ACTAX 3153 – SUMMARIES

FINAL TAX (General rule: Applies to PASSIVE INCOME earned WITHIN PH)
RATE TYPES OF INCOME EXEMPTIONS FROM GIVEN RATE
C & RA NRA-ETB NRA-NETB  25% NRFC  30 %
Interest Income of ALL CORPORATE RECIPIENTS of tax-free interest:
INDIVIDUALS on tax-  REGULAR INCOME TAX
30% free corporate
covenant bonds

Interest from any Interest income from long term deposit or investment of 5 years or more of
currency bank deposit INDIVIDUALS
from:  Exempt
- Short term deposit
of individuals and Exemption to the exemption:
corporations PRE-TERMINATION of long-term deposits
- Long term deposit by individuals
of corporations
Less than 3 years 20%
3 – less than 4 12%
Remaining maturity
upon investment in 4 – less than 5 5%
long-term deposit is 5 years Exempt
less than 5 years

Yield or other
monetary benefit from
- Deposit
substitutes
- Trust Funds
- Similar
Arrangements

PASSIVE Royalties Royalties received by INDIVIDUALS from books, literary works, and musical
(GENERAL), e.g.: compositions
- Books sold on e-  10%
copies or CDs
- Those received by Active royalties where taxpayer has active involvement
20% corporations  REGULAR INCOME TAX
- Those from other
sources Active or Passive Royalties earned from sources abroad
 REGULAR INCOME TAX

Those amounting to P10,000 or less

Prizes  REGULAR INCOME TAX

 Received without any effort to join a contest (e.g. Nobel Prize, Most
Outstanding Citizen)
 Prizes from sports competitions sanctioned by respective national sport
organizations
 Exempt
 Requisites for exemption:
1. Recipient was selected without any action on his part to enter
2. Recipient is not required to render substantial future services as a
condition to receive the reward

PCSO and Lotto amounting to P10,000 or less for C/RA

Winnings  Exempt

PCSO and Lotto for NRA ETB (no minimum)

 Exempt

Winnings of corporations
 REGULAR INCOME TAX

NRANETB and NRFC  25%

25 Royalties on
20% CINEMATOGRAPHIC
% FILMS and similar
works
ACTAX 3153 – SUMMARIES
Interest from All non-residents (INDIV/CORPO)
15% depository banks under  Exempt
expanded Foreign
Currency Deposit
System

Disqualified Informers [NIRC, Sec. 282]

Tax Informer’s Award - should no revenue, surcharges or fees be actually recovered or collected,
Lower of
such person shall not be entitled to a reward
10% or Max cash reward:
P1,000,000
- the information mentioned refer to a case already pending or previously
investigated or examined by the Commissioner or any of his deputies,
100,000 agents, or examiners, or the Sec. of Finance or any of his deputies or agents
- if the reward shall be paid not under the rules and regulations issued by the
Sec. of Finance, upon recommendation of the Commissioner
- Those in violation of ff. requisites:
1. Info not yet in possession of BIR
2. info furnished lead to discovery of fraud upon internal revenue laws
3. enforcement results in recovery or imposition of a fine
4. Informer must NOT be:
a. BIR official or employee
b. Other public official or employee
c. Relative within 6th degree of consanguinity of a and b

Dividends or share in Stock dividends

10% 20 NI  Exempt, unless realized thru sale or disposition, redemption, cancellation
 Cash
%  Property – Liquidating dividends
including stocks of  Exempt, unless there is capital gain, subject to REGULAR INCOME TAX
OTHER (any LOSS is deductible to extent of capital gain)
corporations
Stock Split
 ALWAYS exempt from income tax
10% is applicable to:
1. Real Estate Intercorporate Dividends, including business partnerships considered as corpo
Investment Trusts by NIRC
(REIT)  Exempt to avoid double taxation
2. Business  Exemption to the exemption : share of a corporation from the NI of a
partnerships business partnership due to absence of legal exemption
3. Taxable
associations Source: COOPERATIVES
4. Taxable joint  Exempt (RA 9520)
ventures, joint
accounts, Source: FOREIGN CORPORATION
consortia Recipient: ANY
5. Taxable co-  REGULAR INCOME TAX
ownerships
Source: DOMESTIC CORPO
*2-5: Tax applies at Recipient: DOMESTIC CORPO
point of determination,  EXEMPT
not actual distribution
The ff. recipients of REIT dividends are EXEMPT:
a) NRA individuals or NRFC entitled to claim preferential tax rate pursuant
Share in business to applicable tax treaty
partnership NI b) Domestic corporations or resident foreign corporations
includes: c) Overseas Filipino investors (until AUGUST 12,2018)
1. Residual profit
2. Salary, interest, In business partnerships: Salary, interest, and bonus to partners that are
bonus to a partner EXPENSED in the books
not EXPENSED in  REGULAR INCOME TAX
the books
Income payments to
8% SUBCONTRACTORS of
Fringe Benefits
ACTAX 3153 – SUMMARIES

