UNIVERSITY OF LUZON

COLLEGE OF ACCOUNTANCY
CPA REVIEW CENTER

TAX ON INDIVIDUALS

The term 'person’ means an individual, a trust, estate or corporation.

CLASSIFICATION OF INDIVIDUALS

1. CITIZENS
 Those who are citizens of the Philippines at the time of the adoption of the Constitution
(on February 2, 1987)
 Those whose fathers or mothers are citizens of the Philippines
 Those born before January 17, 1973 of Filipino mothers who elect Philippine citizenship
upon reaching the age of majority
 Those who are naturalized in accordance with law

A. Resident Citizen – is a citizen of the Philippines who has a permanent or perpetual home in
the Philippines to which he plans or intends to return whenever he is away or out of the country.
B. Nonresident Citizen
 A citizen of the Philippines who establishes to the satisfaction of the Commissioner the
fact of his physical presence abroad with a definite intention to reside therein.
 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.
 A citizen of the Philippines who works and derives income from abroad and whose
employment thereat requires him to be physically present abroad most of the time
during the taxable year.
To be considered physically present abroad most of the time during the taxable year, a
contract worker must have been outside the Philippines for not less than 183 days
during such taxable year.
 A citizen who has been previously considered as nonresident citizen and who arrives
in the Philippines at any time during the taxable year to reside permanently in the
Philippines shall likewise be treated as a nonresident citizen for the taxable year in
which he arrives in the Philippines with respect to his income derived from sources
abroad until the date of his arrival in the Philippines.
 The taxpayer shall submit proof to the Commissioner to show his intention of leaving
the Philippines to reside permanently abroad or to return to and reside in the Philippines
as the case may be for purpose of this Section.

An individual citizen of the Philippines who is working and deriving income from abroad
as an overseas contract worker is taxable only on income derived from sources within the
Philippines: Provided, That a seaman who is a citizen of the Philippines and who receives
compensation for services rendered abroad as a member of the complement of a vessel
engaged exclusively in international trade shall be treated as an overseas contract worker
SEC. 23 (C) NIRC

2. ALIENS - Individuals who are not Filipinos.

 Resident alien;
 Non-resident alien doing business in the Philippines;
 Non-resident alien not doing business in the Philippines.

A. Resident Alien means an individual whose residence is within the Philippines and who is not
a citizen thereof. Sec. 22 (F) NIRC
 An alien who lives in the Philippines with no definite intention as to his stay, but who
is not a merely transient or sojourner
  His purpose in coming to the Philippines requires an extended stay in the country, and
makes his home temporarily in the Philippines. (expatriates or those employed in the
Philippines)

B. Nonresident Alien means an individual whose residence is not within the Philippines and who
is not a citizen thereof. Sec. 22 (G) NIRC
A.1 Nonresident Alien Engaged in trade or Business within the Philippines
 Who shall come to the Philippines and stay therein for an aggregate period of more
than one hundred eighty (180) days during any calendar year

A.2 Nonresident Alien Not Engaged in trade or Business within the Philippines
 Who shall come to the Philippines and stay therein for an aggregate period of not more
than one hundred eighty (180) days (180 days or less) during any calendar year

The BIR said that all employees of Regional Headquarters (RHQ) and Regional Operating Headquarters
(ROHQ) of multinational companies, Offshore Banking Units, and Petroleum Service Contractors and
subcontractors, who are enjoying preferential tax treatment prior to 2018, are now subject to regular
income tax rates. Thus, the withholding taxes on compensation of these employees shall be enforced based
on the withholding tax table per Revenue Memorandum Circular No. 01-2018 dated 04 January 2018.

Regional or Area Headquarters shall mean a branch established in the Philippines by multinational
companies and which headquarters do not earn or derive income from the Philippines and which act as
supervisory, communications and coordinating center for their affiliates, subsidiaries, or branches in the
Asia-Pacific Region and other foreign markets.

Regional Operating Headquarters shall mean a branch established in the Philippines by multinational
companies which are engaged in any of the following services: general administration and planning;
business planning and coordination; sourcing and procurement of raw materials and components;
corporate finance advisory services; marketing control and sales promotion; training and personnel
management; logistic services; research and development services and product development; technical
support and maintenance; data processing and communications; and business development.

