FT and CGT

FINAL and
CAPITAL GAINS TAXES
© 2013 Punongbayan & Araullo. All rights reserved.

INCOME TAXATION SCHEMES
There are three income taxation schemes under the

NIRC:
a. Final income taxation
b. Capital gains taxation
c. Regular income taxation
*Mutually exclusive coverage

FINAL INCOME TAXATION
• Final income taxation is characterized by final taxes

where taxes are withheld or deducted at source.
• The taxpayer receives income net of tax.
• The payor of the income remits the tax to the
government.
• Final taxation is applicable only to certain passive
income. Not all passive income is subject to final tax.

Passive income vs. active income
• Passive incomes are earned with very minimal or

even without active involvement of the taxpayer in
the earning process.
• Active or regular income arises from transactions

requiring a considerable degree of effort or
undertaking from the taxpayer. It is the direct
opposite of passive income.

CAPITAL GAINS TAXATION
• A capital gains tax is imposed on the capital gain on

the sale, exchange and other disposition of certain
capital assets.
• Also, not all capital gains are subject to capital gains

tax. Most of them are subject to regular income tax.

Capital assets vs. ordinary assets
• Capital assets include all other assets other than

ordinary assets.
• Ordinary assets are assets directly used in the
business, trade or profession of the taxpayer such
as inventory, supplies and items of property, plant
and equipment.

Capital assets vs. ordinary assets
• Capital assets include all other assets other than

ordinary assets.
• Ordinary assets are assets directly used in the
business, trade or profession of the taxpayer such
as inventory, supplies and items of property, plant
and equipment.

REGULAR INCOME TAXATION
• The regular income taxation is the general rule in

income taxation and covers all other income such
as:
1. Active income
2. Gains from dealings in properties
a. Dealings in ordinary assets
b. Dealings in other capital asset not subject
to capital gains tax
3. Other income, active or passive, not subject to
final tax

ACCOUNTING PERIOD
• Accounting period is the length of time over which

income is measured and reported.
Types of Accounting Periods

1. Regular accounting period – 12 months is length
a. Calendar
b. Fiscal
2. Short accounting period – less than 12 months

Deadline of Filing the income Tax Return
• Under the NIRC, the return is due for filing on the

fifteenth day of the fourth month following the close
of the taxable year of the taxpayer.
• The regular tax due is payable upon filing of the

income tax return.

INSTANCES OF SHORT ACCOUNTING PERIOD
• 1. Newly commenced business - The accounting period
covers the date of the starts of the business until the
designated year-end of the business.
• 2. Dissolution of business - The accounting period
covers the start of the current year to the date of
dissolution of the business. (dissolving corporations shall
file their return within 30 days from the cessation of
activities or 30 days from the approval of merger )
• 3. Change of accounting period by corporate taxpayers
- The accounting period covers the start of the previous
accounting period up to the designated year-end of the
new accounting period. Note that BIR approval is
required in changing an accounting period. It is not
automatic.
INSTANCES OF SHORT ACCOUNTING PERIOD
• 4. Death of the taxpayer - the accounting period covers
the start of the calendar year until the death of the
taxpayer.
• 5. Termination of the accounting period of the taxpayer

by the Commissioner of Internal revenue - The
accounting period covers the start of the current year
until the date of the termination of the accounting period.

ACCOUNTING METHODS
• Accounting methods are accounting techniques used to
measure income.
• Types of Accounting Methods
1. The general methods
a. Accrual basis
b. Cash basis
2. Instalment and deferred payment method
3. Percentage of completion method
4. Outright and spread-out method
5. Crop year basis

FINAL INCOME
TAXATION
January 30, 2016
Mr. James Dane T. Adayo

Audit In Charge
Punongbayan and Araullo

The Final withholding system
• Imposes upon the person making income payment

and the responsibility to withhold the tax.
• No need for him to file an income tax return to report
the same.
• Inherently territorial
• applies only to certain passive income earned
• relieves the taxpayer of the obligation to file an
income tax return
• very convenient for taxpayers who are limited by
distance and cost to comply
• Decreases high risk of non-compliance or tax
evasion.

Passive income
• earned with very minimal involvement from the
taxpayer and are generally irregular in timing and
amount.
• When not recorded by taxpayer, their existence can
be difficult to predict while their actual amount may
be difficult to determine
• final withholding at source is the most favored
scheme in taxing items in passive income
(NRANETB)
General final
Taxpayer
tax rate
Non-resident alien not engaged in trade or business 25%
Non-resident foreign corporation 30%

Passive income subject to Final Tax
• 1. Interest or yield from bank deposits or deposit
substitutes
• 2. Domestic dividends, in general
• 3. Share in the net income of a business partnership,
taxable associations, joint ventures, joint accounts, or co-
ownerships
• 4. Royalties in general
• 5. Prizes exceeding P10, 000
• 6. Winnings
• 7. Informer's tax reward
• 8. Interest income on tax-free corporate covenant
bonds

1. INTEREST INCOME OR YIELD
• Interest income or yield from local currency bank
deposits or deposit substitutes are subject to final tax as
follows:
Recipient
Source of interest income Individuals Corporations
Short term deposits 20% 20%
Long-term deposits/
Exempt* 20%
investment certificates
Note: *Exemption does not include NRA-NETB

• Short term deposits are those made for a period of less than five years.
• Long-term deposits or investment certificates refer to certificate of time
deposit or investment in the form of savings, or deposits substitute, and
other investments with a maturity of not less than five years,

A. INTEREST INCOME OR YIELD (PROBLEM)
• Illustration 1
• A taxpayer earned the following interest income from
various time deposits:
6-month time deposit P 8, 000
2-year time deposit 12, 000
5-year time deposit 40, 000
Total interest income P 60, 000
Required: Compute the final tax if the taxpayer is an 1. ) individual P4,000

and if
2.) a corporation. P60,000 X 20%= 12,000

INTEREST INCOME OR YIELD (PROBLEM)
• Illustration 2
A resident taxpayer received a P16,000 interest income from a bank.
Determine the final tax withheld at source.
=16,000/80% =P20,000 X 20%= P4,000

Tax on pre-termination of long-term deposits of
individuals
If the deposit or investment placement of individual taxpayers is pre-
terminated before 5 years, any previously untaxed or exempted interest
income will be subjected to the following final taxes upon pre-termination:
Holding period Final tax
Less than 3 years 20%
3 years to less than 4 years 12%
4 years to less than 5 years 5%
5 years or more 0%

Savings or time deposit with cooperatives are not
subject to final tax
The final tax is limited to banks and shall not be applied with time and
savings account deposit maintained by members with cooperatives and
primary cooperatives with their federations.

