INDIVIDUALS Discussion

CLASSIFICATION OF INDIVIDUAL TAXPAYERS

1. Resident Citizen (RC)\

2. Non-resident Citizen (NRC)
3. Resident Alien (RA)
4. Non-resident Alien (NRA)
a) Engaged in trade or business (ETB)
b) Not engaged in trade or business (NETB)
c) New paragraph under Section 25 of the Tax Code, introduced by RA 11590, also known as
“An act taxing Philippine Offshore Gaming Operations (POGOs)”:

Sec. 25(G): Alien individuals employed by Offshore Gaming Licensees (OGLs)

NONRESIDENT CITIZEN

The following are considered nonresident citizen under Sec. 22(E) of the Tax Code:

1. A citizen of the Philippines who establishes to the satisfaction of the Commissioner of the fact of
his physical presence abroad with a definite intention to reside therein.
2. A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad,
either as an immigrant or for employment on a permanent basis;
3. A citizen of the Philippines who works and derives income from abroad and whose employment
thereat requires him to be physically present abroad most of the time [for one hundred eighty-
three days [(183) or more] during the taxable year;
4. A citizen who has been previously considered as nonresident citizen who arrives in the
Philippines at any time during the taxable year to reside permanently in the Philippines shall be
considered a nonresident citizen for the taxable year in which he arrives in the Philippines with
respect to income derived from sources abroad until the date of his arrival in the Philippines.

 Citizens not classified under this category are considered Resident Citizens

OVERSEAS CONTRACT WORKER

 Overseas Contract Workers (OCWs) refer to Filipino citizens employed in foreign

countries, commonly referred to as Overseas Filipino Workers (OCW), who are
physically present in a foreign country as a consequence of their employment thereat.
 Their salaries and wages are paid by an employer abroad and is not borne by any entity
or person in the Philippines.
 To be considered as an OCW or OFW, they must be duly registered as such with the
Philippine Overseas Employment Administration (POEA) with a valid Overseas
Employment Certificate (OEC). (RR No. 1-20210)
 A seaman who is a citizen of the Philippines and who receives compensation for services
rendered abroad as a member of the complement of a vessel engaged exclusively in
international trade shall be treated as an overseas contract worker. (Section 23 (C), RA
8424)
  In order for seafarers or seaman to be considered as OCW’s or OFW’s they must be duly
registered as such with the Philippine Overseas Employment Administration (POEA) with
a valid Overseas Employment Certification (OEC) with a valid Seafarer’s Identification
Record Book (SIRB) or Seaman’s Book issued by the Maritime Industry Authority
(MARINA).
 For taxation purposes, OCWs are classified as nonresident citizens

RESIDENT ALIEN

Resident Alien means an individual whose residence is within the Philippines and who is not a citizen
thereof (Section 22 (F), RA 8424 – Tax Code).

The following are considered as resident alien:

1. An alien actually present in the Philippines who is not a mere transient or sojourner. A person
who comes to the Philippines for a definite purpose which in its nature may be promptly
accomplished is a transient.
2. An alien, who comes to the Philippines for a definite purpose, which, by nature, would require
an extended stay making his home temporarily in the Philippines
3. An alien who shall come to the Philippines with no definite intention as to his stay.

An alien who has acquired residence in the Philippines retains his status as a resident until he
abandons the same and actually depart from the Philippines.

NON-RESIDENT ALIEN

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

 An alien individual actually engaged in trade or business in the Philippines; and
 An alien who comes in the Philippines for an aggregate period of more than 180 days
during the calendar year during any calendar year shall be deemed a non-resident alien
doing business in the Philippines.
2. Not engaged in trade or business – those NRAs not included above.
3. Alien individuals employed by an Offshore Gaming License (OGL) and Service Providers (under
the paragraph of the Tax Code [sec. 25(G) ] as amended by RA 11590,

SOURCE(s) of TAXABLE INCOME:

TAXPAYER TAXABLE SOURCE(s)

 RC : within and without the Philippines

 NRC, RA, OCW, NRA-ETB, NRA-NETB : within the Philippines only

TYPES OF INCOME TAXES:

1. Basic Income Tax on regular or ordinary income

2. Final Withholding Tax on Passive incomes derived from Philippine sources
3. Capital gains Tax on Sale of Shares of Stock of closely-held domestic corporations
4. Capital Gains Tax on Sale of Real Properties located in the Philippines
FINAL WITHHOLDING TAX (FWT) ON PASSIVE INCOMES

