CTT Compilation - October 2023

INCLUSIONS AND
EXCLUSIONS FROM
GROSS INCOME
GROSS INCOME (Sec 32A)
• ALL INCOME DERIVED FROM WHATEVER SOURCE, INCLUDING, BUT NOT LIMITED
TO THE FOLLOWING:
• Compensation for Services

• Gross income derived from conduct of trade or business or the
exercise of profession
• Gains derived from dealings in property
• Interests
• Rents
• Royalties
• Dividends
• Annuities
• Prizes and Winnings
• Pensions and
• Partner’s distributive share from the net income of the GPP
FINAL TAX
EXEMPT
BASIC TAX
OSD
ITEMIZED
INDIVIDUAL
PARTNERSHIP
CORPORATION ESTATES
TRUSTS
COMPENSATION INCOME
•Remuneration received by an employee from
employment or an income earned by an
individual as a result of an employer-employee
relationship.
•CLASSIFICATION
•Regular Compensation
•Supplementary Compensation
•13th Month Pay and Other Benefits
REGULAR COMPENSATION INCOME
• SALARY is a general earning paid on a regular interval
• WAGE is paid on an hourly or daily basis
*Mandatory GSIS, SSS, Philhealth, PAG-IBIG contributions and

union dues are considered as tax-exempt contributions
(mandatory only)
COMPUTATION OF NET TAXABLE INCOME
The following pertains to an employee in 2020:
Gross Salaries P 50,000

Less: Withholding Tax P 1,400
SSS Contributions 550
PHIC Contributions 100
PAG-IBIG Contributions 100
Union Dues 150
SSS Calamity Loan 1,000
Employee Loan 2,000 5,300
NET PAY 44,700
• ALLOWANCES
• May either be FIXED or VARIABLE

• It is generally subject to TAX, except:
• If it is necessary and ordinary traveling and
representation or entertainment expenses
• The employee is required to account/liquidate for the
foregoing expenses
• Any excess advances are returned to the employer
SUPPLEMENTAL COMPENSATION INCOME
•FEES
•COMMISSIONS
•OVERTIME PAY
•HAZARD PAY
•NIGHT DIFFERENTIAL PAY
•HOLIDAY PAY
13 TH MONTH PAY AND OTHER BENEFITS
• THIRTEENTH MONTH PAY of an employee is equivalent to the
mandatory one month basic salary of officials and employees.
• OTHER BENEFITS include Christmas bonus, productivity

incentive bonus, loyalty award, gift in cash or in kind, and
other benefits of similar nature actually received by officials
and employees.
*Thirteenth month pay and other benefits are not taxable if the
total amount received is P90,000 or less. (RA 10563; RR3-
2015)
13TH MONTH PAY AND OTHER BENEFITS
• DE MINIMIS BENEFITS – These are benefits that are considered
MINIMAL, in value, thus, when given to employees – IT IS NOT
TAXABLE
• Monetized unused vacation leave credits of private employees not
exceeding 10 days during the year.
• Monetized value of vacation and sick leave credits paid to government
officials and employees
• Medical cash allowance to dependents of employees not exceeding
P1,500 per employee per semester or P250 per month
• Rice subsidy of P2,000 or one sack of 50-kg rice per month amounting
to not more than P2,000
• Uniforms and clothing allowance not exceeding P6,000 per annum
• DE MINIMIS BENEFITS
• Actual medical assistance not exceeding P10,000 per year
• Laundry allowance not exceeding P300 per month
• Employees achievement awards, which must be in the
form of a tangible personal property other than cash or
gift certificate, with an annual monetary value not
exceeding P10,000 received by the employee
• Gifts given during Christmas and major anniversary
celebrations not exceeding P5,000 per employee per year
• DE MINIMIS BENEFITS
• Daily meal allowance for overtime work and
night/graveyard shift not exceeding 25% of the basic
minimum wage.
• Benefits received by an employee by virtue of a collective
bargaining agreement and productivity incentive
schemes provided that the total annual monetary value
received from both CBA and productivity incentive
schemes combined do not exceed P10,000 per employee
per taxable year
•MINIMUM WAGE INCOME EARNERS (RA 9504)
•Compensation Income of Minimum Wage Earners
in the private sector and other being paid the
statutory minimum wage.
•Compensation income of employees in the public
sector with salary that does not exceed the
statutory minimum wage in the non-agricultural
private sector.
OTHER BENEFITS
• SEPARATION PAY
• refers to the amount due to the employee who has been
terminated from service for causes authorized by law.
• Generally, it is taxable, exempt:
• The separation or termination must be due to job-threatening
sickness, death, or other physical disability; and
• The same must be due to any cause beyond the control of the
employee or official such as:
• Redundancy
• Retrenchment
• Closure of employer’s business
• Downsizing
OTHER BENEFITS
• RETIREMENT PAY
• Those received by officials and employees of private firms in
accordance with a reasonable private benefit plan maintained by
the employer.
• REQUISITE FOR EXEMPTION:
• The employer maintains a reasonable private plan
• The retiring official or employee has been in the services of the same
employer for at least 10 years
• The retiring employee is at least 50 years of age at the time of
retirement.
• This is the first time availment of retirement benefit exemption.
BUSINESS AND PROFESSIONAL
INCOME
• BUSINESS INCOME
• Arises from habitual engagement in any commercial activity
involving regular sales of goods or services by an individual or a
corporation. The income from business, legal or illegal, registered or
unregistered is TAXABLE.
• PROFESSIONAL INCOME
• Arises from the exercise of a profession or business income rom the
sales of services.
GROSS INCOME = GROSS SALES less SALES RETURNS,