Income of Individuals
1. Compensation Income
2. Business Income and income from practice of profession
3. Passive Income
4. Capital Gains
5. Other sources of income

SUMMARY of TAXPAYERS and TAX BASE

Taxpayer Tax Base

Resident Citizen World Income
Nonresident citizen Within
Resident Alien Within
Nonresident alien engaged in trade or business Within
*Nonresident alien not engaged in trade or business Within (Gross Income)
Taxable Estate – estate under judicial settlement World Income
Taxable Trust – trust irrevocably designated by the grantor
TAX RATES ON TAXABLE INCOME OF INDIVIDUALS

a. Tax Schedule Effective January 1, 2018 until December 31, 2022

ANNUAL TAXABLE INCOME TAX RATES

Not over P250,000
Over P250,000 but not over P400,000
Over P400,000 but not over P800,000
Over P800,000 but not over P2,000,000
Over P2,000,000 but not over P8,000,000
Over P8,000,000
0%
20% of the excess over P250,000
P30,000 + 25% of the excess over P400,000
P130,000 + 30% of the excess over P800,000
P490,000 + 32% of the excess over P2,000,000
P2,410,000 + 35% of the excess over
P8,000,000

b. Tax Schedule Effective January 1, 2023 and onwards:

ANNUAL TAXABLE INCOME TAX RATES

Not over P250,000
Over P250,000 but not over P400,000
Over P400,000 but not over P800,000
Over P800,000 but not over P2,000,000
Over P2,000,000 but not over P8,000,000
Over P8,000,000
0%
15% of the excess over P250,000
P22,500 + 20% of the excess over P400,000
P102,500 + 25% of the excess over P800,000
P402,500 + 30% of the excess over P2,000,000
P2,202,500 + 35% of the excess over
P8,000,000

For married individuals, the husband and wife, subject to the provision of Section 51 (D) hereof, shall
compute separately their individual income tax based on their respective total taxable income: Provided,
That if any income cannot be definitely attributed to or identified as income exclusively earned or realized
by either of the spouses, the same shall be divided equally between the spouses for the purpose of
determining their respective taxable income.

Purely Compensation Income

 Use graduated income tax rates
 Substituted Filing of Income Tax Returns (BIR Form 2316 and BIR Form 1604CF)

Purely Self-employed Individuals and/or Professionals

 Whose Gross Sales or Gross Receipts and Other Non-operating Income does not exceed the Value-
added Tax(VAT) Threshold as Provided in Section 109(BB).
 Option to use graduated income tax rate OR
 Option to avail of an eight percent (8%) tax on gross sales or gross receipts and other non-
operating income in excess of Two hundred fifty thousand pesos (P250,000) in lieu of the graduated
income tax rates and the percentage tax.

Mixed Income Earners

 All Income from Compensation
 All Income from Business or Practice of Profession
a. If Total Gross Sales and/or Gross Receipts and Other Non-Operating Income do not exceed
the VAT Threshold as Provided in Section 109(BB) of this Code.
Graduated income tax rate OR eight percent (8%) income tax based on gross sales or gross
receipts and other non-operating income in lieu of the graduated income tax rates and the
percentage tax.

b. If Total Gross Sales and/or Gross Receipts and Other Non-operating Income exceeds the VAT
Threshold. No options and automatically use graduated income tax rates
Optional Standard Deduction (OSD)
 Applicable to Resident Citizen, Nonresident citizen, and Resident Alien
 In lieu of the itemized deductions allowed, an individual subject to tax under Section 24, other
than a nonresident alien, may elect a standard deduction in an amount not exceeding forty percent
(40%) of his gross sales or gross receipts, as the case maybe.
 Unless the taxpayer signifies in his return his intention to elect the optional standard deduction, he
shall be considered as having availed himself of the itemized deductions allowed
 An individual who is entitled to and claimed for the optional standard deduction shall not be
required to submit with his tax return such financial statements otherwise required under this Code
 The said individual shall keep such records pertaining to his gross sales or gross receipts, or the
said corporation shall keep such records pertaining to his gross income

Income Tax Returns (Individuals, Estates, and Trusts)

The following individuals are required to file an income tax return:
a. Every Filipino citizen residing in the Philippines;
b. Every Filipino citizen residing outside the Philippines, on his income from sources within the
Philippines;
c. Every alien residing in the Philippines, on income derived from sources within the Philippines;
and
d. Every nonresident alien engaged in trade or business or in the exercise of profession in the
Philippines.