Exceptions to General Final Tax on NRA-NETB and NRFC

NRA-NETB NRFC (30%)

(25%)
1. Capital gain on sale of domestic stocks DIRECTLY to 15% CGT 15% CGT
buyer
2. Rentals on cinematographic films and similar 25% 25%
3. Rentals of vessels 25% 4.5%
4. Rentals of aircrafts, machineries, and other 25% 7.5%
equipment
5. Interest income under foreign currency deposit Exempt Exempt
system
6. Interest on foreign loans N/A 20%
7. Dividend income 25% 15% if sparing rule
is applicable
8. Tax on corporate bonds 30% 30%

Notes:

Summary of passive income subject to regular income tax:

1. CORPORATE RECIPIENTS of tax-free interest

2. Royalties where taxpayer has active involvement (active royalties)
3. Active or Passive Royalties earned from sources abroad
4. Prizes amounting to P10,000 or less
5. Winnings of corporations
6. Capital gain from excess in cost of liquidating dividends
7. Dividends from foreign corporations
8. In business partnerships: Salary, interest, and bonus to partners that are EXPENSED in the books

Tax Sparing Rule – Section 28(B)(5)(b) of the Tax Code. Pursuant to this provision, a lower 15% FWT
rate will be imposed on dividends received by an NRFC if the country in which the NRFC is domiciled
allows a tax credit against the tax due from the NRFC representing taxes deemed to have been paid
in the Philippines equivalent to 15%.

Under the suspended RMO, the tax sparing rule shall apply to an NRFC which is a resident or is
domiciled in a country which:

(1) has no effective tax treaty with the Philippines;

(2) has a worldwide system of taxation; and
(3) allows a tax credit against the tax due from the NRFC dividend taxes deemed to
have been paid in the Philippines equivalent to 15%.
https://www.pwc.com/ph/en/taxwise-or-otherwise/2016/tax-sparing-spared.html#:~:text=Under%20the%20suspended%20RMO%2C%20the,deemed
%20to%20have%20been%20paid’
ACTAX 3153 – SUMMARIES
ACTAX 3153 – SUMMARIES

Additional Classification Rules:

1. ORDINARY ASSET
a. Property purchased for FUTURE USE in business, but such purpose is thwarted later on
b. Real properties used, being used, have been previously used in trade
c. Fully depreciated ordinary asset
d. Property used by EXEMPT corporations in PROFIT-ORIENTED activities
e. Change from real estate to non-real estate DOES NOT CHANGE classification of ordinary assets
previously held
2. CAPITAL ASSET
a. 2 YEAR RULE: Ordinary assets used by taxpayer not engaged in real estate business are
AUTOMATICALLY CONVERTED TO CAPITAL ASSET upon showing of proof that had not been used
in business for 2 years prior to consummation. (Only applies to properties BEING USED, not those
for FUTURE USE)
b. Exempt corporations are NOT BUSINESSES. Real properties used are CAPITAL ASSETS.
3. Discontinuance of active use DOES NOT CHANGE previously established character
4. Property transferred will be classified depending on acquirer’s usage
5. Involuntariness of sale of real properties shall have NO EFFECT on their classification
ACTAX 3153 – SUMMARIES

CORPORATIONS

Regular Corporate Income Tax (RCIT)/Net Income Tax on Ordinary Income

Sources of   Tax base Tax rates
 Corporate taxable income
Taxpayer

  w/in PH w/o PH    
DOMESTIC ü ü Net Income 30% (beg Jan
1,2009)

RESIDENT ü   Net Income 30% (beg Jan

FOREIGN 1,2009)

NON- ü   Gross Income Final

RESIDENT enumerated by withholding
FOREIGN law tax of 30%

Final Tax on Passive Income

Passive Income DC RFC NRFC

Interest on currency bank deposits 20% 20% 30%

Yield or monetary benefit from: 20% 20% 30%

1. Deposit substitutes
2. Trust funds and similar
arrangements

Royalties 20% 20% 30%

Interest from a depository bank under the 15% 7.5% Exempt

expanded foreign currency deposit system

SALE OF SHARES OF STOCK OF A DOMESTIC CORPORATION

 Transaction Tax Base Tax Rates

If shares are not traded in a local Net capital gain Seller is DC – 15%
stock exchange  
Seller is FC:
1. Gain not over
P100T - 5%
2. Gain in excess of
P100T – 10%
 

If shares are traded in a local stock Gross selling 6/10 of 1%

exchange price

SALE OF REAL PROPERTY CLASSIFIED AS CAPITAL ASSET

Transaction Tax Base Tax Rate

Seller is Highest of GSP/ZV/AV 6%

domestic

Seller is RFC Gain on sale (included in income tax return) 30%

Seller is NRFC Gain on sale (subject to final tax) 30%

ACTAX 3153 – SUMMARIES
Special Corporations Tax Rates [S]
Domestic corporations Rate Type
Proprietary educ institutions 10% R
Non-profit hospitals 10% R
Private non-profit hospitals and education instis. whose 30% R
gross inc. from unrelated trade EXCEEDS 50% of total GI
from all sources
Hospitals and educ instis failing to meet definitions of 30% R
proprietary and non-profit
Domestic depository banks under expanded FCD 10% F
system
 