DISCOUNTS AND ALLOWANCES, and COST OF GOODS
SOLD
INTEREST INCOME
• Interest Income or yield from LOCAL CURRENCY BANK
DEPOSITS or DEPOSIT SUBSTITUTES are SUBJECT TO
FINAL TAX:
INDIVIDUALS NRA CORPORATION NRFC
(ex NETB (ex. NRFC)
NRANETB)
Short Term Deposits 20% 25% 20% 25%
Long-Term Deposits EXEMPT 25% REGULAR 25%
*Long Term Deposits – with maturity of not less than 5 years, the form of which
shall be prescribed by the BSP and issued by banks only to individuals in
denominations of P10,000 and other denominations as may be prescribed by
the BSP
INTEREST INCOME
If the LTD of Individual Taxpayers is preterminated before
5 years, any previously untaxed or exempted interest
income will be subjected to the following final taxes upon
pre-termination:
HOLDING PERIOD FINAL TAX
Less than 3 years 20%
3 years to less than 4 years 12%
4 years to less than 5 years 5%
5 years or more 0%
INTEREST INCOME
FOREIGN CURRENCY DEPOSIT WITH FOREIGN
CURRENCY DEPOSITORY BANKS
Resident Non- Domestic and NRFC

Individual Resident RF
Individual Corporations
Interest Income from
FCDU/OBU/ Foreign 15% EXEMPT 15% EXEMPT
Depository Banks
INTEREST INCOME
•Interest Income subject to BASIC TAX
•Lending activities, whether or not in the
course of business
•Investment in Bonds
•Promissory Notes
•Foreign sources, whether bank or non-bank
•Penalty for legal delay or fault
RENT
•Leasing properties of any kind. It is a passive
income but subject to REGULAR INCOME TAX:
•Rent Income includes:
• Obligations of the lessor that are assumed by the lessee
• Advance Rentals
• Item of gross income upon receipt if:
• Unrestricted or Restricted to be applied in future
years or upon the termination of the lease
• Leasehold Improvements made by the lessee on the
lease property
ROYALTIES
• Payment or portion of proceeds paid to the owner of a
right, such as an oil right or a patent for the use of it, or a
portion of the proceeds from the work of an author or
composer. Generally, subject to FINAL TAX.
SOURCE OF ROYALTIES INDIVIDUALS NRA CORPORATION NRFC
(ex NRANETB) NETB (ex. NRFC)
Books, literary works and 10% 25% 20% 25%
musical compositions
Other Sources 20% 25% 20% 25%
• Active Royalties are subject to BASIC TAX.

