INCOME TAXATION 5.

Rents
Midterms Reviewer 6. Royalties
Concept of Gross income 7. Dividends
Income – In general, is the gain derived from 8. Annuities
capitol, labor or both combined including profit 9. Prizes and Winnings
gained through a sale or conversion of capital 10. Pensions
assets. 11. Partner’s distributive share from the net income of
- Basta may gain, ang tawag dun is income kahit pa a general professional partnership
galing sa labor mo, sa capital na meron ka or mixed
together. Pwede rin dahil sa nagbenta ka ng asset. BUSINESS INCOME
Basta lahat ng kinikita natin. Manufacturing, Merchandising or Mining
Gross Sales xxx
Gross Income – means total income of a taxpayer Cost of Goods Sold (xxx)
subject to tax. It includes gains, profits and income Gross profit from sales
derived from source whatever, whether legal or xx
illegal. It does not include income excluded by law Other Income:
or which are except from income tax. a. Income from
- Sya yung bahagi ng income na subject to tax. Income investment xxx
kasi is more general lang whether it includes or b. Income from incident/
excludes tax sya yung income. Pero sa gross income Outside operations or
tinatanggal/hindi kasama yung ineexcept ni law sa sources xxx xxx
tax. Gross Income xxx
- It doesn’t matter saan galing ang income. Provided
that those are taxable, those are gross income. Income from long-term Contracts
- When we say “subject to tax” those are income Methods: Percentage of Completion
tax. Kasi diba may mga final tax/capital tax keme so Contract price:
si gross income, mag fafall sa income tax. xxx
% of completion x x%
Taxable Income – means all pertinent items of Value of work completed xxx
gross income specified by the Tax code less Cost to date xxx
deductions, if, any authorized for such types of Gross Income xxx
income by the Tax code or other special laws. - May substantial amount of time bago matapos yung
- Subject to tax nga yung gross income pero hindi project ganern
lahat ng yan ay yun na yung mismong natatax. Percentage of completion – ilang percent na ba sya
Meron ding ilang deductions. So kapag nadeductan natatapos. For example, yung building na 6 floors,
na ng iba pang deductions ang income ang tawag na tapos 3 floors palang natatapos mo gawin, edi 50%
don is taxable income. nang tapos yung building ganon. The engineer yung
nag dedecide kung ilang % na ang tapos not the
TAX DUE IS SAME AS TAX PAYABLE accountant.
ITEMS OF GROSS INCOME
FARMING
1. Compensation for services in whatever form paid,
Methods:
including but not limited to fees, salaries, wages,
a. Cash basis, or receipts and disbursements
commissions, and similar items.
basis
2. Gross income derived from the conduct
* Cash only, so INFLOWS/income –
of trade or business or the exercise of a
OUTFLOWS/expenses = gross income
profession.
b. Accrual basis – May inventories
3. Gains derived from dealings in
c. Crop basis – More than a year na hintayan sa
property.
pagtatanim. So parang mahaba yung calendar
4. Interest income
 not based on the accounting year pero based Allowed Deduction (250,000)
on crops kung gaano katagal mo maaani pag Taxable Income xxx
tinanim mo.
MIXED INCOME EARNER – INDIVIDUAL
- Compensation income
Taxation for individuals - Business/Practice of profession
• With business Tax Rates:
• Self-employed 1. On compensation – graduated rates
• Practice of profession 2. On business – “Options”
Tax rates: “Options” Note: If the taxpayer chooses 8% flat rate,
1. Graduated Rates – Sec 24(A) of the Tax code as deduction of 250,000 is not available for it is
amended already incorporated on the 1st tier (compensation
2. 8% tax of GSRONOI in excess of 250,000 (TRAIN income) – na deduct na kasi sya if compensation
LAW) income yung ginamit mo.
- Not all individuals who have business can avail this.
It has criteria. TAXATION for Corporation
Corporation – is an artificial being created by
8% tax rate not applicable: operation of law, having rights of succession and the
1. GSRONOI exceeds 3M VAT threshold – Mas powers, attributes, and properties expressly
binibigay kasi nila yung gantong option sa mga authorized by law or incident to its existence.
maliliit na business. So kapag Malaki na yung Classification of Corporation:
business, di sila pwede dito. 1. Domestic
2. VAT-registered taxpayer – May Negosyo kasi na a. Domestic corporation, in general, including OPC – if
dahil inexempt sa tax, hindi sila subject sa VAT. wala sa b-e, dito sya papasok.
Katulad ng agricultural produce, they are not b. Government-owned and controlled corporation
subject sa VAT irrespective kung magkano ang (GOCC) – Corporations na government ang may-ari.
sales nila. Pero even if hindi sila subject sa VAT, sa c. Taxable partnerships – They are taxed as if they are a
no.1 ka parin. Bawal ka parin sa 8% tax rate. If ever corporation (domestic).
na yung isang Negosyo even though less than 3M d. Proprietary educational institutions – private schools
ang sales nila, tapos nag register sila as VAT e. Non-Profit hospitals
taxpayer, hindi parin applicable sakanila yung 8%
2. Foreign
3. Taxpayer who is subject to other percentage a. Resident – May operation sya dito sa Pilipinas
taxes under Title V of the tax code as amended b. Non-resident – Walang operation dito sa Pilipinas
except these subject under section 116 of the
same title SOURCES OF INCOME
Within PH w/o PH
4. Partners of General professional partnership Domestic yes yes
by virtue of their distributive share from GPP. Foreign yes no