The following individuals shall not be required to file an income tax return:
a. An individual whose taxable income does not exceed Two hundred fifty thousand pesos
(P250,000). Provided, That a citizen of the Philippines and any alien individual engaged in
business or practice of profession within the Philippine shall file an income tax return, regardless
of the amount of gross income;
b. An individual with respect to pure compensation income, as defined in Section 32 (A)(1), derived
from sources within the Philippines, the income tax on which has been correctly withheld under
the provisions of Section 79 of this Code
c. An individual whose sole income has been subjected to final withholding tax.
d. A minimum wage earner as defined in section 22 (HH) of this Code or an individual who is exempt
from income tax pursuant to the provisions of this Code and other laws, general or special.

An individual deriving compensation concurrently from two or more employers at any time during
the taxable year shall file an income tax return. (BIR Form 1700)

The income tax return (ITR) shall consist of a maximum of four (4) pages in paper form or electronic
form, and shall only contain the following information:
a. Personal profile and information;
b. Total gross sales, receipts or income from compensation for services rendered, conduct of trade or
business or the exercise of profession, except income subject to final tax as provided under this
Code,
c. Allowable deductions under this Code;
d. Taxable income as defined in Section 31 of this Code; and
e. Income tax due and payable

In cases where the Commissioner otherwise permits, the return shall be filed with
a. An authorized agent bank
b. Revenue District Officer
c. Collection Agent or duly authorized Treasurer of the city or municipality in which such person has
his legal residence or principal place of business in the Philippines
d. If there be no legal residence or place of business in the Philippines, with the Office of the
Commissioner.

There are two BIR electronic platforms available for filing tax returns namely electronic Filing
and Payment System (eFPS) and electronic Bureau of Internal Revenue Forms (eBIRForms)
Date of Filing Income Tax Returns
a. Quarterly Income Tax Returns – on the fifteenth (15th) day of the second (2nd) month following
the close of each quarter except for first quarter.
Quarter Months Covered Due Date
First January – March On or before May 15
Second April – June On or before August 15
Third July – September On or before November

b. It shall be filed on or before the fifteenth (15th) day of April of each year covering income for the
preceding taxable year.

REVISED WITHHOLDING TAX TABLE

Effective January 1, 2018 to December 31, 2022

DAILY 1 2 3 4 5 6
Compensation P685 and P685-P1,096 P1,096-P2,191 P2,192-P5,478 P5,479- P21,918 and
Range below P21,917 above
Prescribed 0.00 0.00 + 20% P82.19 + 25% P356.16 + P1,342.47 + P6,602.74 +
Withholding Tax over P685 over P1,096 30% 0ver 32% over 35% over
P2,192 P5,479 P21,918

WEEKLY 1 2 3 4 5 6
Compensation P4,808 and P4,808-P7,691 P7,692- P15,385- P38,462- P153,846 and
Range below P15,384 P38,461 P153,845 above
Prescribed 0.00 0.00 + 20% P576.92 + P2,500 + 30% P9,423.08 + P46,346.15 +
Withholding Tax over P4,808 25% over over P15,385 32% over 35% over
P7,692 P38,462 P153,846

SEMI-
MONTHLY 1 2 3 4 5 6
Compensation P10,417 and P10417- P16,667- P33,333- P83,333- P333,333 and
Range below P16,666 P33,332 P83,332 P333,332 above
Prescribed 0.00 0.00 + 20% P1,250 + 25% P5,416.67 + P20,416.67 + P100,416.67 +
Withholding Tax over P10,417 over P16,667 30% over 32% over 35% over
P33,333 P83,333 P333,333

MONTHLY 1 2 3 4 5 6
Compensation P20,833 P20,833- P33,333- P66,667- P166,667- P666,667 and
Range P33,332 P66,666 P166,666 P666,666 above
Prescribed 0.00 0.00 + 20% P2,500 + 25% P40,833.33 + P40,833.33 + P200,833.33 +
Withholding Tax over P20,833 over P33,333 32% over 32% over 35% over
P166,667 P166,667 P666,667

Classification of Taxpayers
Identify the following taxpayers as Resident Citizen (RC), Nonresident citizen (NRC), Resident Alien
(RA), Nonresident Alien engaged in trade or business (NRA-ETB), or Nonresident not engaged in trade
or business (NRA-NETB):