 Applicable only to passive incomes from sources within the Philippines. Passive incomes derived
from outside of the Philippines are subject to basic income tax under section 24(A) of the Tax
Code, as amended.
 It is a tax deducted from the income to be paid to the payee or seller.
 It is constituted as full and final payment of the income tax liability. Hence, the income
subjected to this tax is no longer included in the Income Tax Return (ITR) of the individual
taxpayer subject to basic income tax under Section 24(A) of the Tax Code.
 It cannot be credited/deducted against the basic income tax due.
 The liability for the payment of the tax is primarily on the payor as the withholding agent.

 PASSIVE INCOME derived from Philippine sources SUBJECT TO FWT:

1. Interest Income
2. Royalties
3. Dividends
4. Prizes
5. Other winnings

PASSIVE INCOME DERIVED FROM PHILIPPINE SOURCES SUBJECT TO FWT

 INTEREST INCOME

TAXPAYER
RC, RA NRC NRANETB
NRAET
a) Interest from any currency bank
deposit; and Yield or any other
monetary benefit from: 20% 20% 25%
i. Deposit substitutes
ii. Trust funds
iii. Similar arrangements as above

DEPOSIT SUBSTITUTE – an alternative form of

obtaining funds from the PUBLIC other than
deposits, through the issuance, endorsement, or
acceptance of “debt instrument” for the borrower’s
own account, for the purpose of re-lending or
purchasing of receivables and other obligations, or
financing their own needs or the needs of their
agent or dealer (RR 14-2021.
PUBLIC is defined as borrowing from twenty (20) or
more individual or corporate lenders at any one
time.
b) Interest from a depository bank under the 15% *Exempt *Exempt
expanded foreign currency deposit system
(FCDS) beginning Jan. 1, 2018.
 *Applicable only to resident taxpayers

c) Interest income from LONG-TERM bank Exempt Exempt **25%

deposit or bank investment (at least 5-year
maturity)
**The exemption is not applicable to NRA-
NETB
In case of pre-termination of the long-term deposit
or investment, depending on the holding period:
 5 years or more Exempt Exempt 25%
 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%

 ROYALTIES

TAXPAYER
RC, RA
NRC NRAET NRANETB
 Royalties from
a. Literary works 10% 10% 25%
b. Books
c. Musical compositors
 OTHER Royalties 20% 20% 25%

 DIVIDENDS

TAXPAYER
RC, RA NRANETN
NRC NRAET
a) Dividends actually or constructively
received from: 10% 20% 25%
i. Domestic Corporation
ii. Joint Stock Company; and
iii. Regional operating headquarters
of a multinational company
b) Share in the distributable net income 10% 20% 25%
after tax of a partnership (except GPP)***
c) Share in the net income after tax of: 10% 20% 25%
1. Association
2. Joint Account
3. Taxable Joint Venture or
Consortium****

***
 SHARE IN THE NET INCOME OF A PARTNERSHIP
General Partnership (GP) General Professional Partnership (GPP)
Treated as dividend income, generally subject to Not treated as dividend income but an ordinary
10% final withholding tax. income subject to basic tax.

****

SHARE IN THE NET INCOME OF A PARTNERSHIP

CO-VENTURER TAXABLE JV ****NON-TAXABLE JV
Individual Treated as dividend income, Not treated as dividend income.
generally subject to 10% final Subject to basic tax under
withholding tax. Section 24(A)
Corporation Treated as inter-corporate Subject to basic corporate tax
dividend income, hence, tax- (not as dividend income)
exempt

****NON-TAXABLE JV

Joint ventures or consortium organized for the following purposes:

1) Construction projects;
2) Engaged in petroleum, coal geothermal and other energy operations pursuant to an operating
or consortium agreement under a service contract with the Government.

 PRIZES

TAXPAYER
RC, RA,
NRC NRAET NRANETB
 Amount is more than P 10,000 20% 20% 25%
 Amount is not more than P 10,000 Basic Tax Basic Tax 25%

 WINNINGS

TAXPAYER
RC, RA
NRC NRAET NRANETB
 OTHER Winnings (regardless of amount) 20% 20% 25%
 PCSO Winnings
 CREATE Law (beg. April 11, 2021)
 Not more than P 10K
 More than P 10K Exempt Exempt 25%
 TRAIN Law (Prior to April 11, 2021) 20% 20%** 25%
 Not more than P 10K Exempt Exempt 25%
 More than P 10K 20% Exempt** 25%
**One of the inconsistencies under the TRAIN Law which was corrected under CREATE Law.