Graduated Rates Categories of Income

Gross sales receipts xx 1. Business Income
Cost of sales (xx) 2. Passive Income
Gross Income xx
Operating expenses (xx) Corporation shall include: (not corporations pero
Taxable Income taxable as corporation in the eyes of taxation)
1. One person corporation
2. Partnerships, no matter how created or organized –
8% flat rate
On taxation partnership is taxable as corporation.
Gross Sales/Receipts xxx
Registered or not, taxable parin.
 3. Joint stock companies – Managed jointly that have - Negative net income
stocks. - RCIT < MCIT
4. Joint accounts (cuentes en participacion) – nagsama Pag mas mataas ang MCIT kesa RCIT (which we
yung dalawang tao sa isang activity/account normally uses), ito yung gagamitin.
5. Associations – Binuo for the benefit for its members. TAX DUE:
No dividends, profit only of the members. Gross Income xxx
6. Insurance companies MCIT rate x xx%
Tax Due – MCIT xxx
Does not include: Not taxable as if corporation. Kasi
hindi naman binuo para kumita. Choose Tax Due RCIT or MCIT withholder is higher.
1. General Professional Partnerships (GPPs) –
Binuo for practice of profession.
2. Joint Venture or Consortium FOREIGN CORPORATION:
a. Formed for the purpose of undertaking construction - Foreign ang corporation if tinayo yun gamit ang batas
projects ng ibang bansa, hindi batas natin.
b. Engaging in petroleum,, coal, geothermal and ither Resident Foreign Corporation – foreign
energy operations pursuant to an operating or corporation engaged in trade or business in the
consortium agreement under a service contract with Philippines acquires residence in the PH by
the government. establishing a branch or office therein for the purpose
Sources of income: within and w/o the Philippines of engaging in trade or business. (

Tax Rates: Non-resident Foreign Corporation – foreign

1. Regular Corporate Income Tax (RCIT/NT) corporation not engaged in trade or business in the PH
a. 25% - normal tax (started from the first 4 years of has no branch or office in the PH but derives fixed or
taxation) determinable income from sources within the PH such
b. 20% if MSMEs (5M or less taxable income AND as interest income, dividends, royalties, rants, etc.
100M or less assets excluding LAND (Wala sa PH, hindi nag eengage sa business pero may
pagkakataon na kumikita parin sya dito ng pera kapag
TAX DUE: kunwate nag invest ganyan, pero wala syang business.)
RCIT Example: Si NBA nag lilive stream ng laro, tapos
Net sales xxx pinapalabas sa Pilipinas, may bayad na royalties, may
Cost of sales (xxx) tax sya under NRFC
Gross Profit xxx
Other income xxx Source Income Tax Base Tax Rate
Gross income xxx RF w/in the PH Net inc RCIT/MCIT
Deductions (xxx) NRF w/in the PH Gross Inc 25% FWT
Taxable Income xxx
RCIT rate x xx% Income abroad is not taxable, only those income
Tax Due-RCIT xxx acquired within the PH.

RCIT = 25% (Irrespective to level of asset/income

2. Minimum Corporate Income Tax (MCIT) always 25%)
a. 2% - normal MCIT = 2%, 1% (July 1, 2020 to June 30, 2023)
b. 1% (July 1, 2020- June 30, 2023) – Corporate FWT = Final Withholding Tax
recovery kaya bumaba
TAX DUE NON-RESIDENT FOREIGN
MCIT is applicable when: - hindi porket walang Net Sales xxx
income, walang tax. Kaya kahit may loss or walang Cost of Sales xxx
profit may tax parin. Gross Income xxx
- Zero net income
 Passive income xxx Government shall pay such rate upon their taxable
Total Taxable Income xxx income as are imposed by the code upon corporations
Final Tax Rate x 25% or associations engaged in a similar business,
Final Withholding Tax xxx industry, or activity. (may tax ang gocc katulad ng
corporations (domestic) pero depende kung anong
TAX DUE: RESIDENT FOREIGN klaseng industry yung gocc na yun.)
RCIT
Net sales xxx Source of Income – W/in and w/o the PH
Cost of Sales xxx Tax rates:
Gross Profit xxx RCIT – a. 25% b. 20%
Other Income xxx MCIT – a. 2% b. 1% (July 1, 2020 to June 30, 2023)
Gross Income xxx Not income: 5M or less
Deductions (xxx) Net asset, excepted: 100M or less
Taxable Income xxx
RCIT rate x 25% GOCCs
Tax Due-RCIT xxx RCIT
Net sales xxx
MCIT Cost of Sales xxx
Gross Income xxx Gross Profit xxx
MCIT rate x xx% Other Income xxx
Tax Due – MCIT xxx Gross Income xxx
Deductions (xxx)
Active Income – Income Tax Taxable Income xxx
Passive Income – Final Tax RCIT rate x 25%
Capital Gains – Capital Gains Tax Tax Due-RCIT xxx