DIVIDENDS
• Any distribution made by a corporation to its shareholders
out of its earnings or profits and payable to shareholders,
whether in money or in other property.
SOURCE OF INDIVIDUALS NRAE NRANE CORPORATION NRFC
DIVIDENDS (ex NRA) TB TB (ex. NRFC)
Domestic 10% 20% 25% EXEMPT 25%
Corporation or
15%*
Foreign BASIC BASIC 25% BASIC 15%*
Corporation
* If with TAX SPARING RULE
PRIZES
AMOUNT OF TAXABLE INDIVIDUALS NRA CORPORATION NRFC
PRIZES (ex NRANETB) NETB (ex. NRFC)
LOCAL SOURCES
Prizes exceeding P10,000 20% 25% BASIC 25%
Prizes not exceeding BASIC 25% BASIC 25%
P10,000
FOREIGN SOURCES BASIC N/T BASIC N/T
(RC only) (DC only)
EXEMPT PRIZES
• Prizes received by a recipient without effort on his
part to join a contest (e.g. Nobel Prize, Most
Outstanding Citizen, and similar award, provided
that the recipient is not required to perform services
in consideration of the award received.
• Prizes from sports competitions that are sanctioned

by their respective national sport organization.
WINNINGS
TYPES OF WINNINGS INDIVIDUALS NRA CORPORATION NRFC
(ex NETB (ex. NRFC)
NRANETB)
LOCAL SOURCES
PCSO or Lotto Winnings
Not more than 10k Exempt Exempt Exempt Exempt
More than 10k 20% 25% 20% 25%
Other Winnings 20% 25% BASIC 25%
FOREIGN SOURCES BASIC (RC N/T BASIC (DC only) N/T
only)
KINDS OF TAXPAYERS
DR. Cedric Val R. Naranjo, CPA

Tax 1 Instructor
IMPORTANCE OF CLASSIFICATION
• The application of the following tax concepts differ in accordance with the
classification of taxpayers:
• Gross income for tax purposes
• Exclusions from gross income
• Exemptions
• Deductions
• Income tax rates
PERSON FOR TAX PURPOSES
• The term person means (NIRC Sec. 22 A)

• An Individual
• A Trust
• An Estate
• A Corporation
INDIVIDUAL TAXPAYERS
• CITIZENSHIP
• Citizens
• Aliens
• RESIDENCY
• Residents
• Non-Residents
• ENGAGED TO BUSINESS IN TRADE, BUSINESS OR PROFESSION
• Engaged in Trade, Business or Profession
• NOT Engaged in Trade, Business or Profession
CITIZENS (Art IV Sec. 1)
• Those who are citizens of the Philippines at the time of
adoption of the 1987 Constitution
• 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 maturity.
• Those who are naturalized in accordance with law.
SUB CLASSIFICATION OF
• Resident Citizen
• Resides or stays in the Philippines permanently
• Stays outside the Philippines for less than 183 days during a
particular taxable year
• NON Resident Citizen
• Stays outside the Philippines for 183 days or more during
a particular taxable year
• A citizen with a definite intention to reside abroad
• A citizen who leaves the Philippines during the taxable
year to reside abroad, either as an immigrant or for
employment
• A citizen who works and derives income abroad and
whose employment thereat requires him/her to be
physically present abroad most of the time.
• NON Resident Citizen
• Who has been previously considered as NRC and who
arrives in the Philippines at any time during the year to
reside permanently in the Philippines:
• BE TREATED AS NRC
• With respect to his income derived from sources abroad
until the date of his arrival in the Philippines.
• Classification of NON Resident Citizen
• OCW or OFW
• Filipino employed in foreign countries
• Their salaries and wages are paid by an employer abroad
• Must be duly registered with POEA and with a valid
Overseas Employment Certificate
• Classification of NON Resident Citizen
• SEAFARERS OR SEAMAN
• Filipino who receive compensation for services rendered
abroad as a member of the complement of a vessel
engaged exclusively in international trade.
• Duly registered with POEA with a valid OEC with a valid
Seafarers Identification Record Book or Seaman’s Book
issued by the Maritime Industry Authority.
ALIENS
• Individuals who are NOT citizens of the Philippines
• Classification under the NIRC
• Special Alien
• Resident Alien
• Non-Resident Alien
• NRA engaged in trade, business of profession within the
Philippines
• NRA not engaged in trade, business of profession within the
Philippines
ALIENS
• RESIDENT ALIEN
• An individual
• Resides in the Philippines
• Not a citizen of the Philippines
• Stays in the Philippines for more than 1 year
ALIENS
• Non-Resident Alien engaged in trade or business
• An alien who is not a citizen and who is not a resident of the
Philippines, but has a business, particularly a sole proprietorship,
established and operating in the Philippines, or
• A non-resident alien who comes to the Philippines and stays for an
aggregate period of more than 180 days during the taxable year
ALIENS
• Non-Resident Alien NOT engaged in trade or business
• There is no regularity in the performance of personal services within
the Philippines
• If he merely engaged in casual or isolated transactions within the
Philippines
• He has not stayed in the Philippines during the calendar for a period
exceeding 180 days.
ALIENS
• SPECIAL ALIEN
• Regional or Area Headquarters and Regional Operating Headquarters of
multinational corporations in the Philippines
• Petroleum service contractors or sub-contractors
• Offshore banking units in the Philippines
• Note: The same treatment shall apply to Filipinos employed and
occupying the same position as those aliens employed by the above
companies.
Sec. 24: Progressive Tax System for Individual
Taxpayers
TRAIN:
Sec. 24: Progressive Tax System for Individual
Taxpayers
TRAIN:
Sec. 24: Income Tax of PURELY Self-Employed
TRAIN: If Gross Sales/Receipts do not exceed
P3,000,000, the tax shall be, at the taxpayer’s option:
• 8% income tax on gross sales or gross receipts in excess of