Other applications of the final tax on interest
1. Deposit substitute
2. Government securities
3. Money market placement
4. Trust funds
5. Other investment evidenced by certificates prescribed by the
Bangko Sentral ng Pilipinas (BSP)

Foreign currency deposit with foreign currency
depository banks
The interest income from foreign currency deposits under the foreign
currency deposit system or expanded foreign currency deposit system by
residents is subject to a final tax of 15%
Taxpayer Individuals Corporations
Residents 15% 7.5%
Non-residents Exempt Exempt

Joint accounts on forex deposits
If the bank -account is jointly in the name of a resident and a resident

taxpayer, 50% of the interest shall be exempt while the other 50% shall be
subject to the 15% final tax (RR10-98)
Taxpayer Individuals Corporations
Residents 15% 15%
Non-residents Exempt Exempt

Interest income subject to regular tax
Interest income from the following sources is subject to regular income tax,
not to final tax:
1. Lending activities, whether or not in the course of business

2. Investment in bonds
3. Promissory notes
4. Foreign sources, whether bank or non-bank
5. Penalty for legal delay or default

2. DIVIDENDS
“Dividends” means any distribution made by a corporation to its shareholders out
of its earnings or profits and payable to its shareholders, whether in money or in
other property
Types of dividends:
1. Cash dividends – paid in cash
2. Property dividends – paid in non-cash properties including
stocks or securities of another corporation.
3. Scrip dividends – those paid in notes or evidence of
indebtedness of the corporation
4. Stock dividends – paid in the stocks of the corporation
5. Liquidating dividends – distribution of corporate net asset

Taxability of Stock Dividends
Normally, stock dividends are exempt from income tax. Except in the following
case:
a. Subsequent cancellation and redemption
For instance, a corporation declared stock dividends and immediately

called the stock dividends for redemption and cancellation. This act is
equivalent to declaration of cash dividends.
b. If it leads to substantial alteration in ownership in the corporation
Substantial alternation in ownership in acorporation may occur when

stock dividends or when the corporation declared an optional stock or
cash dividend.
*Stock split is different from Stock dividends

Dividend Tax Rules
Normally, stock dividends are exempt from income tax. Except in the following
case:
Recipient of dividends
Source of dividends Individuals Corporations
Domestic corporation 10% final tax Exempt2
Foreign corporation Regular tax if RC Regular tax if DC
Note:
RC/RA/NRC- 10% tax NRAETB-20% tax NRANETB-25% tax
1. A NRA-ETB is subject to 20% final tax on dividend, not to the usual 10% but an
NRA-NETB is subject to a 25% final tax.
2. A NRFC is not exempt but is subject to the 30% general final tax rate. However,
the imposable dividend tax shall be 15% when the tax sparing rule applies.
NRFCs shall be subject to a 15% final tax on dividend income instead of the 30%
general final tax if the country of domicile of the NRFC credits against the tax due of
such NRFC taxes presumed to have been paid by such NRFC from the Philippines
equivalent to 15% of the dividends.

Exempt Dividends
1. Inter-corporate dividends
2. Dividends from cooperatives
Inter-corporate dividends
Inter-corporate dividends received by a domestic corporation and resident foreign

corporation from a domestic corporation are exempted under the NIRC to minimize
double taxation.
This exemption extends to dividends received by business partnership from

domestic corporations since business partnerships are considered corporations
under NIRC. However, exempt joint ventures and exempt co-ownership because
they are not considered corporations under the NIRC.
On the other hand, the distribution of inter-corporate dividend does not apply to the
share of a corporation from the net income of a business partnership due to
absence of express legal exemption. Exemption is restricted to dividend declaration
only.

3. Business partnership, taxable associations,
joint venture, joint accounts or co-ownerships
Under Sec. 73 of the NIRC, the net income of these entities is deemed
constructively received by the partners or ventures, respectively, in the same year
the net income is reported.
Hence, the 10% final tax applies at the point of determination of the income, not
at the point of actual distribution.
The partnership profit distribution of partners Andy and Mar based on their
agreed profit distribution scheme is as follows:
Andy Mar
Salaries to industrial partner P 40,000 P 0
Interest to capitalist partner - 12,000
Bonus to industrial partner 25,000 -
Residual profit sharing 8,000 24,000
Profit sharing P 73,000 P 36,000
Assuming the salaries, interest and bonus are not expense in the book, the 10% final tax shall be:

4. ROYALTIES
Passive royalty income received from sources within the Philippines is subject to
the following final tax rates:
Recipient
Source of passive royalties Individuals Corporations
Books, literary works, and
10% final tax 20% final tax
musical compositions
20% final
Other sources 20% final tax*
tax*
Note:
1. Under the regulations, the 10% preferential royalty final tax on books and literary works
pertain to printed literatures. Royalties on books sold on e-copies or CDs such as e-book are
subject to 20% final tax.
2. Royalties on cinematographic, films and similar works paid to NRA-ETBs, NRA-NETBs, or

NRFCs is subject to a final tax of 25%.*

Passive vs. Active royalties
Royalties of a passive nature such as royalties of inventors from companies that
manufacture and sell their invention, and royalty from licensing agreements that
transfers the use of trademark or technology are subject to 20% final tax.
When royalties accrues from an undertaking where the taxpayer has active
involvement, it is an active income subject to the regular income tax.
Illustration
E-Soft INC. develops application programs for establishments. These programs
were individually tailored to meet specific requirements. The developer receives
1% of the sales of the establishment as royalty. – Active income
E-Soft also developed a utility program and assigned it to an e-marketer which

sells the utility program through the Internet. E-Soft receives 30% royalty on each
copy of the program sold.- Passive income.
If the marketer is outside the country, the royalty is subject to regular tax.
Royalties, active or passive, earned from sources abroad are subject to regular
income tax.

5. PRIZES
The taxations of prizes varies. Prizes may be exempt from income tax or subject
to either final tax or regular income tax.
Exempt prizes
1. Prizes received by a recipient without any effort on his part to join a contest.
Examples include prizes from such awards as Nobel Prize, Most Outstanding
Citizen, Most Benevolent Citizen of the Year, and similar awards.
2. Prizes from sports competitions that are sanctioned by their respective national
sport organizations
Requisite of exemption
1. The recipient was selected without any action on his part to enter the contest.
2. The recipient is not required to render substantial future services such as a
condition to receiving the price or reward.