NOT INCLUDED under other Winnings exempt from income tax such as

 Winnings under Sec. 126 of the Tax Code [Winnings from horse racing – subject only to
Percentage Tax of 4% or 10%, as the case may be]
 Prizes and awards made primarily in recognition of religious, charitable , scientific, educational,
artistic, literary, or civic achievement but only if:
 The recipient was selected without any action on his part to enter the contest or
proceeding;
 The recipient is not required to render substantial future services as a condition to
receiving the prize or award.
 All prizes and awards granted to athletes in local and international sports competitions and
tournaments whether held in the Philippines or abroad and sanctioned by their national sports
associations.

CAPITAL GAINS TAX (CGT)

Capital Gains from Sale of Shares of Stock NOT Traded in the Stock Exchange

Sections 24(C), 25(A)(3) and 25(B) of the Tax Code, as amended, provide:

A final tax at the rate of fifteen (15%) is hereby imposed upon the net capital gains realized during the
taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic
corporation, EXCEPT shares sold, or disposed of through the stock exchange.

TAX BASE: Net capital gains realized

FORMULA in computing the capital gain:

Selling Price P xx

Cost (xx)

Net Capital Gain P xx

Rate 15%

CGT P xx

REQUISITES: To be subjected to capital gains tax:

 The shares of stock shall be of a domestic corporation;

 The shares sold shall be classified as capital asset;
 The shares sold are not traded in the local stock exchange (sale directly to a buyer); and
 The sale resulted to a capital gain

NOTE:
 Sale of shares of a domestic corporation THROUGH the Local Stock Exchange (LSE) is not
subject to income tax but to a “business tax” under Section 127 of the Tax Code (also
 known as Stock Transaction Tax) at a rate of 6/10 of 1% of gross selling price beginning
January 1, 2018 or upon the effectivity of the TRAIN Law.

GUIDE- Sale of Shares of stock:

TYPE OF SHARES SOLD CORPORATION APPLICABLE TAX

Closely-held corporation  Domestic Corp.  Capital Gains Tax (CGT)
[Not listed in the local stock
exchange (LSE)]  Foreign Corp.  Basic Tax
Listed and traded in the LSE  Domestic and  Exempt from Income
Tax;
Foreign Corporation  Subject to a business
tax of Stock Transaction
Tax of 6/10 of 1% of
GSP

Capital Gains Tax on Sale of Real Properties in the Philippines

Sections 24(D), 25(A)(3) and 25(B) of the Tax Code, as amended, provide:

(Legal basis for individual taxpayers)

A final tax of six percent (6%) based on the gross selling price or current fair market value, whichever is
higher, is hereby imposed upon capital gains presumed to have been realized from the sale, exchange, or
other disposition of real property located in the Philippines, classified as capital assets, including pacto
de retro sales and other forms of conditional sales, by individuals, including estates and trusts: Provided,
That the tax liability, if any, on gains from sales or other dispositions of real property to the government
or any of its political subdivisions or agencies or to government or controlled corporations shall be
determined either under Section 24(A) or under this Subsection, at the option of the taxpayer.

REQUISITES:

1) The real property must be a capital asset; and

2) It must be located in the Philippines.

TAX BASE: Selling Price of Fair Market Value, whichever is higher

FAIR MARKET VALUE

The fair market value (FMV) of real property shall refer to the higher between:

 Fair market value as provided by City or Provincial assessors (also known as assessed value or
FMV for real property tax declaration purposes); and
 Zonal value provided by the Commissioner of Internal Revenue (CIR) of the BIR.

OPTIONS OF THE INDIVIDUAL SELLER IN CASE OF SALE TO GOVERNMENT OR ANY POLITICAL

SUBDIVISIONS OR AGENCIES OR GOCC’s:

1. Pay 6% CGT ; or
2. Pay Basic Income Tax (Graduated rate)
  NOTE: This option is not applicable to juridical persons like corporations and
partnerships.