250,000, in lieu of graduated income tax rates and the
percentage tax
• Graduated Income Tax Rate for individuals
Sec. 24: Income Tax of MIXED Income Earners
TRAIN: Taxes shall be:
• COMPENSATION: Graduated rate

• BUSINESS AND/OR PRACTICE OF PROFESSION
• Gross Sales/Receipt do not exceed P3,000,000
• 8% income tax on gross sales or gross receipts, in lieu of
graduated income tax rates and the percentage tax
• Graduated Income Tax Rate for individuals
• Gross Sales/Receipt exceed P3,000,000
• Use Graduated Rate
Rules in AVAILING THE 8% PREFERENTIAL
RATE
• The taxpayer must signify the intention to elect the 8% income
tax rate in the 1st Quarter Percentage and/or Income Tax
Return, or on the initial quarter return of the taxable year after
the commencement of a new business/practice of profession.
Such election shall be irrevocable no amendment of option
shall be made for the said taxable year.
• The option is NOT AVAILABLE to a VAT-registered taxpayer,

regardless of the amount of gross sales/receipts, and to a
taxpayer who is subject to Other Percentage Taxes under Title V
of the Tax Code.
RATE
• Partners of a General Professional Partnership (GPP) by virtue
of their distributive share from GPP which is already net of cost
and expenses cannot avail of the 8% income tax rate option.
• A taxpayer who signifies the intention to avail of the 8% income

tax rate option, and is conclusively qualified for said option at
the end of the taxable year (annual gross sales/receipts and
other non-operating income did not exceed the VAT threshold
(₱3,000,000.00) shall compute the final annual income tax due
based on the actual annual gross sales/receipts and other non-
operating income
RATE
• The Financial Statements (FS) is not required to be attached in filing
the final income tax return.
• A taxpayer shall automatically be subject to the graduated rates

under Section 2a(A)(2)(a) of the Tax Code, as amended, even if the
flat 8% income tax rate option is initially selected, when taxpayer's
gross sales/receipts and other non-operating income exceeded the
VAT threshold during the taxable year. In such case, his income tax
shall be computed under the graduated income tax rates and shall
be allowed a tax credit for the previous quarter/s income tax
payment/s under the 8% income tax rate option.
ILLUSTRATION
Leo is a married taxpayer with 4 children, below 18 years old. He
worked with CTT, Inc. that paid him P640,000, total taxable
compensation in 2019.
CASE 1: Compute his tax due in 2019.
ILLUSTRATION
Leo is a married taxpayer with 4 children, below 18 years old, and
owner of CTT Manufacturing, with following results of transactions
for year 2018:
Gross Sales P 2,500,000
Less: Cost of Sales ( 1,700,000)
Gross Income 800,000
Add: Other Income 300,000
TOTAL INCOM 1,100,000
Less: OpEx ( 600,000)
Net Taxable Income P 500,000
CASE 2: How much is the tax due (income and percentage) if