Government owned and/or controlled MCIT

Corporation (GOCC) – government owned
corporations that conduct both commercial and
non-commercial activity (Kumpanya na gobyerno
ang may-ari pero ang purpose can be commercial
para kumita or non-commercial)
Why GOCCs are created?
- Grounded on the idea that market failure do exist
and government needs to intervene to protect
public interest. (Maaaring magkaroon ng market
failure kaya hindi pwedeng ipagkatiwala lahat sa
mga Negosyo or private companies kaya kailangang
mangielam ng gobyerno.)
- The use of corporate vehicle recognized as efficient
means to mobilized government assets. (Pwedeng
makatulong sa public by mobilizing its assets. Para
rin for example, maiwasan yung pag pprice ng
private entities kung hanggang saan nila gusto.)
TAX RULINGS
Subject to the provision of existing special laws or
general laws, all corporations, agencies or
instrumentalities owned or controlled by the
Gross Income xxx
MCIT rate x xx%
Tax Due – MCIT xxx
EXCEPT in tax sGOCCs:
1. Government Service insurance system (GSIS)
2. Social Security System (SSS)
3. Philippine Health and Insurance Corporation (PHIC) –
hindi pwedeng umutang sa philhealth
4. Home Development Mutual fund (HDMF) – PAGIBIG
5. Local Water Districts (LWD)
Classification & General Partnership In Taxation
General Professional Partnership (GPP)– formed
by persons for the sole purpose of exercising their
common profession, no part of the income which is
derived from engaging in any trade or business. (Binuo
para di mag Negosyo kundi para ma practice yung
profession nila)
 Net receipts xxx *CREATE LAW: Tax rate is 1% (July 1, 2020- July 30,
Cost of receipts 2023) – from 10% to 1% but after June 30, 2023,
xxx babalik sa 10% para mahelp yung mga schools during
Gross income xxx pandemic.
Deductions xxx
Net Income or distribution to partner PEI Tax rates
xxx 10% preferential rate – Provided the gross income
unrelated trade business or other activity does not
Individual Level: exceed 50% of the total gross income derived from all
Share in Net Income xxx sources
Tax Due xxx Related Activities:
8% of GSRNOI is not applicable in GPPs - Tuition Fees
- Miscellaneous fees
General Co-Partnership (Compania colectiva) – a - Income from canteen
general partnership which is not a general - Income from bookstore
professional partnership – taxable as a corporation. - Income from cafeteria
(Which are owned by the school and located within
Net sales xxx school premises)
Cost of Sales xxx
Gross Profit xxx RCIT Rate: 25%/20% - if unrelated activities exceed
Other Income xxx 50% of the total gross income derived from all sources
Gross income xxx (ginagamit kapag mas mataas yung kinikita sa
Deductions xxx unrelated income kesa sa mismong ordinary course of
Taxable Income business.)
xxx
RCIT rate x xx Capital Expenditure (CAPEX) Treatment:
Tax due a. Capitalized – magkakaroon ng depreciation expense
xxx later on and yun ang pwedeng ideduct sa pagkkwenta
ng tax due.
b. Expensed outright – kahit Malaki ang expense,
PROPRIETARY EDUCATIONAL INSTITUTION
idederecho na agad sa expenses.
- Any private school maintained and administered by
private individuals or groups with an issued permit
to operate from the DEPED or the CHED or the Computation:
TESDA as the case may be in accordance with Related Revenue xxx ?
existing laws and regulations. (Private schools na Unrelated Revenue xxx ?
hindi government ang may-ari but private entities) Gross Income xxx 100%
Expenses (xxx)
Type of Schools Tax Rates Taxable Income xxx
1. Proprietary Educational Tax Rate x xx%
Institution 10% Tax Due xxx
2. on-stock, non-profit Note: If mas mataas ang related sa unrelated revenue,
Educational Insti exempt Tax rate is 10%/1%. Pero if mas mataas ang unrelated
3. Government sa related, subject to 20%/25% depende if MSME or
Educational Insti exempt hindi.
4. Without permit
Educational Insti such as Non-Profit – means no income or asset accrues to or
Review centers 25%/20% benefits any member or specific person, with all the
(subject to RCIT) net income or assets devoted to the institutions’
purposes and all its activities conducted not for profit.
A “non-profit” entity is necessarily organized as a non-
 stock corporation if organized as a corporation. (Hindi2. Special Corporation – 1%/10%
porket non-profit, nag ooperate na sya at a loss. Pero kumikitaa. Non-profit hospitals
si corpo pero hindi lang sya pinapamigay sa members.) b. Proprietary Educational Institution
c. Foreign Currency Deposit Units (FCDUs) and
Taxes for Hospital Tax Rates expanded FCD – may foreign currency transaction sa
1. Non-profit hospitals 10%/1% isang bangko. Shorterm lang yung FCDUs pero ang
2. Non-profit hospitals- expanded ay long term.
Charitable exempt d. PEZA or BOI-registered enterprises. (Board of
3. Hospital with share of stock 25%/20% Investment – depende kasi yung tax rate kung saang
lugar nakatayo yung business.)
Charitable sya if:
a. It must be a non-stock corporation or association 3. Exempt Corporations
b. Organized exclusively for charitable purposes a. Exempt non-profit corporations under the NIRC
