January 24, 2017, in relation to MWE as provided under RR 10-2008, an
employee who receives/earns additional “compensation" such as commissions,
honoraria, fringe benefits, benefits in excess of the allowable P90,000 taxable
allowances and other taxable income other than the statutory minimum wage, overtime
pay, holiday pay, night shift differential, hazard pay shall not enjoy the privilege of being
a minimum wage earner. However, the Supreme Court (SC) ruled that nothing to this
effect can be read from RA 9504 (Minimum Wage Earner Law). In the case of Soriano vs.
Secretary of Finance with GR No. 184450 dated January 24, 2017, the SC held that a
minimum wage earner who receives/earns additional "compensation" such as
commissions, honoraria, fringe benefits, benefits in excess of the allowable P90,000
under RA10963 (P82,000 prior to 2018) tax exempt bonuses and other benefits, shall
still enjoy the privilege of being a minimum wage earner. According to SC, RA 9504 is
silent on whether compensation-related benefits exceeding the P90,000 threshold (as
amended) would make an MWE lose exemption. RA 9504 has given definite criteria for
what constitutes an MWE, and RR 10 2008 cannot change this.
210. Pedro, single, is a minimum wage earner of Makibaka Corporation. In addition to his basic
minimum wage of P180,000 for the year, he also received the following benefits:
 Holiday pay, P32,000
 Overtime pay, 25,000
 Night shift differential, 18,000
The income subject to tax should be
a. P57,000 b. P75,000
c. P255,000 d. nil
 Answer: D
Pedro, single, is a minimum wage earner. In addition to his basic minimum wage of P180,000 for
the year, he also received the following benefits:
 De miniminis, P60,000 (P20,000 over the ceiling)

 13th month pay and other benefits, P112,000
211. Pedro's taxable income assuming the taxable year is 2017 should be:
a. P48,000 c. P82,000
b. P53,000 d. nil
 Answer: D
De minimis - over the ceiling P20,000
13th month pay and other benefits 112,000
Total P132,000
Tax exempt benefits prior to TRAIN Law (82,000)
Balance P50,000
Less: basic exemption (50,000)
Taxable Net Income
 As provided for in a recent decision by the Supreme Court, an individual taxpayer
designated as MWE like Pedro, shall be exempt on his compensation income as MWE
regardless of the amount of his 13th month pay and other benefits.
 De minimis within the ceiling is tax exempt
 Excess of de minimis over the ceiling shall be added to other benefits
 The tax exempt benefits prior to 2018 was P82,000
 Personal exemptions are allowed prior to 2018
212. How much is the income tax due of Pedro assuming the taxable year is 2018?
a. P48,000 c. P82,000
b. P53,000 d. nil
 Answer: D
Solution:
De minimis - over the ceiling P20,000
Total P132,000
Tax exempt benefits under TRAIN Law (90,000)
Balance P42,000
Less: basic exemption -
Taxable net income P42,000
Income Tax Due (revised tax table) -
 Beginning January 1, 2018, personal exemptions shall no longer be deductible However.

1st P250.000 of income under TRAIN Law is exempt from tax.
213. How much is the income tax due of Pedro in 2018 assuming he is also earned
P450,000 derived from his business of buying and selling various consumer products?
a. P48,000 c. P82,000
b. P53,000 d. nil
 Answer: B
Solution:
Business income P450,000
De minimis - over the ceiling 20,000
Total P582,000
Tax exempt benefits under TRAIN Law (90,000)
Balance P492,000
Less: basic exemption -
Income Tax Due (revised tax table) P53,000
 A minimum wage earner shall be taxable on his income derived from business and/or
practice of profession.
a. A senior citizen is taxable in the same manner as an individual taxpayer.
b. A person with disability (PWD) is taxable in the same manner as an individual
taxpayer,
c. Prior to 2018, a benefactor of a senior citizen may claim additional exemption of
P25,000.
 Answer: C
Premium Payment for Health/Hospitalization Insurance Miscellaneous topics before the

effectivity of TRAIN Law
215. Medy, resident citizen, single, supporting three minor illegitimate children, one of them
living abroad, has the following data for taxable year 2017:
Salary from XYZ Co. (net of P40,000 withholding tax) P350,000
Professional fee (net of 10% withholding tax) 135,000
Expenses incurred (25% pertains to living expenses) 80,000
Health and/or hospitalization insurance premium paid 5,000
The income tax payable is:
a. 251,700 c. P43,300
b. P49,300 d. 234,000
 Answer: D
Solution:
Salaries (gross) P390,000
Profe. Fees (P135,000/90%) 150,000
Professional expenses (P80,000 x 75%) (60,000)
Premium payment on health insurance -
Additional personal exemption (50,000)
(2 only; one is living abroad)