PRIZES
Taxable prizes
For individual income taxpayers, taxable prizes are subject to either final tax or
regular tax depending on the amount of the prize.
There may be events or competitions where corporations earn prizes. However,

there is no final tax imposition on corporate prizes under the NIRC. Hence, the
same must be subject to regular income tax.
Recipient
Amount of taxable prize Individuals Corporations
Prizes exceeding 20% final tax Regular tax
P10,000
Prizes not exceeding Regular tax Regular tax
P10,000

6. WINNINGS
For individual income taxpayers, winnings, received from sources within the
Philippines are generally subject to 20% final tax with the exception of the
following exempt winnings:
1. Philippine Charity Sweepstakes Office (PCSO) winnings –Now partly taxable
under TRAIN
2. Lotto winnings- Now partly taxable under TRAIN
Similar to prizes, there is no final tax imposed on corporate winnings under the
NIRC. Winnings that are not subjected to final tax by the payor should be
reported as part of the regular income.
Recipient
Types of winnings Individuals Corporations
PCSO or lotto winnings If =< 10,000 not taxable Exempt
If > 10,000 20% final tax
Other winnings, in 20% final tax Regular tax
general
*Please check RA 10963

WINNINGS
For individual income taxpayers, winnings, received from sources within the
Philippines are generally subject to 20% final tax with the exception of the
following exempt winnings:
1. Philippine Charity Sweepstakes Office (PCSO) winnings –Now partly taxable
under TRAIN
2. Lotto winnings- Now partly taxable under TRAIN
Similar to prizes, there is no final tax imposed on corporate winnings under the
NIRC. Winnings that are not subjected to final tax by the payor should be
reported as part of the regular income.
Recipient
Types of winnings Individuals Corporations
PCSO or lotto winnings Exempt* Exempt
Other winnings, in 20% final tax Regular tax
general
*Please check RA 10963

TAX INFORMER'S REWARD
A cash reward may be given to any person instrumental in the discovery of
violations of the National Internal Revenue Code or discovery and seizure of
smuggled goods. The tax informer's reward is subject to 10% final tax.
Requisites of Tax Informer's Reward:

1. Definite sworn information which is not yet in the possession of the BIR
2. The information furnished lead to the discovery of fraud upon internal revenue
laws or provisions thereof.
3. Enforcement results in recovery of revenues, surcharges, and fees and/or
conviction of the guilty party or imposition of any fine or penalty.
4. The informer must not be a:
a. BIR official or employee
b. Other public official or employee
c. relative within the 6th degree of consanguinity of those officials or
employee in a. and b.

Amount of Cash Reward
- whichever is the lower of the following per case:
1. 10% of revenues, surcharges, or fees recovered and or fine or penalty
imposed and collected or
2. P1,000,000
The amount of cash reward is subject to 10% final withholding tax which shall be
withheld by the government.

Special aliens
Special aliens are NRA-NETBs employed by regional or area headquarters and
regional operating headquarters of multinational companies, offshore banking
units, or petroleum service contractors or subcontractors. Special aliens are
subject to final tax of 15% on gross income from their employers. (Take note:
This is prior to TRAIN LAW)
Illustration: NRA-NETBs
In 2014, Mr. Tih Wong, an NRA-NETB, is a consultant to Raha Humabon Manufacturing
Company (RHMC), a domestic manufacturer. RHMC also pays Mr. Wong royalty for
using his invention. During the year, Mr. Wong purchased shares of RHMC and sold
them directly to a buyer.
Royalties from invention P 300,000

Professional fees 1,000,000
Gain on sale of domestic stocks directly to a buyer 40,000
Required: Compute the total final tax withheld at source.

FINAL WITHHOLDING TAX RETURN
The final withholding tax return (BIR Form 1601-FQ, Quarterly Remittance Return
of Final Income Taxes Withheld, shall be filed in triplicate by every withholding
agent or payor who is either an individual or corporation.
Deadline and place for manual filing

The return shall be filed and the tax shall be paid or before the 10th day of the
month following the month in which withholding was made. (TRAIN LAW: Last
day of the month following the taxable quarter. 1601FQ..
0619-F Monthly remittance return

ENTITIES EXEMPT FROM FINAL INCOME TAX
1. Foreign governments and foreign government-owned and controlled
corporations
2. International missions or organizations with tax immunity
3. General professional partnership
4. Qualified employee trust fund

Final Tax Rates on Certain Passive Income from
Philippine Sources.
a. Rates of Tax Certain Passive Income
1) Sec. 24 (B) – For residents or citizens;
a. Interest from any currency bank deposit 20%
b. Yield or any other monetary benefit from
deposit substitutes and from trust funds
and similar arrangements 20%
c. Royalties 20%
d. Royalties on books and other literary works
and musical compositions 10%
e. Prizes 20%
f. Prizes amounting to P10,000 or less Tax Table
g. PCSO winnings Same rule as prizes
h. Winnings 20%

2) Sec. 25 (A) (2) – For non-resident aliens
engaged in trade or business.
b. Yield or any other monetary benefit from deposit substitute 20%
c. Yield or any other monetary benefit from trust funds and similar 20%
arrangements
d. Royalties, in general 20%
e. Prizes [except prizes amounting to P10,000 or less which shall 20%
be subject to tax under Sec. 24 (A)
f. Other winnings (except Philippine Charity Sweepstakes and Lotto 20%
winnings)
g. Royalties on books, as well as other literary works and musical 10%
compositions

3) Sec. 25 (B) – For non-resident aliens not
engaged in trade or business
b. Yield or any other monetary benefit from deposit substitute 25%
c. Yield or any other monetary benefit from trust funds and similar 25%
arrangements
d. Royalties, in general 25%
e. Royalties on books, as well as other literary works and musical 25%
compositions
f. Prizes 25%
g. Other winnings (except Philippine Charity Sweepstakes and Lotto 25%
winnings)

Other Passive Income
RES/CIT NRA- NRA-

ETB NETB
a. Interest income received from a depositary
bank under expanded foreign 15% Exempt* Exempt*
currency deposit system
b. Interest income from long-term deposit or
investment evidenced by Exempt Exempt 25%
certificates prescribed by BSP
If pre-terminated before fifth year, a final tax
shall be imposed based on remaining maturity:
4 years 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%
*also applies to non-resident citizens

Other Passive Income
NRA- NRA-
Res/Cit ETB NETB
Cash and/or Property Dividends
a. Cash and/or property dividends actually or constructively received 10% 20% 25%
from a DOMESTIC CORP. or from JOINT STOCK CO., INSURANCE or
MUTUAL FUND COMPANIES and REGIONAL OPERATING
HEADQUARTERS of multinationals (beginning January 1, 2000}
b. Share of an individual in the distributable net income after tax of a

PARTNERSHIP (OTHER THAN a general professional partnership) of 10% 20% 25%
which he is a partner (beginning January 1, 2000)
c. Share of an individual in the net income after tax of an

ASSOCIATION, a JOINT ACCOUNT, or a JOINT VENTURE or 10% 20% 25%
CONSORTIUM taxable as a corporation of which he is a member or co-
venturer (beginning January 1, 2000)