(walang ibang gagawin kundi ang charity. b. Government agencies and instrumentalities
Inorganized for that. Organizational test by SEC at c. Certain government owned and controlled
malinaw na sinasabi dun na organized sya for corporations.
charitable purposes.) d. Cooperatives
c. Operated exclusively for charitable purposes (Actual
na organized/operated sya for charitable purposes.) B. Resident Foreign Corporations
d. No part of its income or asset shall belong to or 1. Regular Resident Foreign Corporation – 25%
incurred to the benefit of any member, organizer, 2. Special Resident Foreign Corporations
officer, or any specific person. a. Offshore banking units (OBU) and expanded FCDUs
- Hindi porket charitable nagdodonate ka lang. Yung b. Regional area headquarters (walang tax kasi wala
hospital pwedeng makatulong by charity sa kasi syang transaction dito. Binuo lang sya para
pamamagitan ng pagpapagaling ng mga may sakit sumagot ng inquiries.) and Regional Operating
ganon. Headquarters of Multi-national companies (may tax
kasi literal na nag ooperate dito, subjected to regular
Non-Profit hospitals: corporate tax.)
10% preferential rate – provided the gross income c. International Carriers – vessels/plane na inorganized
unrelated trade business or other activity does not or may-ari ang ibang bansa/foreign corpo. Ang tax rate
exceed 50% of the total gross income derived from ay 2 ½ % of gross Philippine Billings (nakolektang
all sources. billings sa pagbbyahe.)
d. BOI or PEZA-registered enterprises.
Related Revenue xxx
Unrelated Revenue xxx
Gross Income xxx C. Non-Resident Foreign Corporations
Expenses (xxx) 1. Regular Non-Resident Foreign Corporations – 25%
Taxable Income xxx FWT
Tax Rate x xx% 2. Special Non-resident Foreign Corporation
Tax Due xxx a. Non-resident cinematographic film owner, lessor
Note: If mas mataas ang related revenue kesa or distributor. – 25% FWT
unrelated multiplied sa 10%/1%. Pero If mas mataas b. Non-resident lessor of vessels, chartered by
ang unrelated kesa related, 25%/20% ang gagamitin. Philippines Nationals – 4 ½ %
c. Non-resident owner or lessor of aircraft, machinery
Corporate Income Taxpayers: and other equipment. – 7 ½ %
A. Domestic Corporations – The only one that has
exempt corporation. Special Corporation – Certain corporations ate
1. Regular Domestic Corporations – 25% or 20% subject to a special tax treatment or preferential tax
(MSME) rates lower than the regular corporate income tax
rates. These are generally referred to as “Special
corporations.” (Yung tax rate ay mas mababa or iba kesa saf. Business lease, chamber of commerce, or board of
ibang corpo.)
Corporations Exempt from Income Tax – ang
pagpapatunay ng tax exemption, ang burden of truth
ay nasa sayo wala sa government. Hindi agada gad
exempt ka, kailangan mo pang patunayan
(organizational test)
a. Labor or agricultural organizations are not
organized principally for profit. – Binuo ng mga
manggagawa para sakanila or for the improvement of
agriculture
b. Mutual savings bank not having a capital stock
representative by shares and cooperative bank
without capital stock organized and operated for
mutual purposes and w/o profit. – inorganized yung
bangko para matulungan yung mga Pilipino na
makaipon. Pero yung profit ibibigay rin sa mga
members kasi nga non-stock.
c. A beneficiary society, order, or association
operating for the exclusive benefit of the members
such as fraternal organization operating under the
lodge system or a mutual aid organization or a non-
stock corporation organization by employees
providing for the payment of life, sickness, accident or organizations na nagongolekta ng mga bayad from the
other benefits exclusively to the members of such
society, order, or association or non-stock corporation
or their dependents. – Kapatiran, inorganized ng mga
empleyado para sa pagbabayad ng mga benefits sa life
(insurances)
d. Cemetery company owned and operated
exclusively for the benefit of its members. – Kumpanya
para sa simenteryo para sa libingan ng mga members.
e. non-stock 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 k. Philippine National Red Cross - nakakatulong kasi
asset shall belong to or incur to the benefit of any
members, organizers, officer or any specific person. –
exclusive sa purpose, halimbawa sa religious, ang
purpose is sumamba ganon, or sa charity ang purpose
is mag donate/tumulong
trade not organized for profit and no part of the net
income of which icnures to the benefit of any private
stockholder or individual. – hindi dapat mapupunta sa
individuals, may purpose lang na kinakamit.
Halimbawa ang purpose is para palaguin yung isang
sector ng industry pero hindi para kumita.
g. Civic league or organization not organized for profit
but operated exclusively for the promotion of social
welfare – for the improvement of the people and its
community so kunware walang patubig sila yung nag
aayos ganon. Exempt sila sa tax.
h. A nonstock and non-profit educational institution –
Exempt. Ang may tax lang na school is yung proprietary