EXEMPTION FROM GCT OF SALE OF PRINCIPAL RESIDENCE

Requisites for Exemption:

1. The property sold must be the principal residence of the seller;

2. Proceeds is fully utilized in acquiring or constructing a new principle residence;
3. Utilization must be made within 18 calendar months from the date of sale or disposition;
4. Notify the BIR Commissioner within 30 days from the date of sale or disposition of the intention
to avail the exemption;
5. The said exemption can only be availed once every 10 years

PARTIAL EXEMPTION / TAXABLE PORTION:

If there is no full utilization of the proceeds of the sale or disposition, the portion of the gain presumed
to have been realized from the sale or disposition shall be subject to capital gains tax as follows:

SP
Taxable = Unutilized Portion x FMV
Amount Gross Selling Price Zonal

CGT = Taxable Amount x 6%

TAXATION OF NRA-NETB

NRA-NETB is subject to:

1. 25% FWT on ALL

a. Ordinary income
b. Passive income derived from sources within the Philippines including interest income from
long-term bank deposit or investment and PCSO winnings, except interest income on bank
deposit under FCDU.
2. CGT on sale of shares of a domestic corporation directly to a buyer (closely-held DC)
3. CGT on sale of real property classified as capital asset located in the Philippines

BASIC INCOME TAX

 Use the graduated tax rate or tax table, as amended

 Income subject to basic tax are:
 Ordinary income (i.e., compensation income, business income)
 Passive income derived abroad by RCs
 Capital gains not subject to CGTs
 Income subject to basic tax is reflected in the income tax return of the taxpayer.
 Incomes subject to Basic Tax are generally subject to creditable withholding taxes (CWTs) which
may be deducted from the basic income tax due.
  It is the payee (income earner) who has the responsibility to file the return and pay the
applicable tax.

GRADUATED TAX RATE under the TRAIN Law

INCOME TAXABLE YEAR 2018-2022 TAXABLE YEAR 2023 ONWARDS
TAX TAX
Not over P 250,000 Exempt Exempt
Over P 250,000 but not over P 20% of excess over P 250,000 15% of excess over P 250,000
400,000
Over P 400,000 but not over P P 30,000 + 25% in excess of P P 22,500 + 20% in excess of P
800,000 400,000 400,000
Over P 800,000 but not over P P 130,000 + 30% in excess of P P 102,500 + 25% in the excess
2M 800,000 of P 800,000
Over P 2M but not over P 8M P 490,000 + 32% in excess of P P 402,500 + 30% in excess of P
2M 2M
Over P 8M P 2,410,000 + 35% in excess of P P 2,202,500 + 35% in excess of P
8M 8M

 Provided, that after 2020, the taxable income tax levels in the above schedules shall be
adjusted once every five years (5), through rules and regulations issued by the Department
of Finance, upon recommendation of the Commissioner, after considering among others,
the effect of the same of the 5-year cumulative inflation rate.

Self-Employed and/or Professional (SEP)

Sec. 24(A)(2)(B) of the Tax Code, as amended by RA 10963 (TRAIN Law) provides the following rules for
SEP:

PURELY SEP MIXED INCOME EARNER

With gross sales and/or receipts of
Business and/or Professional Income

P 3M and below Above P 3M Compensation P 3M and below Above P 3M

Regular Income Regular Income Regular Income + Regular Income Regular Income
Tax OR 8%** tax Tax Tax Tax Tax
on Gross OR 8%** tax on
Sales receipts and Gross
other non- Sales/Receipts
operating income and other non-
in excess of P operating income
250,000 IN LIEU of IN LIEU of the
the graduated tax graduated tax
rate and Section rate and Sec. 116
116

**The option of to be taxed at 8% is available only SEPs who are:

 (1) Non-vat registered;
(2) Not engaged in vat exempt-sales/transaction(s); and
(3) Not subject to other Percentage Taxes other than Section 116 of the Tax Code, as amended.