4) Exercise: Identify whether the following are subject to final tax or not. Taxpayer
is RESIDENT CITIZEN unless otherwise stated (Y/N).
Final Rate
tax?
1) Interest from peso bank deposit, Equitable – PCIB,
2) Interest from US dollar bank deposit, BPI-Makati Y 15%
3) Interest from Japanese yen bank deposit, Sumitomo Bank,
4) Interest from dollar bank deposit, First USA Bank, N Reg
5) Interest from money market placement, PCIB Investment House Y 20%
6) Interest from overdue accounts receivable, N Reg
7) Royalties, in general, Y 20%
8) Royalties, books published in Philippines Y 10%
9) Prize amounting to P30,000, Y 20%
10) Prize amounting to P10,000, N Reg
11) Prize amounting to P40,000, Y 20%
12) Winnings amounting to P30,000, Y 20%
13) Winnings amounting to P10,000, Y 20%
14) USA Sweepstakes winnings N Reg
15) Philippine Lotto winnings P8,000 N Exem
pt
16) Interest received from depository bank under expanded foreign currency Y 15%
deposit system

Continuation
Final
Rate
Tax ?
17) Interest income from long-term deposit or investment evidenced by N Exemp
certificates issued by BSP t
18) Dividend from a domestic corporation received on April 15, 2006 Y 10%
19) Share in distributive net income of local business partnership received on May Y 10%
15, 2006
20) Share in net income after tax of an association, a joint account, or a joint Y 10%
venture or consortium received on August 15, 2006
21) Share in the net income of a general professional partnership N Reg
22) Dividend from a foreign corporation N Reg
23) Interest income received by NONRESIDENT ALIEN individual from a N Exemp
depository bank under expanded foreign currency deposit system t
24) Interest income received by a NON-RESIDENT CITIZEN individual from a N Exemp
depository bank under expanded foreign currency deposit system t
25) Dividend received by a NONRESIDENT ALIEN not engaged in business from a Y 25%*
domestic corporation.
26) Dividend received by a NONRESIDENT ALIEN engaged in trade in the from a Y 20%
domestic corporation
*15% only if subject to tax sparing credit

CAPITAL GAINS
TAXATION
January 30, 2016
Mr. James Dane T. Adayo

Audit Associate 2
Punongbayan and Araullo

CLASSIFICATION OF TAXPAYER’S PROPERTIES
1. Ordinary assets – assets used in business, such as:
a .Stock in trade of a taxpayer or other real property of a kind which would a
properly be included in the inventory of the taxpayer if
on hand at the close of the taxable tear
b. Real property held by the taxpayer primarily for sale to customers in the
ordinary course of this trade or business
c. Real property used in trade or business (i.e., buildings and/or
improvements) of a character which is subject to the allowance for
depreciation
d. Real property used in trade or business of the taxpayer
2. Capital assets – any asset other than ordinary assets

Asset Classification is relative
The classification of assets or properties as ordinary asset or capital asset
depends upon the nature of the taxpayer’s business .
Example:
1. A domestic stock is an ordinary asset to a dealer in securities but is a capital
asset to a non-security dealer.

TYPES OF GAINS ON DEALINGS IN PROPERTIES
1. Ordinary gain – arises from the sale,exchange and other disposition including
pacto de retro sales and other conditional sales of ordinary assets
2. Capital gain – arises from the sale, exchange and other disposition including
pacto de retro sales and other conditional sales of capital assets
Taxation of Gains on Dealings in properties
Ordinary gains Regular income tax

Capital gains General Rule : Regular income
tax
Exception rule: Capital gain tax

CAPITAL GAINS SUBJECT TO CAPITAL GAINS
TAX
There are only two types of capital gains subject to capital gain tax:
1. Capital gains on the sale of domestic stocks sold directly to buyer
2. Capital gains on the sale of real properties not used in business (CLASSIFIED
AS CAPITAL ASSET)
SCOPE OF CAPITAL GAINS TAXATION

Gains on dealings in capital assets Tax Rates
✓ Gain on the sale, exchange, and the other disposition of 15%
domestic stocks directly to buyer capital gains tax
✓ Sale, exchange, and other disposition of real property of the 6% capital gains
Philippines (Selling price v Fair Market value w/cever is HGR tax
✓ Gains from other capital assets Regular Income
Tax

SALE, EXCHANGE AND OTHER DISPOSITION OF
DOMESTIC STOCKS DIRECTLY TO BUYER
Domestic Stocks
Domestic stocks are evidence of ownership or rights to ownership in a domestic
corporation regardless of its features, such as:
1. Preferred stocks (participative, cumulative ,etc.)
2.Common stocks
3.Stock rights
4.Stock options
5.Stock warrants
6.Unit participation in any association, recreation or amusement club (golf, polo
or similar clubs)
The capital gains tax covers not only sales of domestic stocks for cash but also
exchange of domestic stocks in kind and other disposition such as:
1. Foreclosure of property in settlement of debt.
2. Pacto de retro sales – sale with buy back agreement
3.Conditional sales - sale which will be perfected upon completion of certain
specified conditions

The term other disposition does not include:
1.Issuance of stocks by a corporation (Financing transaction)
2.Exchange of stocks for services
3.Redemption of shares in a mutual fund (Exempt by NIRC)
4.Worthlessness of stocks (Capital loss)
5.Redemtion of stocks for cancellation by issuing corporation
(Regular tax under dealings in properties)
6.Gratuitous transfer of stocks (Transfer tax)

MODES OF DISPOSING DOMESTIC STOCKS
Shares of stocks may be sold. exchanged or disposed:
1.Through the Philippine Stock Exchange (PSE) or
2. Directly buyer
TAX ON SALE OF DOMESTIC STOCKS THROUGH THE PSE

The sale of domestic stocks classified as capital assets through the PSE
is not subject to capital gains tax. It is subject to a stock transaction tax of
½ of 1% of 1% of the selling price. (Now .6% per TRAIN LAW)

TAX ON SALE, EXCHANGE, AND OTHER DISPOSITION
OF DOMESTIC STOCK DIRECTLY TO BUYER
The net gain on the sale exchange and other diposition of domestic
stocks directly to a buyer is subject to a two tiered capital gains tax:
Tax Rate
Net gain up to P100,000 5%*
Excess net gain above P100,000 10%*
*15% of NCG under the TRAIN LAW

Selling price P xxx,xxx
Less:
Basis of stocks disposed P xxx,xxx
Selling expenses xxx,xxx
Documentary stamp tax on the sale xxx,xxx xxx,xxx
Net capital gain (loss) P xxx,xxx

Selling price shall mean:
• In case of cash sale, total consideration received per deed of sale
• If total consideration is paid partly in money and partly in property, the
sum of money and fair and value of consideration received
• In case of exchanges, the fair value of the property received
*15% under the TRAIN LAW

Selling price P xxx,xxx
Less:
Basis of stocks disposed P xxx,xxx
Selling expenses xxx,xxx
Documentary stamp tax on the sale xxx,xxx xxx,xxx
Net capital gain (loss) P xxx,xxx

What is the tax basis of stocks?
If acquired by purchase, tax basis is the cost of the property which will be
determined by the following methods in descending order of priority:
• Specific identification, if the shares can be specifically identified.