he opted to be taxed using the graduated rate.
ILLUSTRATION
for year 2018:
Less: OpEx ( 600,000)

he opted the preferential rate of 8%?
ILLUSTRATION
for year 2018:
Gross Income 2,000,000
Add: Other Income 1,000,000
Less: OpEx ( 1,600,000)
Net Taxable Income P 1,400,000
CASE 4: What are the options of Juan? How much is the tax
due for each available options?
ILLUSTRATION
Leo is a married taxpayer with 4 children, below 18 years old. He is
an employee of CTT Manufacturing that paid him total taxable
compensation of P650,000.
He is also the owner of CTT Trading and Merchandising, with
following results of transactions for year 2019:
Total Income 1,100,000
Less: OpEx ( 600,000)

he opted to be taxed using the graduated rate?
ILLUSTRATION
Leo is a married taxpayer with 4 children, below 18 years old. He is
an employee of CTT Manufacturing that paid him total taxable
compensation of P650,000.
He is also the owner of CTT Trading and Merchandising, with
following results of transactions for year 2019:
Total Income 1,100,000
Less: OpEx ( 600,000)

he opted to be taxed using the 8% preferential rate?
ILLUSTRATION
Mr. JMLH signified his intention to be taxed at 8% income tax rate on
gross sales in his 1st Quarter lncome Tax Return. He has no other
source of income, His total sales for the first three (3) quarters
amounted to P3,000,000.00 with 4th quarter sales of P3,500,000.00.
Details are as follow:
Sales Cost of Sales Operating

Expenses
First Quarter ₱ 500,000 ₱ 300,000 ₱ 120,000
Second 500,000 300,000 120,000
Quarter
Third Quarter 2,000,000 1, 200,000 480,000
Fourth Quarter 3,500,000 1,200,000 720,000
Taxation on Corporations
Corporation
- includes:
1. One-person corporation
2. Ordinary partnerships no matter how created or organized
3. Joint stock companies
4. Joint accounts (cuertas en participacion)
5. Associations
6. Insurance companies
Types of Corporations
1. Domestic Corporation – organized and established under the
laws of the Philippines and is taxable on all income derived from
sources within and outside the Philippines
2. Resident Foreign Corporation - corporation organized and

established under the laws of a foreign country and is engaged
in trade or business within the Philippines (taxable only on
income derived from sources within the Philippines)
3. Non-Resident Foreign Corporation – corporation organized and

established under the laws of a foreign country and is not
engaged in trade or business within the Philippines (taxable only
on income derived from sources within the Philippines)
Taxation of Corporations
DC RFC NRFC
Tax Base Taxable Income Taxable Income Gross Income
Type of Tax RCIT RCIT Final Tax
Rate 30% - 25% or 20% 30% - 25% 25%
Tax Base Gross Income Gross Income
Type of Tax MCIT MCIT Not applicable
Type of Tax 2% - 1.5% - 1% 2% - 1.5% - 1%
Within and
Source of Income Within Within
Without
Higher between the RCIT or MCIT
Type of Corporation
RCIT MCIT
Rate Effective Date Rate Effective Date
Domestic Corporation (DC)
Domestic Corporation, In General January 1, January 1,
30% 1998 1998
2%
OLD to to
June 30, 2020 June 30, 2020
July 1, 2020
1% to
25% July 1, 2020 June 30, 2023
July 1, 2023
2%
Onwards
For corporations with net taxable income not July 1, 2020
exceeding Five Million Pesos (P5,000,000) 1% to
AND total assets not exceeding One Hundred June 30, 2023
Million (P 100,000,000), excluding the land on
20% July 1, 2020
which the particular business entity's office,
July 1, 2023
plant and equipment are situated 2%
onwards
*cost of land accounted separately.
Lumping/consolidation is not allowed
Type of Corporation
RCIT MCIT
Rate Effective Date Rate Effective Date
January 1,
Proprietary Educational 1998
Institutions and Hospitals 10%
to
OLD
June 30, 2020
July 1, 2020 Not Applicable