1. Mr. Jharam, a Filipino citizen, received his working visa. He left the Philippines and reside in
Australia.
2. Mr. Mezille, a Mexican citizen, spent his five (5) day vacation in Coron, Palawan.
3. Ms. Kath is currently employed as accounting instructor in University of Luzon College of
Accountancy for three years.
4. Ms. Gian, a Korean citizen, is currently enrolled in University of Grace under the program of
Bachelor of Science in Accountancy. She lives in Bulacan.
5. Ms. Raziel, a Filipino who has great experience in audit and hired by Era and Yan, a US based
auditing firm. She will work there as an auditor and reside in the United States of America because
of her permanent employment.
6. Ms. Keng, a famous singer in Japan who was invited as a guest in a DIVA concert held in
Philippine Arena on the 14th day of February of the current year.
7. Mr. Luigi, an IT expert of University of Luzon College of Accountancy was invited as a resource
speaker in a three (3) day seminar in Antipolo, Rizal.
 8. Mr. Mark, a CPA who is currently employed in a domestic corporation in the Philippines. He is
assigned to render services in Malaysia. He will stay abroad for maximum of 10 months.
9. Mr. Dante, an American citizen, went to the Philippines to share his expertise and experience in
Marketing. He stayed in Laguna for seven (7) months.
10. Ms. Rezchelle, a runaway model, invited as a guest lecturer to the aspiring models of TOP Model.
She stayed in the Philippines for ten (10) months.

Problem 1
Ms. Grace is currently working as accounting staff in XYZ Company. Her total compensation income is
P650,000 while her mandatory contributions is P100,000. Compute the income tax due of Grace.

Problem 2
Ms. CMA is a professional with a gross receipts of P4,000,000 and cost of expenses of P3,000,000 or net
income of P1,000,000 in 2020. She failed to signify her intention to be taxed at 8% income tax rate on
gross sales/receipts. Compute the income tax due

Problem 3
Ms. CPA is a professional with gross income receipts of P2,000,000 and deductible expenses of
P1,000,000 or a net income of P1,000,000 in 2020. Compute the income tax due if a taxpayer
a. Opted to use graduated income tax rates
b. Opted to avail the 8% income tax rate on gross sales/receipts

Problem 4
Mr. MBA, an owner of merchandising store, signified his intention to be tax at 8% income tax rate on
gross sales. The results of the business operations are as follows:

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Sales P500,000 P600,000 P800,000 P900,000
Less: Cost of sales 300,000 320,000 350,000 380,000
Gross Income 200,000 280,000 450,000 520,000
Less:
Operating expenses 150,000 160,000 200,000 230,000
Taxable income 50,000 120,000 250,000 290,000

Required:
a. Compute the income tax due to be paid at the end of each quarter.
b. Compute the income tax payable at the end of the taxable year.
c. Assuming the taxpayer failed to signify her intention to be taxed at 8% income tax rate on gross
sales/receipts.
c.1 Compute the income tax due to be paid at the end of each quarter.
c.2 Compute the income tax payable at the end of the taxable year.

Problem 5
Mr. MBA, an owner of merchandising store, signified his intention to be tax at 8% income tax rate on
gross sales in his first Quarter Income Tax Return. The results of the business operations are as follows:

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

(8% Rate) (8% Rate) (8% Rate)
Sales P850,000 P950,000 P1,200,000 P1,500,000
Less: Cost of sales 400,000 450,000 650,000 800,000
Gross Income 450,000 500,000 550,000 700,000
Less:
Operating expenses 130,000 160,000 250,000 300,000
Taxable income 320,000 340,000 300,000 400,000
Required:
a. Compute the income tax due to be paid at the end of each quarter.
b. Compute the income tax payable at the end of the taxable year.

Problem 6
Ms. Faith, an accountant of CPA Company has the following records for his income from employment
and her business in 2021:

Annual compensation income, including 13th month

pay and other benefits of P200,000, but net of
mandatory contributions to SSS, Philhealth and HDMF P 2,000,000
Gross Sales 1,500,000
Non-operating income 100,000
Cost of sales 700,000
Operating expenses 200,000

Required:
a. Compute the income tax due if a taxpayer opted to be tax at 8% income tax rate on gross
sales/receipts.
b. Compute the income tax due if taxpayer failed to signify her intention to be taxed at 8% income
tax rate on gross sales/receipts.

   end   