Less: CWT on salaries (40,000)
CWT on professional fees (15,000)
Income Tax Payable P34,000
 Premium payment on health/hospitalization insurance is not allowed in this
particular case because the family income exceeded P250,000
216. Based on the above problem, assuming his salary from XYZ Co. is P80,000 (gross
of withholding tax), how much is the taxable income?
a. P126,600 c. P121,000
b. P129,000 d. P67,600
 Answer: D
Salaries (gross) P80,000
Profe. Fees (P135,000/90%) 150,000
Professional expenses (P80,000 x 75%) (60,000)
Premium payment on health insurance (2,400)
Additional personal exemption (2) (50,000)
 Maximum amount deductible for premium payment on health/hospitalization insurance
is P2,400.
217. Pedro, a resident of Isabela Province had the following data for taxable year
2015: (Exchange rate $1-P40).
Philippines Abroad
Salaries P165,000 $2,000
Business Income 450,000 6,000
Business expenses 120,000 1,500
Interest income:
Personal receivable 10,000
FCDU $2,500
On bank deposits (20% long-term) 25,000 3,000
Royalty income (20% from books) 22,000 1,000
Prize won in contest 10,000
Winnings from Phil. Charity Sweepstakes 80,000
Sale of shares of stocks of a domestic corp.
directly to a buyer (cost R10,000) 30,000
Additional information:
 Pedro received the following dividend income during the taxable year:
 P70,000 from a domestic corporation. P30% of its income is attributed to its
operations abroad.
 P60,000 from a resident foreign corporation. The ratio of its gross income in
the Philippines over worldwide income for the past three years is only 40%.
 P80,000 from a nonresident foreign corporation. The ratio of its gross income
in the Philippines over worldwide income for the past three years is 10%.
Pedro is married with the following dependents:

 Ana, 23 years old, disabled
 Ron, who turned 21 years old on January 1, 2015
 Lebron, 28 years old. He was recently retrenched by his employer
 Lorna, a college student, living in Manila
He also sold a condominium unit in Manila (residential) for P2,000,000 although its FMV is
P3,000,000 but with a zonal value of P4,000,000.
The taxable income of Pedro is:

a. P925,000 b. P950,000
c. P858,000 d. P928,000
 Answer: B
Solution:
Salaries (165k + (2K x P40) P245,000
Business Income (450k + (6k x P40)] 690,000
Business expenses [120k + (1.5k x P40)] (180,00)
Interest income
Personal receivable (10,000)
FCDU -
On bank deposits abroad (3k X P40) 120,000
Royalty income abroad (1k x P40) 40,000
Winnings from Phil. Charity Sweepstakes Exempt
Sale of shares of stocks of a domestic corp. directly to the CGT
buyer (cost P10,000)
DI – RFC and NRFC (100%) 140,000
Additional personal exemption (75,000)
TAXABLE INCOME
218. Pedro's total final taxes on his passive income is:
a. P15,460 c. P23,460
b. P22,460 d. P23,900
 Answer: B
Solution:
Interest Income FCDU (2,500 x 40 x 7.5%) P7,500
On bank deposits Phils. (P25,000 x 80% x 20%) 4,000
Royalty income Phils. – books (22K x 20% x 10%) 440
Other Royalty income Phils. (22k x 80% x 20%) 3,520
Total Final taxes on passive income P22,460
219. His total capital gain's taxes is:
a. P241,000 c. P240,000
b. P251,720 d. P257,000
 Answer: A
 Total CGT = CGT on shares and real properties
CGT on shares = SP30,000 - cost P10,000 = P20,000 x 5% = P1,000
CGT real properties = P4M x 6% = P240,000 Total CGT = P241,000
220. If he is a non-resident citizen his total final tax on passive income is:
a. P14,960 c. P23,460
b. P22,460 d. P23,900
 Answer: A
Interest Income FCDU (2,500 x 40 x 7.5%) P-
On bank deposits Phils. (P25,000 x 80% x 20%) 4,000
Royalty income Phils. – books (22k x 20% x 10%) 440
Other Royalty income Phils. (22K x 80% x 20%) 3,520
Total Final taxes on passive income P14,960
221. If he is a non-resident alien not engaged in trade or business his total combined taxes on all
income from Philippines is: (excluding business income)
a. P83,000 c. P336,500
b. P2410 d. P340,000
 Answer: C
Salaries Phils. P165,000
Interest income:
Personal receivable 10,000
FCDU -
On bank deposits Phils. incl.long-term deposit 25,000
Royalty income Phils. 22,000
Winnings from Phil. Charity Sweepstakes 80,000
Sale of shares of stocks of a domestic corp. directly to the -
buyer (cost P10,000)
DI-DC 70,000
DI - RFC and NRFC -
PERSONAL EXEMPTION -
TAXABLE INCOME P382,000
INCOME TAX:
 P382,000 X 25% P95,500
 Total CGT 241,000
Use the following data for the next five (5) questions:
Breezia Tan has the following data on his passive income earned during 2016:
Philippines Abroad
Interest income from long term peso bank deposits 45,000 25,000
Interest income from long term FCDU deposits 50,000 60,000
Royalties from books 20,000 30,000
Royalties from computer programs 20,000 40,000
Winnings from an electronic raffle during Smart
Communication's 50th anniversary (chosen randomly by the
network using smart subscribers' sim card numbers) 10,000 -
Dividend income from a domestic corporation 27,000 13,000
Dividend income from a foreign corporation 33,000 22,000
222. How much is the final withholding tax if the taxpayer is a resident citizen?
a. P13,450 c. P12,450
b. P9,700 d. P14,450
 Answer: D
Solution:
Peso bank deposit, P45k x 20% Exempt
FCDU deposit, P50,000 x 7.5% 3,750
Royalties – books P20,000 x 10% 2,000
Royalties - computer programs, P20,000 x 20% 4,000
Winnings, P10,000 x 20% 2,000
Dividend income from DC, P27,000 x 10% 2,000
Total Final taxes on passive income 14,450
223. How much is the final withholding tax if the taxpayer is a resident alien?
a. P13,450 c. P12,450
b. P9,700 d. P14,450
 Answer: D
 Same computation with “RC"
224. How much is the final withholding tax if the taxpayer is a non-resident citizen?
a. P13,450 c. P9,700
b. P8,700 d. P10,700
 Answer: D
Solution:
Peso bank deposit, P45k x 20%
FCDU deposit, P50,000 x 7,5%
Royalties - books P20,000 x 10%
Royalties - computer programs, P20,000 x 20%
Winnings, P10,000 x 20%
Dividend income from DC, P27,000 X 10%
Total Final taxes on passive income
225. How much is the final withholding tax if the taxpayer is a non-resident alien engaged in
trade or business?
a. P13,450 c. P9,700
b. P13,400 d. P13,750
 Answer: B
Solution:
Peso bank deposit, P45k x 20% Exempt
FCDU deposit, P50,000 x 7.5% Exempt
Royalties - books P20,000 x 10% 2,000
Royalties -- computer programs, P20,000 x 20% 4,000
Winnings, P10,000 x 20% 2,000
226. How much is the final withholding tax if the taxpayer is a non-resident alien not engaged
in trade or business?
a. P19,250 c. P43,000
b. P30,500 d. P29,000
 Answer: B
Solution:
Peso bank deposit, P45k x 25% 11,250
FCDU deposit, P50,000 x 7,5% E
Royalties - books P20,000 x 25% 5,000
Royalties - computer programs, P20,000 x 25% 5,000
Winnings, P10,000 x 25% 2,500
Filing of Income Tax Returns
227. Statement 1: Where an income tax return is required (e.g., in loan applications), and the
individual did not file an income tax return because of the rules on "substituted filing of income
tax return" the certificate of withholding income tax signed by the employer and the employee
will be the document to use Statement 2: The rules on substituted filing of income tax return
cannot apply if one of the spouses has business or mixed income
a. The first statement is true while the second statement is false
b. The first statement is false while the second statement is true
c. Both statements are true
d. Both statements are false
 Answer: C
228. The following are the requirement for substituted filing of income tax return, except
a. He had one employer only.
b. His income was purely compensation income.
C. Income tax withheld by the employer is correct.
d. He had consecutively filed his income tax return for the past five years.
 Answer: D
229. Statement 1: If an employee had multiple employers within the year, an income tax
return must be filed at the end of the year.
Statement 2: an employee had three employers, on succession, for each of the past three years,
substituted filing of tax return is not allowed.
a. Statements 1 & 2 are false
b. Statement 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true
d. Statements 1 and 2 are true
 Answer: B
230. Who of the following individual taxpayers may avail of substituted filing of Income Tax
Return (ITR)? .
Rianne:
 Deriving compensation income from ABC Company, his only employer for the taxable
year.
 The correct amount of tax was withheld by ABC Company
 He also derived interest income from his peso bank deposit in BPI and the sale of his
shares in DEF Corporation (a closely-held domestic corporation) to Brian resulted to a
gain of P100,000.
Leomar:
o Deriving purely compensation income from XYZ Corporation, his only
employer for the taxable year.
o The correct amount of tax was withheld by XYZ
o Leomar's spouse is engaged in business
A B C D
Rianne Yes Yes No No
Leomar Yes No Yes No