1% to
June 30, 2023
10% July 1, 2023

Type of Corporation
RCIT MCIT
Rate Effective Rate Effective Date
Date
Resident Foreign Corporation January 1, January 1,
1998 1998
30%
to 2% to
OLD
June 30, June 30, 2020
2020
Upon
effectivity of
1% the CREATE
25% July 1, 2020 until June 30,
2023
July 1, 2023
2%
onwards
Type of Corporation RCIT MCIT
Rate Effective Rate Effective
Date Date
Offshore Banking Unit (OBUs) January 1,
1998
10%
to Not Applicable
(Note: OBUs shall now be taxed OLD
April 10,
as resident foreign corporation 2021?
Upon
upon effectivity of the CREATE)
effectivity of
Upon the
1% the CREATE
effectivity
25% until June 30,
of the
2023
CREATE
July 1, 2023
2%
onwards
Rate Effective Date Rate Effective
Date
Regional Operating January 1, 1998
10% to
Headquarters Not Applicable
OLD Dec 31, 2020
(ROHQ)
January 1,
2022 to
1%
June 30,
25% January 1, 2022 2023
July 1, 2023
2%
and onwards
Rate Effective Date Rate Effective
Date
Non-Resident Foreign January 1, 1998
Corporation (NRFC) to
30% Not Applicable
December 31,
2020
January 1, 2021
25% Not Applicable
Illustration:
ABC Corp disclosed the following financial information:
Gross Income – Philippines Php 2,000,000

Expenses / Deductions – Philippines 1,000,000
Gross Income – United States 1,000,000
Expenses / Deductions – United States 500,000
Interest income from Bank Deposits in the Philippines 100,000
Compute the tax due if the taxpayer is:

1. DC
2. RFC
3. NRFC
Disregard rule on MCIT.

Minimum Corporate Income Tax (MCIT)
Tax Base: Gross income
Gross Income for purposes of MCIT shall be:
• For seller of goods – gross sales less sales returns, allowances,
discounts and cost of goods sold
• For seller of services - gross receipts less sales returns, allowances
discounts and cost of services sold
Cost of services shall include all direct costs and expenses incurred
to provide the services required by the customers and clients and
including salaries and employee benefits of personnel, consultants
and specialists directly rendering the services and cost of facilities
used directly in providing the service such as depreciation, rental of
property and cost of supplies.
For banks, cost of services includes interest expense.
Rate:
• January 1, 1998 to June 30, 2020 – 2%

• July 1, 2020 to June 30, 2023 – 1%
• July 1, 2023 – 2%
Note:
For non-individual taxpayers using calendar year for TY 2020, the
rates are:
• 2% - January 1, 2020 to June 30, 2020
• 1% - July 1, 2020 to December 31, 2021
Effective rate is 1.5%

Notes:
• The MCIT is imposed beginning on the fourth taxable year
immediately following the year in which such corporation
commenced its business operations
• When the minimum corporate income tax is higher than the
regular corporate income tax during the period, the minimum
corporate income tax shall be payable
• Excess of minimum corporate income tax can be carried over and
credited to the regular income tax for the next three immediately
succeeding taxable years
• Applies only to domestic and resident corporations and excludes
those entities enjoying preferential rates
• MCIT applies also on quarterly Income Tax Returns
SUSPENSION OF MCIT
The imposition of minimum corporate income tax may be

suspended due to:
a. prolonged labor disputes
b. force majeure
c. legitimate business reverses
Nature and concept
• Gains From Dealings in Properties

• Income derived from SALE or EXCHANGE of ASSETS
• GAINS = Excess of Selling Price over Costs
• LOSSES = Excess of Costs over Selling Price

Measurement of gain and losses
DETERMINATION OF GAIN (LOSS)

Sale of Property Exchange of Property
Selling Price xxxx FM Value xxxx
Less: Cost xxxx Less: Cost xxxx
Gain (Loss) xxxx Gain (Loss) xxxx
DETERMINATION OF COSTS
DETERMINATION OF COST OF PROPERTY