• Moving average method, if books of accounts are maintained by the
seller where transaction of every particular stock is recorded
• First-in, first out method if the stocks cannot be specifically identified
• If acquired by devise, bequest or inheritance, the tax basis is the fair value
at the of death of the decedent
• If acquired by gift – tax basis is the lower of the fair market value at the time
of gift and the basis in the hands of the donor or the last preceding owner by
whom it was not acquired by gift
• If acquired for inadequate consideration, the tax basis is the amount paid
by the transferee for the property
• If acquired under tax free exchanges the tax basis is the substituted basis
of the stocks.

Illustration 1: Cost of acquisition
Mr. Amistoso purchased 1,000 shares of Bayangos corporation for
P100,000 and paid the broker’s commission of P1,000. The stocks were
subject to a chattel mortgage of P 10,000 which Mr. Amistoso assumed:
The cost or basis of the stocks shall be
Cash paid P 100,000

Obligation assumed on the property purchased 10,000
Direct acquisition costs – broker’s commission 1,000
Total cost (Tax Basis) P 111,000
Selling price P150,000

Less: Tax basis 111,000
Net capital gain 39,000
CGTax 15%XP39,000= P5,850

Illustration 3: Acquisition by gratuitous title
In March 2013, Mrs Marzan received by gratuitous acquisition shares of stocks of
taal corporation from her father Don Ramon. Don Ramon acquired the same
donation in June 1999 from his mother Dona Marian, who bought the shares for
P400,000 in Apirl 1996. The shares had a fair value of P700,000 in June 1999
and P2,500,000 in March 13.
Assuming the shares were acquired by Mrs.Marzan from her father by way
of:
1.Donation:Assuming the shares were donated by Don Ramon to Mrs.
Marzan in March 2013- the basis of the shares to Mrs. Marzan shall be
whichever is lower of:
• P400,000 the basis in the hand of the last preceding owner (Dona Marian)
who did not acquire the property by gift and
• P2,500,000 the fair value at the date of donation hence P400,000.

Illustration 3: Acquisition by gratuitous title
2.Inheritance: Assuming the shares were inherited by Mrs. Marzan when Dona
Marian died in March 2013 the basis of the shares to Mrs. Marzan shall be
P2,500,000 the fair value at the date of death of Don Ramon.
3.Purchase for an inadequate consideration : Assuming the shares were bought

by Mrs. Marzan from Don Ramon for only P1,200.000, the basis of the shares to
Mrs. Marzan shall be P1,200,000 the actual price paid for them.

CAPITAL GAINS TAX COMPLIANCE
1. Transaction capital gains tax
2. Annual capital gains tax
Transaction capital gains tax
The capital gains or losses are required to be reported after each sale, exchange,
and other dispositions through the capital gains capital tax return, BIR Form
1707.
Illustration: computation of capital gains tax
Cherry disposed her investments in domestic stocks costing P 100,000 directly to a
buyer. She paid on the sale P 2,000 and P 500 , respectively , for broker’s
commission and documentary stamp tax expense.
Computed the capital gain tax under the following:
1. Selling price = P 180,000
Selling price P 180,000
Less: Cost and expenses
Purchase cost P 100,000
Commission expense 2,000
Documentary stamp tax expenses 500 102,500
Capital gain P 77,500
First P 100,000 of gain 77,000
Multiply by applicable rate : 5%
Capital gains tax due 3,875

If under TRAIN LAW
First 77,500
Multiply by applicable rate : 15%
Capital gains tax due 11,625

1. Transaction capital gains tax
2. Annual capital gains tax
Transaction capital gains tax
The capital gains or losses are required to be reported after each sale, exchange,
and other dispositions through the capital gains capital tax return, BIR Form
1707.
Illustration: computation of capital gains tax
Cherry disposed her investments in domestic stocks costing P 100,000 directly to a
buyer. She paid on the sale P 2,000 and P 500 , respectively , for broker’s
commission and documentary stamp tax expense.
Computed the capital gain tax under the following:
tax rate 15%

Deadline of the transactional capital gains tax return
The capital gains tax return (BIR Form 1707 ) shall be filed within 30 days after
each sale, exchange, and other disposition of stocks .If the tax is qualified for
payment under the installment method, the tax Is due within 30 days after each
installment.
ANNUALIZED CAPITAL GAINS TAX

The tax on capital gains on the sale, exchange and other disposition of domestic
stocks directly to a buyer is based on the annual net capital gains. The annual net
capital gain or loss is computed as transactional capital gains less transactional
capital losses.

Deadline of the transactional capital gains tax return
Allison, Inc. disposed several equity securities directly to a buyer during its fiscal year ending June
30,2018.
Equity Security Selling Cost & Capital Capital

Price Expenses Gain(loss) Gain tax
Date
6/12 Preferred stock P 210,000 P 100,000 P 110,000 16,500
3/18 Common stocks 80,000 90,000 ( 10,000 ) -
5/14 Stock rights 160,000 70,000 90,000 13,500
6/17 Stock Options 80,000 100,000 ( 20,000) -
Total P 170,000 P30,000
The final capital gain tax payable ( refundable ) shall be:

Annual net capital gain P 170,000
x 15%
Net capital gains tax due 25,500
Less: CGT already remitted 30,000
Tax Payable (refund) (4,500)

Deadline of annual capital gains tax return
The annual capital gains tax return, BIR Form 1707 -A, shall be filed on or before
the 15th day of the fourth month following the close of the taxable year of the
taxpayer.
Jan1-Dece 31, 2020
15th day of the 4th month following end of Dec 31 2020?????? - ANNUAL
APRIL 15, 2021
Transaction Deadline is 30 days after each sale
January 15, 2020 ====== > February 14, 2020

Persons not liable to the 15% capital gains tax
1. Dealers in securities
2. Investors in shares of stocks in a mutual fund company in connection with
gains realized upon redemption of stocks in the mutual company
3. All other persons, whether natural or juridical who are specifically exempt from
national revenue taxes under existing investment incentives and other special
laws
Examples:
a. Foreign governments and foreign government-owned and controlled
corporations
b. Qualified employee trust funds

SALE, EXCHANGE, AND OTHER DISPOSITION OF REAL PROPERTY
CLASSIFIED AS CAPITAL ASSET LOCATED IN THE PHILIPPINES
The sale, exchange, and other disposition of real property capital assets in the
Philippines is subject to a tax of 6% of the selling price or the fair value,
whichever is higher.
Under the NIRC, the fair value of real property Is whichever is higher of the:
a. Zonal value, which is the value prescribed by the Commissioner of Internal
Revenue for real properties for purposes of enforcement of internal revenue laws,
and
b. Assessed value, which is the value prescribed by the City or Municipal
Assessor's Office for purposes of the real property tax
Zonal value exists only for land, but assessed value is prescribed separately for
land and improvements.