NOTE:

 Sec. 116 is a business tax, not an income tax. It is computed as a percentage of gross
sales/receipts and other non-operating income.
 Unless the taxpayer signifies in the 1st Quarter Return of the taxable year the intention to elect
the 8% income tax, the taxpayer shall be considered as having availed of the graduated rates
under Section 24(A) of the Tax Code, as amended, and such election shall be irrevocable.
PROVIDED, that at any time during a given taxable year, a taxpayer’s gross sales or receipts
exceeded the VAT Threshold (P 3,000,000, as amended; s/he shall automatically be subjected to
the graduated rates under Section 24(A)(2)(a) of the Tax Code, as amended, with the following
rules/guidelines:
 The taxpayer shall be allowed an income tax credit of quarterly payments initially made
under the 8% income tax option.
 Taxpayer is likewise liable for business tax(es), in addition to income tax. a percentage
tax pursuant to Section 116 of the Tax Code, as amended, shall be imposed on the first P
3,000,000. The excess of the threshold shall be subject to VAT.
 Percentage tax due on the P 3,000,000 shall be collected without penalty, if timely paid
on the due date immediately following the month the threshold was breached.

MINIMUM WAGE EARNERS

The term “statutory minimum wage (SMV)” earner shall refer to a worker in the private sector paid the
statutory minimum wage, or to an employee in the public sector with compensation income of not more
than the statutory minimum wage in the non-agricultural sector where he/she is assigned (RR 10-2008).
MWEs are exempt from income tax on:

1. Minimum wage
2. Holiday pay
3. Overtime pay
4. Night shift differential
5. Hazard pay

Section 24(A)(2) of the Tax Code, as amended by the TRAIN Law provides:

……Provided, That minimum wage earners (MWEs) as defined in Section 22 (HH) of this Code shall
be exempt from the payment of income tax on their taxable income: Provided, further, That the
holiday pay, overtime pay, nightshift differential and hazard pay received by such minimum wage
earners shall likewise be exempt from income tax.

NOTE: Based on this specific provision of the Tax Code, the Graduated Tax Rate for individuals shall
not apply to MWEs on their income as such.

Section 24(HH) of the Tax Code, as amended by the TRAIN Law provides:
 …… The term ‘minimum wage earner’ shall refer to a worker in the private sector paid the statutory
minimum wage, or to an employee in the public sector with compensation income of not more than
the statutory minimum wage in the non-agricultural sector where he/she is assigned.

Basic Income Tax of Married Individuals

 Married individuals (i.e., husband and wife) are required by law to file a consolidated
income tax return, but they shall compute separately their individual income tax.
 Income which cannot be definitely attributed to or identified as income exclusively earned
or realized by either of the spouses, the same shall be equally divided between the spouses
for purposes of determining their taxable income.
 If the spouses are only physically separated and there is no legal separation, they are still
required by law to file consolidated or joint returns for which they are considered as jointly
and severally liable to the tax.

Income Tax of Senior Citizens (SC) and Persons with Disability(PWDs)

 For income taxation purposes, SCs and PWDs are taxable in the same manner as an ordinary
individual taxpayer. Hence, SCs and PWDs deriving returnable income are required to file their
income tax returns and pay the tax as they file the return.
 SCs/PWDs as MWE – Exempt from income tax on the said compensation income.
 If aggregate gross income does not exceed P 250,000, he shall be exempt from income tax and
shall not be required to file income tax return.

FRINGE BENEFITS (FBT) AND DE MINIMIS BENEFITS

FBT is a final withholding tax imposed on the grossed-up monetary value of the fringe benefit furnished,
granted or paid by the employer to managerial or supervisory employees, whether such employer is an
individual, professional partnership or corporation, regardless of whether the corporation is taxable or
not, or the government and its instrumentalities (Section 33, RA No. 3-98, as amended).

The term “Fringe Benefit” means any good, service, or other benefit furnished or granted by an
employer in cash or in kind, in addition to basic salaries, to an individual employee (except rank and file
employee) such as but not limited to the following:

a. Housing;
b. Expense Account
c. Vehicle of any kind
d. Household personnel, such as maid, driver and others
e. Interest on loan at less than market rate to the extent of the difference between the market
rate and the actual rate granted
f. Membership fees, dues and other expenses borne by the employer for the employee in social
and athletic clubs or other similar organizations
g. Holiday and vacation expenses
h. Educational assistance to the employee or his dependents
i. Life or health insurance and other non-life insurance premiums or similar amounts in excess of
what the law allows; and
j. Expenses for foreign travel.
The FOLLOWING FRINGE BENEFITS ARE NOT SUBJECT TO FBT:

1) Fringe benefits given to rank and file employees (not subject to FBT but subject to basic income
tax)
2) Housing benefits/privilege:
a. Of military officials of the Armed Forces of the Philippines (AFP).
b. Which is situated inside or adjacent (within 50 meters from the perimeter of the business
premises) to the premises of a business or factory.
c. Which are “temporary” for an employee or for a temporary housing unit of three (3) months
less.
4. Expenses incurred by the employee which are paid by the employer and expenses paid for by
the employee but reimbursed by his employer, provided:
a. The expenditures are duly receipted for and in the name of the employer;
b. It does not partake the nature of a personal expense attributable to the employee;
5. Allowance subject to liquidation (tax exempt allowances)
 Allowances not subject to liquidation are taxable.
 Representation and transportation allowances which are fixed in amounts and are
regularly received by the employees as part of their monthly compensation (exempt
from FBT but subject to basic income tax).
6. Reasonable business travel expenses:
 Inland travel expenses (such as expenses for food, beverages and local transportation)
during foreign travel.
 Lodging cost in a hotel (or similar establishments) amounting to an average of US$ 300
or less per day during foreign travel.
 Cost of economy and business class airplane ticket for “foreign” travel.
 70% of the cost of first-class airplane ticket for foreign travel.
 BUSINESS travel expenses “within the Philippines” are generally assumed to be reasonable
in amount.
7. Educational assistance
 TO THE EMPLOYEE, provided:
a. The education or study is directly connected with the employer’s trade, business or
profession; and
b. There is a written contract between them that the employee is under obligation to
remain in the employ of the employer for a period of time they have mutually agreed
upon
 TO THE DEPENDENTS OF THE EMPLOYEE, provided that the assistance was provided through
a competitive scheme under the scholarship program of the Company.
8. Contributions of the employer for the benefit of the employee on the following:
a. Pursuant to the provisions of existing law, such as under SSS and GSIS
b. Similar contributions arising from provisions of any other existing law
c. To retirement, insurance and hospitalization benefit plans.
9. The cost of premiums borne by the employer for the group insurance of his employees.
10. Fringe benefits which are/if:
 Authorized and exempted from income tax under the Tax Code or under any special law
  The fringe benefit is required by the nature of or necessary to the trade, business or
profession of the employer.
 For the convenience or advantage of the employer;

DE MINIMIS BENEFITS

The following are de minimis benefits under RR 1-2015 (amending RR 8-2012, RR 5-2011, RR 5-
2008):

a. Monetized unused vacation leave credits of private employees not exceeding ten (10) days
during the year.
b. Monetized value of vacation and sick leave credits paid to government officials and employees.
c. Medical cash allowance to dependents of employees not exceeding P 1,500 per employee per
semester or P 250 per month (RR 11-2018; TRAIN Law);
d. Rice subsidy of P 2,000 or one (1) sack of 50-kg. Rice per month amounting to not more than P
2,000 (RR 11-2018; TRAIN Law);
e. Uniform and clothing allowance not exceeding P 6,000 per annum (RR 11-2018; TRAIN Law);
f. Actual yearly medical benefits not exceeding P 10,000 per annum;
g. Laundry allowance not exceeding P 300 per month;
h. Employees achievement awards, i.e., for length of service or safety achievement, which must be
in the form of a tangible personal property other than cash or gift certificate, with an annual
monetary value not exceeding P 10,000 received by the employee under an established written
plan which does not discriminate in favor of highly paid employee;
i. Gifts given during Christmas and major anniversary celebrations not exceeding P 5,000 per
employee per annum;
j. Daily meal allowance for overtime work and night/graveyard shift not exceeding twenty-five
percent (25%) of the basic minimum wage.
k. Benefits received by an employee by virtue of a collective bargaining agreement (CBA) and
productivity incentive schemes, provided, that the total annual monetary value received from
both CBA and productivity incentive schemes combined, do not exceed P 10,000 per employee
per taxable year.

BIR RULING No. 293-2015 (CBA/NCA and Productivity Incentive Pay)

 If not more than P 10,000 – considered as de minimis

 If more than P 10,000 – the entire amount shall be included in the “other benefits” with P
90,000 ceiling

NOTE:

 This ruling shall apply only to benefits under CBA and productivity incentive schemes
 CBA is also referred to as CNA (collective negotiation agreement)

13th MONTH PAY AND “OTHER BENEFITS”

13TH month pay and Other Benefits received by officials and employees of public and private
entities not exceeding P 90,000 beginning January 1, 2018 under the TRAIN Law are exempt from income
tax and creditable withholding tax on compensation income. Amount “in excess of P 90,000” should
form part of an individual’s gross income and would be subject to income tax and applicable creditable
withholding taxes.