educational institutions kasi namimigay sila ng profit
sa shareholders. Hindi nya na kailangan kumuha ng
certificate of tax exemption dahil sinabi na sya mismo
sa constitution.
i. Farmers or other mutual typhoon on fire
insurance company, mutual ditch or irrigation
company, mutual or cooperative telephone
company, or like organization of a purely local
character, the income of which consists solely of
assessments, dues, and fees collected for members for
the sole purpose of meeting its expenses. – local
members pero gagamitin lang solely para sa expenses
ng mismong organizations lang. Exempted.
j. 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 tot them the proceeds of sales, less the necessary
selling expenses on the basis of the quantity of
produced finished by them. – Nga act sila as sales
agent ng mga farmers sa mga naani nila. Exempted sila
sa tax basta ang purpose is pag mamarket ng products
ng mga farmers.
sila sa social welfare ng bansa.
l. Any childcaring or child placing institution licensed
by the DSWD to implement Foster Care Program. –
bahay ampunan na may lisensya galing sa DSWD
 m. Bangko Sentral ng Pilipinas – Tax exempted pero Gross Income Meaning:
hindi lahat ng income nila. Yung related lang dun sa Sale of goods
purpose na nag susupervise sa lahat ng bangko sa Gross sales xx
Pilipinas. Pero other income, taxable parin. Sales returns allowances (xx)
Cost of goods sold (xx)
n. Sale of Gold – Binibili ng government ang ginto. It Total Consideration xx
is tax exempt provided na binili sya sa small-scale
miners and accredited traders (BSP) Sale of services
Minimum Corporate Income Tax (MCIT) – is a tax Gross Receipts xx
imposed to corporations who have been in the 4th Sales returns allowances (xx)
year of its operation and have a net loss or zero Cost of service (xx)
taxable income or a normal income tax that is lesser Total cash collection xx
than the minimum income tax. – Corporations lang.
- Cash basis
Hindi rin agad ng corp may ganyan, hihintayin muna
na maka 4 years yung business, ang meron lang is
Cost of services:
normal tax. If nalugi or walang itatax talaga, tapos 4th
a. Salaries and employee benefits of personnel,
year mo na magbabayad ka parin ng tax pero hindi na
consultant and specialist directly rendering the
sya regular tax, papasok na sya sa MCIT. Whatever is
service.
higher between MCIT or RCIT, yun yung gagamitin
b. Cost of facilities directly utilized in providing the
mo.
service such as depreciation ore rental of equipment
used and cost of supplies.
Subject:
1. Domestic Corporation
Relief from MCIT (upon recommendation of the
2. Resident Foreign Corporation
commissioner)
Not Subject:
a. Prolonged labor disputes – Mahabang panahon na pag
1. Special Corporation Domestic and Resident Foreign
wewelga or strike ganon kaya matagal silang nalugi.
Corporation
b. Force majeure – foreseen but inevitable events. Like
2. Non-Resident Foreign Corporation (FWT only)
acts of gods
Rate and Base: 2% of Gross Income (CREATE LAW)
c. Legitimate Business Reverses – COVID19 ganon na
– Pero now 1% nalang hanggang June 30, 2023.
maraming businesses ang na affect, or major economic
fall down.
Excess MCIT Carry – over: The excess of the MCIT
- But need to recommend ka parin ng commissioner na
over the RCIT in any year a tax credit that is
tatanggalan ka ng MCIT.
deductible against any RCIT tax due in the
immediately succeeding three years. – Nangyayari
Summary note: imumultiply mo yung total net
kapag mas mataas ang MCIT sa RCIT. So that year,
income sa tax rate to get the RCIT. Pero sa MCIT
MCIT ang babayaran pero pwede mo sya ioffset sa
imumultiply mo yung tax rate directly sa gross
babayaran mo dapat na RCIT. Kunware year 4, 5k ang
income palang. Then kung anong mas mataas, yun
MCIT mo and RCIT ay 2k. MCIT ang babayaran mo.
yung magiging income tax payable. Given that sa
Next year mas mataas naman ang RCIT kesa sa MCIT.
MCIT is 4th year na. In short, ang ikwenta mo nalang
Ang babayaran mo is RCIT pero ang babayaran mo
sa MCIT is yung values ng 4th year.
nalang is yung sobra dun sa MCIT na sobra mo last
year. Pero hanggangs a pangatlong year lang pwede
ioffset yung mga susunod na hindi na pwede. If
madami FIFO offsetting lang.
 Taxation for Corporation - If mamili ka, and GIT ang napili mo, hindi ka na
1. Standard Corporate Income Tax: RCIT pwedeng magpalit for the next 3 years. Hindi na
2. Penalty Taxes: MCIT & IAET pwedeng mag RCIT.
3. Special Income taxes
a. Branch Profit Remittance tax (BPRT) – Sec27(A) Requisite Conditions: - need
applicable only to branches masatisfy para pwede ka mamili ng tax.
b. Gross Income Tax (GIT) 1. Tax ratio effort of 20% of GNP
2. A ratio of 40% of income tax collection total tax
Corporation subjects: revenues
1. BPRT – Branch of a resident foreign corporation (If 3. VAT tax effort of 4% of GNP
branch ka ng domestic, hindi to applicable dahil 4. 0.9% ratio of the consolidated public sector bin
para lang to sa resident foreign corporations. Yung position to GNP