BIR Tax Clearance
No registration of any document transferring real property shall be effected by the

Register of Deeds unless the Commissioner or his duly authorized representative
has certified that such transfer has been reported, and the capital gains or
creditable withholding tax, if any, has been paid. (Sec. 58(E), NIRC)
The certificate for purposes of this legal requirement is referred to as the

"Certificate Authorizing Registration (CAR)".

NATURE OF THE 6% CAPITAL GAINS TAX
a. Presumption of capital gains

The 6% capital gains tax applies even if the sale transaction resulted to a loss.
Gain is always presumed to exist. The basis of taxation is the selling price or fair
value whichever is higher, not the actual gain.
b. Non-consideration to the involuntariness of the sale

The capital gains tax applies even if the sale is involuntary or is forced by
circumstances such as in the case of expropriation sale, foreclosure sale,
dispositions by judicial order, and other forms of forced disposition. It also applies
to conditional sales and pacto de retro sales.

SCOPE AND APPLICABILITY OF THE 6% CAPITAL GAINS TAX
Location of the Taxpayers

property Individuals Corporations
Within the Philippines All individuals Domestic corporation
only
Outside the Not applicable Not applicable
Philippines
Under the NIRC, the sale of real property located abroad is not covered by
the capital gains tax. Hence, the actual gains on the sale, exchange, and
other dispositions of properties abroad are subject to the regular income
tax if the taxpayer is taxable on global income such as resident citizens
and domestic corporations.

ALTERNATIVE TAXATION
An individual seller of real property capital assets has the option to be

taxed at either:
a. 6% capital gains tax or
b. The regular income tax
It should be noted that this is permissible only when:

1. The seller is an individual taxpayer, and
2. The buyer is the government, its instrumentalities or agencies including
government-owned and controlled corporations

Illustration
Gretchen Diez sold to the government a vacant lot for P800,000. The lot
was purchased for P1,000,000 in 1980 and had an assessed value of
P400,000 and zonal value of P 500,000 at the date of sale.
Gretchen may opt to be subject to tax at 6% of P800,000 or report the

(P800,000-P1,000,000) actual capital gain in her annual regular income
tax return.
Basis of Alternative Taxation

The alternative taxation is intended to ease the burden of government
expropriation where taxpayers may incur losses on the forced
expropriation sale and are still required to pay tax.

EXEMPTION TO THE 6% CAPITAL GAINS TAX UNDER THE NIRC
The sale, exchange and other disposition of a principal residence for the
re-acquisition of a new principal residence by individual taxpayers is
exempt from the 6% capital gains tax.
Principal residence
Principal residence means the house and lot which is the primary domicile
of the taxpayer. If the taxpayer has multiple residences, his principal
residence is deemed that one shown in his latest tax declaration.

Requisite for exemption:
1.The seller must be a citizen or resident alien.

2. The sale involves the principal residence of the seller-taxpayer.
3. The proceeds of the sale is utilized in acquiring a new principal
residence.
4. The BIR is duly notified by the taxpayer of his intention to avail of the
tax exemption within 30 days of the sale through a prescribed return (BIR
Form 1706) and "Sworn Declaration of Intent."
5. The reacquisition of the new residence must be within 18 months from
the date of sale.
6. The capital gain is held in escrow in favor of the government.
7.The exemption can only be availed of once in every 10 years.
8. The historical cost or adjusted basis of the principal residence sold shall
be carried over to the new principal residence built or acquired.

Illustration
Yorme sold his principal residence with a fair market value of for
P6,000,000 for P5,000,000. Yorme purchased the residence for
P3,000,000 several years ago. The imposable capital gains tax is 6% of or
P360,000.
Yorme should indicate his intention to apply for exemption in the capital
gains tax return to be filed and submit a Sworn Declaration of Intent. She
will be required to deposit the P360,000 capital gains tax in an escrow
account in favor of the government.
Full utilization of proceeds is exempt

Assuming Yorme acquires a new principal residence for within 18 months,
the P 360,000 capital gains tax in escrow will be released to him.
If Yorme does not acquire a new principal residence within 18 months, the
capital gains tax in escrow will be taken by the government.

Partial utilization of proceeds is partially exempt
Assume Yorme uses only P4,500,000 out of the P5,000,000 proceeds in

acquiring his new residence. The portion representing the unused
proceeds shall be subject to tax. The capital gains tax held in escrow
account including any accrued interest shall be allocated as follows:
To Yorme P324,000 (P4.5M/P5MxP360,000)

To the government 36,000 (P0.5M/P5MxP360,000)
Total amount in escrow P 360,000
Note: Any interest which might have accrued on the escrow fund shall be
released to the taxpayer. The government is entitled to the amount of the
unpaid tax only.

Partial utilization of proceeds is partially exempt
Assume Yorme uses only P6,000,000 out of the P5,000,000 proceeds in

acquiring his new residence. The portion representing the unused
proceeds shall be subject to tax. The capital gains tax held in escrow
account including any accrued interest shall be allocated as follows:
Note: Any interest which might have accrued on the escrow fund shall be
released to the taxpayer. The government is entitled to the amount of the
unpaid tax only.

Tax basis of the new residence with less than full utilization
If the proceeds is not fully utilized, the tax basis of the new residence shall
be reduced accordingly as follows:
Tax basis of old residence x utilized proceeds / total proceeds
Thus, the tax basis of the new principal residence shall be computed as
follows:
P3,000,000X P4,500,000/P5,000,000 = P2,700,000

Tax basis of the new residence with more than full utilization
If the proceeds is not fully utilized, the tax basis of the new residence shall
be reduced accordingly as follows:
Tax basis of old residence x utilized proceeds / total proceeds
Thus, the tax basis of the new principal residence shall be computed as
follows:
P3M + 1M = P4M

CAPITAL GAINS TAX EXEMPTION UNDER SPECIAL LAWS
1. Sale of land pursuant to the Comprehensive Agrarian Reform Program

2. Sale of socialized housing units by the National Housing Authority
Sale of land under the Comprehensive Agrarian Reform Program

The sale of agricultural lands by land owners pursuant to the
Comprehensive Agrarian Reform Program of the government shall be
exempt from capital gains tax.
Sale of socialized housing units by the National Housing Authority

The sale of socialized housing units for the underprivileged and homeless
citizens by the National Housing Authority (NHA) pursuant to the Urban
Development and Housing Act of 1992 is exempt from the capital gains
tax.