Mode of Acquisition Meaning of Cost
1. By purchase Acquisition Cost less cost attributable to
the sale
2. By inheritance FMV at the date of inheritance
3. By donation FMV at the time of gift or the value in
the hand of the donor, whichever is
lower
4. With less consideration The amount paid for the property
Dealings on Properties
Classification of assets
• FOR TAXATION PURPOSES, ASSETS ARE CLASSIFIED AS:
•ORDINARY
•CAPITAL
• QUESTION:
WHAT IS THE IMPORTANCE OF CLASSIFYING

ASSET AS ORDINARY OR CAPITAL?
• ANSWER:
The need to classify an asset as ordinary or

capital is underlined by the concept that
capital assets have preferential tax
treatment against ordinary assets.
ORDINARY ASSETS
• Stock in trade of the taxpayer or other property of a
kind that would properly be included in the
inventory of the taxpayer if on hand at the end of
the taxable year.
• Property used in trade or business of a character
which is subject to the allowance for depreciation
• Real property used in trade or business of the
taxpayer
CAPITAL ASSETS
• Shall refer to all real properties held by a taxpayer,

whether or not connected with his trade or
business, and which are not included among real
properties considered as ordinary asset under Sec.
39 A1 of the NIRC.
TYPES OF GAINS/LOSSES ON DEALINGS IN
PROPERTIES
• ORDINARY GAIN/LOSSES
• Arises from the sale, exchange, barter and other
disposition, including pacto de retro sales and other
conditional sales of ordinary assets.
• CAPITAL GAIN/LOSSES
• Arises from the sale, exchange and other dispositions,
including pacto de retro sales and other conditional
sales, of capital assets.
TAX TREATMENT OF ORDINARY
GAINS/LOSSES
• ORDINARY GAINS
• 100% TAXABLE
• ORDINARY LOSSES
• 100% DEDUCTIBLE
TAX TREATMENT OF CAPITAL GAINS/LOSSES
• CAPITAL GAINS
• SUBJECT TO FINAL TAX
• Capital Gains Tax on Sale of Domestic Shares not

traded in the Local Stock Exchange
• Capital Gains Tax on Sale of Real Properties located in
the Philippines
• CAPITAL GAINS
• SUBJECT TO BASIC TAX
• Capital Gains on Other Disposition of Properties not
subject to Final Tax
• CAPITAL LOSSES (not including losses for

transactions subject to Final Tax)
• Deductible up to the extent of the CAPITAL GAIN
(subject to Basic Tax) ONLY.
OF THE CAPITAL GAINS SUBJECT TO BASIC

TAX, HOW MUCH CAN BE RECOGNIZED?
IF THE TAXPAYER IS A CORPORATION:

100% CAPITAL GAINS / LOSSES
OF THE CAPITAL GAINS and LOSSES SUBJECT

TO BASIC TAX, HOW MUCH CAN BE
RECOGNIZED?
IF THE TAXPAYER IS AN INDIVIDUAL: (Apply
the Holding Period)
SHORT TERM – 100% (<= 1 yr)
LONG TERM - 50% (> 1 year)
IF:
CAPITAL GAIN (subject to BASIC) is HIGHER
than CAPITAL LOSS
The NET CAPITAL GAIN is TAXABLE
IF:
CAPITAL GAIN (subject to BASIC) is LOWER
than CAPITAL LOSS
The NET CAPITAL LOSS IS NON-DEDUCTIBLE
against GROSS INCOME
If NET CAPITAL LOSS CANNOT BE DEDUCTED,

WHAT CAN THE TAXPAYER DO?
CORPORATION: NOTHING! L
The NCL is forfeited
INDIVIDUAL: It can be carried forward
immediately succeeding year as NCLCO
HOW MUCH CAN THE INDIVIDUAL CARRY OVER

AS NET CAPITAL LOSS IN THE SUBSEQUENT
YEAR?
WHICHEVER IS LOWEST:
1. Amount of NCLCO
2. Net Taxable Income, before NCL, of the year
the NCL was incurred
3. The amount of NCG in the year the NCL will be
carried over
IF AFTER 1 YEAR, THE NCL WAS NOT CARRIED

OVER, WHAT CAN THE INDIVIDUAL TAXPAYER
DO?
NOTHING! L
The NCL is FORFEITED.
SALE, EXCHANGE AND OTHER DISPOSITION OF REAL PROPERTIES
CLASSIFIED AS CAPITAL ASSET LOCATED IN THE PHILIPPINES
• SUBJECT TO 6% CAPITAL GAINS TAX