head office ay nasa ibang bansa pero yung branch ay Add41: Ratio of cost of sales to gross/sales receipts
nasa PH.) from all sources does not exceed 55%.
Tax base: profits applied or earmarked for
remittance to Head office (Hindi lahat ng profit is
automatically magiging subject sa BPRT. Passive Income – earned with very minimal
Earmarked lang,hindi man napapadala pero may involvement from tax payer and is generally irregular
note na na ireremit na.) in timing and amount
Final Tax – tax withheld at source.
Items not treated as branch profits:
1. Interests, dividends, Rents, Royalties including Passive Income > Final Tax > Remit
remunerations for technical services.
2. Salaries, wages, premiums, annuities, emoluments Passive source dividends (may be exempted)
3. Other fixed or determinable annual, periodic or 1. Actually remitted into the PH, reinvested in the
casual gains, profits, income and business operation within the next taxable year from
4. Capital Gains. the time it was remitted.
- So kapag nagkaroon ng income na hindi related
exempted to sa BPRT. Domestic Resident Foreign NRF
Interest and Yields
Tax Rate: 15% Deposit 20% 20% 20%
Deposit Substitutes
Effectivity – In the taxable year when profits are
Trust Fund
actually remitted or earmarked for remittance to
Mutual
the head office. (Magkakaroon lang ng BPRT kung
Other Similar
kailan niremitt regardless kung kelan sya kinita) Instruments
Interest 15% 15% Exempt
2. GIT – Domestic and residence foreign corporation Income from
Tax base: Gross income depository
Tax Rate: 15% bank under
Effectivity – Option to taxed at 15% of gross FCDUs
income is available when conditions under Sec Royalties 20% 20% 20%
27(A) of the tax code are satisfied. If the Dividends:
corporation elects to be tax at 15% of gross income, From domestic Exempt Exempt 25%/15%
the same shall be irrevocable for 3 consecutive corporation
taxable years during which the corporation is From resident Exempt RCIT 25%
foreign corp
qualified under the same (Dapat is standard lang
w/the PH
talaga yung tax pero if ayaw mo ng tax na yun pwede w/o the PH Exempted - -
mo piliin yung 15% na tax.) or RCIT
For NRF corp Exempted - -
or RCIT
2. Used to fund working capital requirements, capital SALE OF REAL PROPERTY
expenditures, dividends payments, investment in domesticCapital Assets – shall refer to all real properties held
subsidiaries and infrastructures by a taxpayer whether or not connected with his trade
3. Holds directly at least 20% in valueof the outstandingor business and which are not included among the real
shares of the foreign corporation and has held theproperties considered as ordinary assets under Sec 39
shareholdings uninterruptedly for a minimum of 2 years(A)(1) of the code. (Lahat ng wala sa ordinary assets
from the time of dividend distribution. dito sya papasok katulad ng sarili mong lupa tapos
naisipan mo ibenta. Capital asset sya kasi hindi ka
Notes: naman talaga like nagbebenta ng assets as business,
- Hindi lahat ng interest and yields kasama sa hindi rin naman sya ginagamit sa mismong business,
passive income. Yung mga nakalist lang sa taas. sarili mo lang sya.)
- Before ang Interest Income sa FCDUs 7 ½% sya but
because of train law ginawa syang 15% para same Ordinary Assets – shall refer to all real properties
na sila ni domestic. specifically excluded from the definition of capital
assets under Sec 39 (A)(1) namely:
GAINS DERIVED FROM DEALINGS IN a. Stock in trade of a taxpayer or other real property
PROPERTY of a kind which would properly be included in the
- includes all income derived from the disposition inventory of the taxpayer if on hand at the close of the
of property-real (ari-arian na hindi maaalis like taxable year – Kung ang asset pagtapos ng taon ay
land and building), personal (ari-arian na masasama sa inventory, it is an ordinary asset (real
natitinag or nagagalaw, naalis like furnitures property).
ganon, kotse), mixed-for money (sale) or for other b. Real property held by a taxpayer primarily for sale
property (exchange) or combination of both, which to customers in the ordinary course of his trade or
results in gain (or loss) because of the difference business. – (Kapag ibebenta mo yung property,
between the taxpayer’s investment in what he makakasama sya sa inventory mo. Kapag on process
disposed of and the value in what he received. palang kunware yung building, kasama parin sya.)
c. Real property used in trade or business (buildings
Dealings – may gain kasi binenta nya, pwedeng and/or improvements) of a character which is subject
nakipag exchange ka or barter ng another property to the allowance for depreciation under the code. –
or may natanggap kang pera ganon in which may Ginagamit mo talaga para sa business mo, not for sale
difference yung magkano yung nalabas mo sa which is subject to depreciation.
natanggap mo. Hindi sya sakto, either may gain or d. Real property used in trade or business of the
loss lang. taxpayer. – Not subject to depreciation pero not for sale,
Subject to income tax bahagi sya ng gross income. ginagamit talaga ng business, katulad ng land.