Deadline for payment of the capital gains tax
The 6% capital gains be filed through m BIR Form 1706 and doe Within
30 days from the date of sale or exchange. For foreclosure sales, it is due
within 30 days from the expiration or the applicable statutory redemption
period. When the tax on the sale is qualified for installment payment, -it is
due 30 days upon receipt of every installment

DOCUMENTARY STAMP TAX ON THE SALE OF CAPITAL ASSETS
The 6% capital gains be filed through m BIR Form 1706 and doe Within
30 days from the date of sale or exchange. For foreclosure sales, it is due
within 30 days from the expiration or the applicable statutory redemption
period. When the tax on the sale is qualified for installment payment, -it is
due 30 days upon receipt of every installment

Documentary stamp tax on the sale, exchange, and other
dispositions of domestic stocks directly to a buyer
The sale of domestic stocks is subject to a documentary stamp tax of
P1.50 for every P200 of the par value of the stocks sold. (RA 9243)
Illustration
A taxpayer sold domestic stocks with total par value of P800,000 for the
stocks have a fair value of P 1,250,000 and were acquired for six months
ago.
The documentary stamp tax shall be P 6,000 computed as P1.50/P200 x

P800,000.
*Under the TRAIN Law it was doubled

Documentary Stamp Tax on the Sale of Real Properties
The sale of real property capital assets is subject to a documentary stamp

tax on the gross selling price or fair market value whichever is higher.
The documentary stamp tax is P 15 for every P 1,000 and fractional parts
of the tax basis thereof. However, if the government is a party to the sale,
the basis shall be the consideration paid.
Illustration
A taxpayer disposed a real property capital asset acquired for P2,000,000
10 years ago for P4,000,000. The property has a zonal value of
P5,000,000 and declared real property value per real property tax
declaration of P3,000,000.
The documentary stamp tax shall be computed from the fair value since it
is higher than the selling price. Hence, the documentary stamp tax shall
be P75,000 computed as P15/P1,000 x P5,000,000.
*No changes under the TRAIN LAW

Capital Gains Tax
a. Sec. 24 (C) – Capital Gains from of Tax base: Net capital gains
Shares of Stock not Traded in the Stock Tax rates: 5% - not over P100,000
Exchange 10% - excess of P100,000
b. Sec. 24 (D) – Capital Gains from of Real Tax base: Gross selling price or fair market
Property Classified as Capital Asset value whichever is higher
(Located in the Philippines) Tax rate: 6%
Real property is sold to the government Tax due: 6% capital gains tax or Sec. 24 (A)
or any political subdivisions or agencies or
GOCC’s
c. Exemption from 6% capital gains tax
1) Exempt proceeds Capital gains presumed to have been realized from the sale or disposition of their
principal residence by natural persons, the proceeds of which is fully utilized in
acquiring or constructing a new principal residence within 18 calendar months from
the date of sale or disposition shall be exempt from capital gains tax.
2) Escrow agreement The 6% capital gains tax otherwise due on the presumed capital gains derived from
the sale, exchange or disposition of his principal residence shall be deposited in cash or
manager’s check in interest-bearing account with an Authorized Agent Bank (AAB)
under an Escrow Agreement between the concerned Revenue District Officer, the
seller/transferor and the AAB to the effect that the amount so deposited, including its
interest yield shall only be released to such seller/transferor upon certification by the
said RDO that the proceeds of sale or disposition thereof has, in fact, been utilized in
the acquisition or construction of the seller/transferor’s new principal residence within
18 calendar months from the date of the said sale or disposition.
3) Carry over of The historical cost or adjusted basis of the real property sold or disposed shall be
historical cost or carried over to the new principal residence built or acquired.
adjusted basis

4) Computation for the Historical cost of old principal residence xxx
basis of the new principal Add: Additional cost to acquire new principal residence xxx
residence Adjusted cost basis of the new principal residence xxx
*Cost to acquire new principal residence xxx

Less: Gross selling price of old principal residence xxx
Additional cost to acquire new principal residence xxx
5) Notification required The Commissioner shall have been duly notified by the taxpayer
within 30 days from the date of sale or disposition through a
prescribed return of his intention to avail of the tax exemption.
6) Exemption once The tax exemption can only be availed of once every 10
every 10 years
years.
7) Taxable portion if no full If there is no full utilization of the proceeds of sale or disposition,
utilization of proceeds the portion of the gain presumed to have been realized from the
sale or disposition shall be subject to capital gains tax.
The taxable portion is computed as follows:
Unutilized portion x Tax base
Gross selling price

Exercises:
a. An individual taxpayer holds shares of stock as investment. During the current
year, he sold the shares he bought for P100,000 for P180,000 directly to a buyer.
How much is the capital gains tax on the sale if any?
b. An individual taxpayer holds shares of stock as investment which he bought for

P500,000. During the current year, he sold it directly to a buyer for P750,000.
How much is the capital gains tax on the sale, if any?
c. An individual taxpayer invested P300,000 in the common shares of SMC Corp.

During the current year, he sold these shares directly to a buyer for P250,000.
How much is the capital gains tax on the sale, if any?
d. During the year 2011, Ms. Kat Antonio sold her vacation house for P500,000.
She acquired it for P700,000 two (2) years ago. The fair market value of the
vacation house at the time of sale was P800,000. Ms. Antonio was going to use
the proceeds to build her new principal residence within eighteen (18) months
after informing BIR within thirty (30) days of such intention. How much is the
capital gain tax, if any?

Exercises:
e. Mr. C. Avenido acquired his principal residence in 2009 at a cost of P1,000,000.

He sold the said property on January 1, 2011, with a fair market value of P5,000,000
for a consideration of P4,000,000. Within the 18-month reglementary period he
purchased his new principal residence at cost of P7,000,000.
Question 1 - How much is the capital gains tax due?

2 - How much is the basis of the new principal residence?
f. Using the same data in letter d, if for example, Mr. Avenido acquired his new
principal residence within the 18-month reglementary period but did not utilize the
entire proceeds of the sale in acquiring his new principal residence because he only
used P3,000,000 thereof in acquiring his new principal residence.
Question 1 - How much is the capital gains tax?

2 - How much is the basis of the new principal residence?