“OTHER BENEFITS” under RR 2-98 as amended by RR 3-2015 include”

 Christmas bonus
 Productivity incentive bonus
 Loyalty awards
 Gifts in cash or in kind and other benefits of similar nature actually received by officials
and employees of both government and private offices
 Gifts given during Christmas and major anniversary celebrations not exceeding P 5,000 per
employee per annum shall be treated as “de minimis” benefits. Any excess shall be included
as part of “other benefits” [RR 10-2008 as amended by RR 5-2011, RR 8-2012 and RR 1-
2015].

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

 De minimis benefits “conforming” to the Tax Exempt:
“ceiling” Excluded in determining the P 90,000 ceiling of
“other benefits”
 “Excess” of the de minimis benefits over Included in determining the P 90,000 ceiling of
their respective ceilings “other benefits.
Amount in excess of P 90,000 is subject to basic
income tax

FORMULA IN COMPUTING THE FRINGE BENEFITS TAX and MONETARY VALUE Beginning January 1,
2018 under the TRAIN Law

EMPLOYEE
RC, NRC
RA, NRA-ET NRA-NETB
Monetary value P xx P xx
Divide by GUMVF 65% 75%
Grossed-up monetary value (GUMV) P xx P xx
X FBT Rate 35% 25%
Fringe benefit tax P xx P xx

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

BENEFIT MONETARY VALUE

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

HOUSING BENEFIT VALUATION

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

MOTOR VEHICLE VALUATION

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

TAXATION OF ALIEN INDIVIDUALS EMPLOYED BY POGOs OGLs

TAXATION OF ALIEN INDIVIDUALS EMPLOYED BY AN OFFSHORE GAMING LICENSEE (OGL) OR PHILIPPINE

OFFSHORE GAMING OPERATION (POGO) AND ITS SERVICE PROVIDERS under RA 11590 and RR 20-2021,
regardless of residency and term and class of working permit or visa

Section 3 of RA 11590, also known as “An Act taxing Philippine Offshore Gaming Operations
(POGOs), added a new paragraph of Section 25 of the Tax Code, paragraph “G”, as follows:
 Sec. 25(G) Tax on Non-resident Alien Individuals:

“A x x x

“B x x x

X x x ….

“(G) Alien Individuals Employed by an Offshore Gaming Licensee and Service Providers. –

Alien individuals regardless of residency and who are employed and assigned in the
Philippines, regardless of term and class of working or employment permit or visa, by an
offshore gaming licensee or its service provider as defined in Section 22(II) and Section
27(G) of the Tax Code, as amended.

Applicable Income Tax

TYPE OF INCOME INCOME TAX PER MONTH

Gross income** from OGL 25% FWT or P 12,500 per month, whichever is
higher
Income from all other sources within the Subject to pertinent income tax imposed under
Philippines the Tax Code, as amended

**Gross Income (whether in cash or in kind)

 Basic salary/wages, annuities, compensation, remuneration and other emoluments, such as

honoraria and allowances, received from such service provider or offshore gaming licensee.
 OGLs and Service Providers shall submit to the Bureau of Internal Revenue (BIR) the original
copy of notarized contract of employment clearly stating therein the annual salary and other
benefits and entitlements of the concerned alien.

The FWT shall be withheld and remitted monthly by the employer, including corresponding penalties,
interest and surcharges, if any, in accordance with RR 2-98, as amended.

All foreign employees of OGLs and their service Providers, regardless of nature of employment, shall
have a Tax Identification Number (TIN). All OGLs and service providers that employ or engage a foreign
national without the foregoing shall be liable for a fine of Twenty thousand pesos (P 20,000) for every
foreign national without such TIN and, in proper instances, revocation of their primary and other
licenses obtained from government agencies and/or perpetual or temporary ban in employing or
engaging foreign nationals for their operations: Provided, That the foreign national concerned shall still
pay, and the employer shall remit, any corresponding taxes, penalties, interest, and surcharges due in
accordance with the Tax Code, as amended.