Genera Rule:
Value Received (selling price) xx INTEREST – Included in Gross income - regular tax.
Value disposed (cost) (xx) - Arising from indebtedness
Taxable Income/Deductible loss xx - Business or non-business
- legal or illegal
Intangible properties: - “general rule”
* Sale of patent and copyright
* Sale of goodwill * Subject to final tax – investment ang datingan
* Corporate sinking fund - - Bank deposits and yields
- There will be also gain or loss, pasok parin sya sa - deposit substitutes
gross income which is subject to tax, except if the - trust fund
real property is considered as capital assets kasi - mutual fund
papasok na to sa capital gains tax. - other similar arrangement

20% interest: (PESO CURRENCY)

- Resident Citizen Transfer of surplus (Income sa retained earnings)
- Non-resident citizen to capital > not taxable
- Resident Alien No income, just a mere transfer of retained earnings.
- NRA-ETB a. Stock dividends – taxable only if arising from
- Domestic Corp earnings.
- Resident Foreign Corp - Not taxable [Proportionate interest (yung percentage
25% Interest: kung ilan makukuha ng shareholders) does not change]
- NRA – NETB - If nagbago yung percentage, since nakatanggap ka tas
- Non -resident FC sila hindi, dun mababago yung percentage, then
taxable.
HOLDING PERIOD – gaano katagal mo hinawakan
INDIVIDUALS: RC, NRC, RA, NRA-ETB Distribution of assets in complete liquidation or
Less than 3 years 20% dissolution > not taxable immediatetly, kapag lang may
3 years < 4 years 12% gain or loss.
4 yrs < 5 yrs 5% a. Liquidating dividends – pag nalulugi na sila, binabalik
5 yrs or more exempt na yung capital. Return of capital na, not taxable to
- To encourage investments final tax.

Corporations – no holding period. Dividends Received xx

Cost of investment (xx)
FCDUs & OBUs: (before on TRAIN LAW, 7.5% sya, Capital Gain/Loss xx
but now 15% nalang) - Dividends received is liquidating dividends, value ng
15% Exempt investment mo ngayon. If mas mataas sya kesa sa cost
RC NRC of investment may gain. Pero kapag mas Malaki yung
RA NRA cost of investment, loss.
DC NRFC - If capital gains, subject to regular tax. If may loss, it can
RFC be deductible up to whatever amount is the capital gain.

DIVIDENDS – any distribution made by a TAX APPLICATION:

corporation out of its earnings or profits and Individuals RC/NRC/RA NRA- NRA-
payable to its shareholders (Natatanggap ng (nagbigay) (binigyan) ETB NETB
shareholders kapag kumikita si corporation.) w/in the PH 10% 20% 25%
from DC
Income tax treatment: W/o the PH RC ONLY
Arising from income > Taxable (final tax) – from (regular tax)
Final tax kasi passive income sya. RFC/NRFC
a. Cash: FACE VALUE - NRC, RA, NRA w/o the PH from
b. Property: FAIR VALUE RFC/NRFC = N/A
c. Scrip dividends (gusto nilang mamigay ng
dividends talaga kaso lang wala silang cash. Kaya Corporatio DC RFC NRF
kapag nagdeclare sila, bibigyan nila ng notes ns (binigyan) C
payable si shareholders in which babayaran nila (nagbigay)
once na magka cash sila. Pwede rin magkaroon pa
W/in the PH Exempt Exem 25%
ng additional interest.): FAIR VALUE
from DC pt
d. Indirect (Hindi naman talaga dividends pero
From RFC Exempt RCIT 25%
namigay parin si corporation ng kita sa
w/o the PH Exempt/RC n/a n/a
shareholders. Halimbawa hindi na pinabayaran sa
from RFC & IT
shareholder yung utang sakanya. Bale indirectly
NRFC
syang nagbibigay ng income kay shareholders.):
FAIR VALUE
 PARTNERSHIP IN GENERAL (taxable PENSIONS- amount of money received on a lumpsum
partnership) or staggered basis in consideration of services
Taxable Income xx rendered. Pensions are being given after the
RCIT xx% individual reaches the age of retirement.
Income Tax Due
xx Income Tax treatment:
- Net income after tax is paghahatian ng partners. May General rule – amount received as pension is
tax pa yung income na napupunta sa partners dahil TAXABLE (Gross income, therefore subject to income
PASSIVE INCOME SYA. tax)
- Same rulings as dividends (as in corporation) Exemption: If the employer has an approved pension
plan by the BIR, then the amount of pension will not
GENERAL PROFESSIONAL PARTNERSHIP be Taxable.
Gross Income xx
Deductions (xx)
Net Income for distribution to partners RENT OR LEASE INCOME
xx Lease – is a contract whereby one of the parties
(lessor) binds himself to give another (lessee) the
- Not subject to income tax dahil hindi naman binuo
enjoyment or use of a thing or a price certain and for a
para mag Negosyo.
period which may definite or indefinite (Lessor and
- Yung income na dinidistribute sa mga mga partners
lessee relationship in which pumapayag si lessor na
ito naman yung may tax. Which is pasok sa ACTIVE
ipagamit kay lessee yung property dahil nga may
INCOME, so subject to regular income tax dahil sila
bayad, in which may period pwedeng pinag usapan sa
talaga yung mismong nagtrabaho so may ginawa sila.
contract or hindi.)
Annuity – is a a series of payments made at equal
Rent or lease income:
intervals. (Kapag nagbabayad ka ng paulit ulit and
a. Cash at stipulated price
equal. Kunware rent income sa bahay mo, paulit ulit
b. Obligation of the lessor to third parties paid or
ka nagbabayad ng 10k every month with same
assumed by the lessee. (Kung sino ang may ari sya
amount. That’s annuity).
dapat ang magbayad ng tax katulad ng sa mga land
ganon. Pero kunware na stipulate na babayaran ni
Annuity in Taxation – This refers to annuity
lessee, may income dun si lessor.)
policies sold by insurance companies, which
provide installment payment for life, or for a
c. Advance Payments (Hindi pa dapat bayaran pero
guaranteed fixed period of time whichever is longer
binayaran na.)
or for life and guaranteed fixed period (Pertaining to
- A loan to lessor from the lessee (utang ni lessor kay
insurance policies, and makakatanggap ka ng series
lessee, yung transaction na to is hindi income. Kasi
of payments sa insurance na yun.)
hindi naman to galing sa pagpapaupa, utang nya lang
to. Pero if inoffset, dun lang magiging income. Kunware
Income tax treatment:
may utang si lessor kay lessee tas sasabihin nya wag
Return of premium – Not taxable (pagbabalik ng
namagbayad this month, advance na tawag dun which
original investment)
is considered as income nya.)
Represents interest (income) – taxable. (halimbawa
- An option money for the property (Kapag nagbayad pa
na hit na yung premium pero di parin sya patay
ng advance payment si lessee kay lessor for reservation
example, income nya yun)
kahit hindi pa talaga sya dun nakataira. Pero hindi sya
income.)
Tax treatment:
- A security deposit (Protection ng property but hindi sya
First 10 years [20,000 x 10 = 200,000] is not taxable.
income. Kasi compensation to sa damages ng property
11th year onwards item og gross income which is
ng pinagamit nya. So kapag hindi sya naubos, ibabalik
subject to regular tax.
sya kay lessee. That way hindi sya magiging income.
 Kasi ibabalik mo nga sya. Magiging income lang to kapagc.
ginamit sya para bayaran ba yung accrued rent income ni
lessee.) d.
- Prepaid rent – the only income by lessor (advance
for prepaid rent)- katulad ng mga 3 months deposit
etc.
Income lang sya when you receive the cash. Bale sa
taxation, cash basis sya.
Portions of the rental payments are credited
towards the purchase price of the asset.
The receipts of payment indicates that the
payments made were partial on full payments for
the assets.

Leasehold improvements: (Kapag nag improve si

lessee sa property na yun kahit hindi naman kanya.
Kapag later on umalis na sya dun, yung
improvements is maiiwan sa property, that way
magiging income sya ni lessor.)

1. Outright method – Income at the year completion

measured at FMW of the improvements. Deduction
for depreciation is allowed (irerecognize yung
improvements income kapag na complete na yung
improvements which is measured at FMW.)
2. Spread-out method - INCOME is spread out
throughout the remaining term of the lease.
Cost of Improvement xx
Depreciation, remaining lease term (xx)
Book value, end of lease term (income) xx
Divided by remaining lease term xx
Annual Income xx

Sale – is a contract whereby one of the contracting

parties (seller) obligated himself to transfer
ownership of and to deliver a determinate thing,
while the other party (buyer) obligates himself to
pay therefore a price certain in money or its
equivalent (may transfer of ownership talaga kapag
binayaran n ani buyer yung property hindi lang sya
ginagamit for enjoyment.)

Compelling persuasive Factor (Conditional

Sale)
a. The lessee is given the option to purchase the asset
at anytime during the term of the lease not
withstanding that the option price is equivalent to
or higher than the current FMV of the asset (nung
gawin yung contract sinabi na anytime pwedeng
bilin ni lessee kay lessor yung property. So hindi
talaga sya rent but sale.)
b. The lessee acquired ownership of the asset upon
payment of the stated amount of “rentals” under
the lease contract (Kapag nag bayad ka na, sayo na
talaga yung property on installment).