4. Tax Rates for Special Aliens and their Filipino Counterparts
Persons Subject to Tax Rate
Tax
Sec. 25 (C) Alien Individual 15% of gross income within the
Employed by Regional a. Same tax treatment to Filipinos whether or not there is an alien executive
or Area Headquarters occupying managerial or technical position.
and Regional Operating b. Filipinos employed by ROHQs or RHQs in a managerial or technical
Headquarters of position shall have the option to be taxed at either 15% of their gross
Multinational income or at the regular rate on taxable compensation income under
Companies Section 24 (A).
c. All other employees are considered as regular employees who are subject
to the regular income tax rate on their taxable compensation income.
d. Filipinos exercising the option to be taxed at fifteen percent (15%)
preferential rate for occupying the same managerial or technical position as
that of an alien employed in an ROHQs or RHQs must meet all following
requirements:
1) Position and Functional Test – The employee must occupy managerial
position or technical position AND must actually be exercising such
managerial or technical functions pertaining to said position;
2) Compensation Threshold Test - In order to be considered a managerial
or technical employee fo income tax purposes, the employee must have
received, or is due to receive under a contract of employment, a gross
annual taxable compensation of at least P975,000 (whether or not this
is actually received.)
3) Exclusivity Test – The Filipino managerial or technical employee must be
exclusively working for the ROHQs or RHQs as a regular employee
and not just a consultant or contractual personnel. Exclusivity means
having just one employer at a time. (RR No. 11-2010)

4. Tax Rates for Special Aliens and their Filipino Counterparts
Sec. 25 Alien Individual 15% of gross income within the Philippines

(D) Employed by (same tax treatment to Filipinos employed and
Offshore Banking occupying managerial and technical positions
Units similar to those occupied by aliens employed by
these offshore banking units).
Sec. 25 Alien Individual 15% of gross income within the Philippines
(E) Employed by Foreign (same tax treatment to Filipinos employed and
Petroleum Service occupying the same position as those aliens
Contractor and who are permanent residents of a foreign
Subcontractor country but who are employed by petroleum
service contractor and subcontractor in the
Philippines).

Exercises
a. A married resident citizen has four (4) qualified dependent children. He has the following data on
income and expenses for the year 2011:
Salary, Philippines, gross of withholding tax of P5,000 P 60,000
Gross business income, Philippines (gross sales, P1,200,000) 500,000
Business expenses, Philippines 180,000
Gross business income, USA (gross sales, P1,500,000) 900,000
Business expenses, USA 300,000
Interest income from bank deposit, Philippines 50,000
Interest income from bank deposit, USA 70,000
Interest income from domestic depository bank under EFCDS 80,000
Royalty on book published in the Philippines 100,000
Prize in a contest he joined in the Philippines 5,000
Philippine Charity Sweepstakes winnings 1,000,000
Gain from sale of shares of stock not traded through the local stock exchange 150,000
Dividend received from a domestic corporation 40,000
Tax payments, first three (3) quarters 100,000
Question 1 - How much is the taxable net income in the Philippines?
2 - How much is the tax payable after deducting the allowable tax credits and payments?
3 – How much is the total final tax on certain passive income?
4 – How much is the capital gains tax?

b. A resident alien individual with three qualified dependent adopted children asked you
to assist him in the preparation of his tax return for his income in 2011. He provided you
the following information:
Gross business income, Philippines (gross sales, P3,000,000) P 1,000,000

Gross business income, Japan (gross sales, P7,000,000) 5,000,000
Business expenses, Philippines 200,000
Business expenses, Japan 800,000
Philippine Charity Sweepstakes winnings 500,000
Japanese Sweepstakes winnings 400,000
Interest income, Bank of Tokyo, Japan 100,000
Interest income received from a depository bank under
Expanded Foreign Currency Deposit System (EFCDS), Philippines 300,000
Interest on peso bank deposit, Philippines 100,000
Quarterly income taxes paid 50,000
Question 1 - How much was the taxable net income?

2 – How much was the tax due after deducting the quarterly tax payments?
3 – How much was the final tax on passive income?
4 – How much was the taxable net income using optional standard deduction?

c. An expatriate employed by an offshore banking unit in the Philippines has the
following data for the year 2011:
Salaries received from the OBU P15,000,000

Allowances received from OBU 5,000,000
Interest on peso bank deposit, Philippines 100,000
Gain from sale of shares of stock not traded
through the local stock exchange 50,000
Question: How much is the tax to be withheld from the above income of the
expatriate?

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FINAL and

CAPITAL GAINS TAXES

© 2013 Punongbayan & Araullo. All rights reserved.

There are three income taxation schemes under the

*Mutually exclusive coverage

© 2013 Punongbayan & Araullo. All rights reserved.

• Final income taxation is characterized by final taxes

© 2013 Punongbayan & Araullo. All rights reserved.

• Passive incomes are earned with very minimal or

• Active or regular income arises from transactions

© 2013 Punongbayan & Araullo. All rights reserved.

• A capital gains tax is imposed on the capital gain on

• Also, not all capital gains are subject to capital gains

© 2013 Punongbayan & Araullo. All rights reserved.

• Capital assets include all other assets other than

© 2013 Punongbayan & Araullo. All rights reserved.

• Capital assets include all other assets other than

© 2013 Punongbayan & Araullo. All rights reserved.

• The regular income taxation is the general rule in

© 2013 Punongbayan & Araullo. All rights reserved.

• Accounting period is the length of time over which

Types of Accounting Periods

2. Short accounting period – less than 12 months

© 2013 Punongbayan & Araullo. All rights reserved.

• Under the NIRC, the return is due for filing on the

• The regular tax due is payable upon filing of the

© 2013 Punongbayan & Araullo. All rights reserved.

• 5. Termination of the accounting period of the taxpayer

© 2013 Punongbayan & Araullo. All rights reserved.

© 2013 Punongbayan & Araullo. All rights reserved.

January 30, 2016

Mr. James Dane T. Adayo

© 2013 Punongbayan & Araullo. All rights reserved.

• Imposes upon the person making income payment

© 2013 Punongbayan & Araullo. All rights reserved.

© 2013 Punongbayan & Araullo. All rights reserved.

© 2013 Punongbayan & Araullo. All rights reserved.

Note: *Exemption does not include NRA-NETB

© 2013 Punongbayan & Araullo. All rights reserved.

Required: Compute the final tax if the taxpayer is an 1. ) individual P4,000

© 2013 Punongbayan & Araullo. All rights reserved.

=16,000/80% =P20,000 X 20%= P4,000

© 2013 Punongbayan & Araullo. All rights reserved.

Less than 3 years 20%

3 years to less than 4 years 12%

4 years to less than 5 years 5%

© 2013 Punongbayan & Araullo. All rights reserved.

© 2013 Punongbayan & Araullo. All rights reserved.

© 2013 Punongbayan & Araullo. All rights reserved.

Taxpayer Individuals Corporations

Residents 15% 7.5%

Non-residents Exempt Exempt

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If the bank -account is jointly in the name of a resident and a resident

Taxpayer Individuals Corporations

Residents 15% 15%

Non-residents Exempt Exempt

© 2013 Punongbayan & Araullo. All rights reserved.

1. Lending activities, whether or not in the course of business

© 2013 Punongbayan & Araullo. All rights reserved.

© 2013 Punongbayan & Araullo. All rights reserved.

For instance, a corporation declared stock dividends and immediately

b. If it leads to substantial alteration in ownership in the corporation