Exempt: income derived from foreign currency
transactions
Subcontractors of service contractors in petroleum ops 8% F
(on income from contract only; the rest —> R)
ECOZONE enterprises (in lieu of all national and local 5% F
taxes, with exceptions)
 
Except:
1. Customs territory - no pref tax rate &
exemption
2. Ecozone service enterprises - no tax
incentives and exemptons
New RTE registered with TIEZA 5% F
Microfinance NGOs 2% F
National Grid Corp. of PH (franchise tax) 3% F
PSALM (read notes)    
Resident Foreign Corporations    
International carriers doing business n PH (on GPB) 2 1/2 % F
Interest income of Offshore banking units from foreign 10% F
currency loan granted to residents
Regional operating HQs in PH engaged in services (p. 10% R
290, llamado); not merely supervisory (exempt)
Subcontractors 8% F
ECOZONE 5% F
RTE registered with TIEZA 5% F

Non-resident foreign corporations    

General 30% F
NR Cinematographic film owner, lessor, distributor 25% F
NR owner/lessor of vessels chartered by PH nationals & 4 1/2% F
approved by MIA)
NR owner/lessor of aircraft, machineries, other 7 1/2% F
equipmet
Interest on foreign loans 20% F
Income from transactions with depository banks under Exempt  
expanded FCD system
ACTAX 3153 – SUMMARIES
Exempt Corporations:
1. Exempt NPC under NIRC (11)
2. Gov’t agencies and instrumentalities
3. Exempt gov’t-owned and controlled corporations
4. Cooperatives
5. Other exempt corporations under special laws

Other exempt corporations under SPECIAL LAWS

Corporation Law

Child-caring/placing institutions licensed by DSWD to implement RA 10165 - Foster Care Act of 2012
Foster Care

Duly registered cooperatives RA 9520 - PH Cooperative Code of 2008

Philippine Red Cross  

Homeowners’ Associations RA 9904

 Fees/dues/contri are subject to income tax
 Rentals of HA’s properties may be exempted

Non-stock savings and loans associations (NSSLAs) RA 8367

Philippine Normal University RA 9647

RTE with TIEZA - ITH for 6 years  

Building and Loan Associations (accounts guaranteed by Home  

Guaranty Corporation)

Corporations registered with BOI EO 226

Corporations registered with PEZA RA 7916

Corporations registered with SBMA RA 7227

Barangay Micro Business Enterprise (BMBE)  

Philippine Deposit Insurance Corporation (PDIC) RA 10963

Davao Oriental State College of Science and Technology RA 6807

Sports Facilities under FULL CONTROL of Philippine Sports  

Commission

Veterans Federation of the PH RA 2640; RA 7291

National Commission for Culture and the Arts  

Sta. Rosa Science an Technology HS RA 9083

UP RA 9500

Mindanao University of Science and Technology (MUST) RA 9519

HDMF/ Pag-IBIG RA 9679

National Historical Commission of the PH RA 10086

Overseas Workers Welfare Administration (OWWA) RA 10801

Project proponents (High Value Crops Dev’t) RA 7900

Purely organic agriculture entities accredited by BAFPS RA 10068

Private foundations for scientific advancements RA 3589

ACTAX 3153 – SUMMARIES
Exempt Non-Profit Corporations under NIRC
 
1. Labor, agricultural, or horticultural org not organized principally for profit

2. Mutual savings bank not having a capital stock represented by shares, and cooperative bank without
capital stock organized and operated for mutual purposes and without profit

3. A beneficiary society, order or association, operating for the exclusive benefit of the members such as a
fraternal org operating under the lodge system, or a mutual aid association or a nonstock corporation
organized by employees providing for the payment of life, sickness, accident, or other benefits exclusively
to the member of such society, order, or association, or nonstock corporation or their dependents

4. Cemetery company owned and operated exclusively for the benefit of its members

5. Nonstock corporation or association organized and operated exclusively for religious, charitable, scientific,
athletic, or cultural purposes, or for the rehabilitation of veterans, no part of its net income or asset shall
belong to or inure to the benefit of any member, organizer, officer or any specific person

6. Business league, chamber of commerce, or board of trade, not organized for profit and no part of the net
income of which inure to the benefit of any private stockholder or individual

7. Civil league or org not organized for profit but operated exclusively for the promotion of social welfare

8. A nonstock and nonprofit educational institution

9. Government educational institution

10. Farmers’ or other mutual typhoon or fire insurance company, mutual ditch or irrigation company, mutual
or cooperative telephone company, or like org of a purely local character, the income of which consists
solely of assessments, dues, and fees collected from members for the sole purpose of meeting its
expenses

11. Farmers’, fruit growers’, or like association organized and operated as a sales agent for the purpose of
marketing the products of its members and turning back to them the proceeds of sales, less the necessary
selling expenses on the basis of the quantity of produce finished by them