 Answer: B
231. 1st statement: Taxable income from self-employment (business and profession) is
reported on a quarterly and annual basis.
2nd statement: The quarterly income tax return shall be filed and the tax paid as follows: 1st Q -
not later than April 15, 2nd Q - not later than August 15, 3rd Q - not later than September 15.
C. Statement 1 is false but statement 2 is true
 Answer: B
232. Pedro's income tax due for the year amounted to P80,000. He may elect to pay the tax
due on installment as follows:
a. In two equal installments
b. 1st installment is payable upon filing the annual income tax return.
c. 2nd installment is payable on or before October 15 following the close of the
calendar year.
d. All of the above

 Answer: D
233. 1st statement: If any installment payment of income tax is not paid on or before the
date fixed for its payment, the whole amount of the unpaid tax becomes due and payable,
together with the delinquency penalties to be reckoned from on the original date when the tax is
required to be paid. 2nd statement: Installment payment of income is not allowed to self-
employed and/or professional who are availing the 8% income tax rate
c. Statement 1 is false but statement 2 is true
 Answer: B

Individuals: Classification of Individual Taxpayers

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Individuals: Classification of Individual Taxpayers

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PART 2

CLASSIFICATION OF INDIVIDUAL TAXPAYERS

1. Resident Citizen (RC)

5. Prior to TRAIN Law, include the following Special Employees:

OVERSEAS CONTRACT WORKER

Under RR No. 2, the following are considered as resident

1. Engaged in trade or business (Section 25 (A), RA 8424).

SPECIAL EMPLOYEES (SEs)

Other Income Apply the rules on NRA-NETB Apply the rules on RC

PASSIVE INCOME DERIVED FROM PHILIPPINE SOURCES SUBJECT TO FWT:

a) Dividends actually or constructively received

SHARE IN THE NET INCOME OF A JOINT VENTURE

****NON-TAXABLE JV "Joint ventures or consortium organized for the following purposes:

Sale of shares of stock of a foreign corporation is subject to basic income tax.

CAPITAL GAINS TAX (CGT) ON SALE OF REAL PROPERTY

PARTIAL EXEMPTION / TAXABLE PORTION:

CGT = Taxable Amount x 6%

NRA-NETB is subject to:

GRADUATED TAX RATE

over P30,000 over P250,000 not over P400,000

P70,000 P30,000 not over 800,000 P400,000 P400,000

P140,000 P70,000 notover P2,000,000 P800,000 P800,000

P250,000 P140,000 not over P8,000,000 P8,000,000 P2,000,000

P500,000 P250,000 P8,000,000 P8,000,000

Over P500,000 P125,000 + 32% in excess

**Provided, the SEP is:

Basic Income Tax of Married Individuals

THE FOLLOWING FRINGE BENEFITS ARE NOT SUBJECT TO FBT:

13th Month Pay and "Other Benefits"

EXCESS OF DE MINIMIS OVER THE CEILINGS & 13 'MONTH PAY

MONETARY VALUE: In General, the valuation of fringe benefits shall be as follows

EXCEPTIONS: Monetary Value of Housing and Motor Vehicle as shown below:

MOTOR VEHICLE EVALUATION

FILING OF INCOME TAX RETURNS

1. Final Withholding Tax on passive income

1st Quarter May 15 (TRAIN Law); April 15 (Prior to TRAIN Law)

4. Self-employed individuals receiving income from the conduct of trade or business

NOT Required to File:

Principles, Classification of Individual Taxpayers

2. Individual taxpayers are

Source(s) of Taxable income

17. Individual taxpayers are subject to the following income tax

RC NRC, RA, NRA-ET

Gross income from business P700,000

PHILIPPINES ABROAD TOTAL

A resident citizen is taxable on income within and without

Basic personal exemption -

 Personal expenses are no longer allowed under the TRAIN Law.

 A resident alien is taxable on income within only.

 Same solution in the preceding paragraph

 Prior to 2018, NRA-ETB is entitled to personal exemptions only if

The taxable income of Mr. Dela Cruz is:

SELF-EMPLOYED and/or PROFESSIONALS

Gross Sales P2,800,000

The compensation income is not subject to 8% tax rate.

How much is Pedro's annual income tax payable?

Income Tax due using graduated rate P509,200

Statement 2: The statement is False.

55. The capital gain's tax is:

 Income Tax Expense = Basic Tax + FWT on Passive Income + CGTS

62. A Malaysian occupying a managerial position in an Offshore Banking Unit located in

The total income tax expense of the taxpayer is:

64. Abdul, a foreign national employed by a regional area head quarter of a