DEFINITON OF TERMS (RR 20-2021)

 PHILIPPINE OFFSHORE GAMING OPERATION (POGO) refers to the operation by an OGL of offline
games of chance or sporting events via the internet using a network and software program,
 exclusively for offshore customers/players who are non-Filipinos. The term POGO shall also
refer to OGLs and Accredited Services Providers.
 OFFSHORE GAMING LICENSEE (OGL) refers to an offshore gaming operator, whether organized
in the Philippines (Philippine based) or abroad (Offshore or foreign based), duly licensed and
authorized through a gaming license issued by a POGO Licensing Authority to conduct offshore
gaming operations, including the acceptance of bets from offshore customers. OGLs are also
referred to as Interactive Gaming Licensee (IGL) by other POGO Licensing Authorities. OGLs shall
be considered in doing business in the Philippines.
 ACCREDITED SERVICE PROVIDER refers to a natural person regardless of citizenship or residence,
or juridical person regardless of place or organization, which provides ancillary services to an
OGL or any other offshore gaming operator with license acquired from other jurisdictions.

SAMPLE ANCILLARY SERVICES (RR 20-2021)

 Customer and technical relations support

 Information technology
 Gaming software
 Data provision
 Payment solution
 Live studio and streaming services

 POGO Licensing Authority

 Refers to Philippine Amusement and Gaming Corporation (PAGCOR) or any other special
economic zone authority or Freeport authority authorized by their respective charters to
issue gaming licenses and accreditation to POGO entities.
 OGL-Gaming Agent
 Refers to a representative in the Philippines of a foreign-based OGL who shall act as a
resident agent for the mere purpose of receiving summons, notices and other legal
processes for the OGL and to comply with the disclosure requirements of the

FILING OF INCOME TAX RETURNS (ITR)

1. Final Withholding Tax on passive income

January to November 10th day of the month following the month the
withholding was made.
December January 15 of the succeeding year.
2. Capital Gains Tax
a) Shares of stock – 30 days after each transaction
b) Real Property – 30 days following each sale or other disposition
3. Fringe Benefits Tax – shall be filed and the tax paid/remitted not later than the last day of the
month following the close of the quarter during which withholding was made (TRAIN Law; RR
11-2018).
4. Basic Income Tax
  Apply calendar year
 Purely Compensation income earners: April 15 of the succeeding year.
 For Business income earners including income from practice of profession and mixed
income earners:

The individual taxpayer is required to file a quarterly tax return (regardless of the results
of operations) as follows:

1st Quarter May 15

2nd Quarter Aug. 15 (or 45 days after end of Quarter)
3rd Quarter Nov. 15 (or 45 days after end of Quarter)
Annual return April 15 of the succeeding year

Individual Taxpayers Required to File ITR:

1) Individuals engaged in business and/or practice of profession, regardless of the results of

operations.
2) Individuals deriving compensation from two or more employers, concurrently or successively, at
any time during the taxable year.
3) Employees deriving compensation income, regardless of the amount, whether from a single or
several employers during the calendar year, the income tax of which has not been withheld
correctly (i.e., tax due is not equal to the tax withheld) resulting to collectible or refundable
return.
4) Individuals deriving other non-business, non-professional-related income in addition to
compensation income not otherwise subject to final tax.
5) Individuals receiving purely compensation income from a single employer, although the income
tax of which has been correctly withheld, but whose spouse is required to file income tax return.
6) Non-resident alien engaged in trade or business in the Philippines deriving purely compensation
income, or compensation income and other non-business, non-profession-related income.

Persons NOT Required to File ITR (RR 8-2018):

1. An individual earning purely compensation income whose taxable income does not exceed P
250,000.
2. An individual whose sole income has been subjected to final withholding tax.
3. Minimum wage earners
4. Individual taxpayers who are qualified under “substituted filing” of income tax returns.
Substituted filing applies only if all of the following requirements are present:
a. The employee received purely compensation income (regardless of amount) during the
taxable year;
b. The employee received the income from only one (1) employer in the Philippines during the
taxable year;
c. The amount of tax due from the employee at the end of the year equals the amount of tax
withheld by the employer; and
d. The employee’s spouse also complies with all the three (3) conditions stated above.

The Certificate of Withholding filed by the employer, duly stamped “Received” by the BIR, shall
be tantamount to the substituted filing of income tax returns by the qualified employee.