• Taxable Base, HIGHEST:
• Market Value, as determined by the City/Municipal
Assessor
• Zonal Value, as determined by the BIR
• Selling Price
• NATURE OF 6% CGT
• Presumption of Capital Gains
• Non-consideration to the involuntariness of the sale
• SCOPE AND APPLICABILITY

Location of the Property TAXPAYERS
Individuals Corporations
Within the Philippines All Individuals Domestic Corporation Only
Outside the Philippines Not Applicable Not Applicable
• EXCEPTIONS TO THE 6% CGT

• ALTERNATIVE TAXATION RULE:
• An individual seller of real property capital assets has the
option to be taxed at either:
• 6% capital gains tax
• Subject to Basic Tax
• Conditions:
• The seller is an individual
• The buyer is the government, its instruments or agencies,
including GOCC
• EXCEPTIONS TO THE 6% CGT

• EXEMPTIONS RULE:
• Exempt under Special Laws
• CARP
• Socialized Housing Units by NHA
• Exempt under the Tax Code

• Sale of Principal Residence for the Reacquisition of New Principal
Residence by Individual Taxpayers
• Exempt under the Tax Code

• Sale of Principal Residence for the Reacquisition of New Principal
Residence by Individual Taxpayers, CONDITIONS:
• Seller must be a citizen or resident alien
• Sale involves the principal residence of the seller-taxpayer
• Proceeds of the sale is utilized in acquiring a new principal residence
• BIR is duly notified by the taxpayer of his intention to avail the
exemption within 30 days of the sale
• Reacquisition of the new residence must be within 18 months from the
date of sale
• Capital gains is held in escrow in favor of the government
• Exemption can only be availed once in every 10 years
SALE, EXCHANGE AND OTHER DISPOSITION
OF DOMESTIC STOCKS
• DOMESTIC SHARES THAT LISTED IN THE STOCK

EXCHANGE
• Not subject to Income Tax, but subject to Percentage
Tax of 6/10 of 1% of the Selling Price
• DOMESTIC SHARES THAT ARE NOT LISTED AND SOLD
DIRECTLY TO BUYERS
• Subject to Capital Gains Tax
OF DOMESTIC STOCKS
• EXEMPT DISPOSITIONS
• Original issuance of shares of stocks
• Exchange of stocks for services
• Worthlessness of shares
• Redemption of stocks for cancellation by issuing
corporations
• Gratuitous transfer of shares
OF DOMESTIC STOCKS
• THE CAPITAL GAINS TAX RATE
15% of the
CAPITAL GAIN
OF DOMESTIC STOCKS
• THE TAXABLE BASE OF CGT
• NET GAIN = SELLING PRICE LESS COST/BASIS OF THE
SHARES OF STOCKS
• FMV IS:
• Adjusted Net Assets / Outstanding Shares (RR 6-2013).
• Assets are adjusted to fair market values. The appraised
value of real property at the time of sale shall be the
highest of Zonal Value, FMV as shown in the Tax
Declaration and Valuation of the independent appraiser
OF DOMESTIC STOCKS
FAIR MARKET VALUE

DEEMED DONATION
SELLING PRICE
CAPITAL GAIN/LOSS
COST / TAX BASIS
OF DOMESTIC STOCKS
• THE TAXABLE BASE OF CGT
• NET GAIN = SELLING PRICE LESS COST/BASIS OF THE
SHARES OF STOCKS
• FMV IS:
• Adjusted Net Assets / Outstanding Shares (RR 6-2013).
• Assets are adjusted to fair market values. The appraised
value of real property at the time of sale shall be the
highest of Zonal Value, FMV as shown in the Tax
Declaration and Valuation of the independent appraiser
Estate Tax
TRANSFER TAXATION
TYPES OF TRANSFER
⬥ Bilateral Transfers
⬥ Sale
⬥ Barter
⬥ Exchange
⬥ Unilateral Transfers
⬥ Donation
⬥ Succession
⬥ Complex Transfers
104
NATURE OF TRANSFER TAXES
⬥ Privilege Tax
⬥ Ad Valorem Tax
⬥ Proportional Tax
⬥ National Tax
⬥ Direct Tax
⬥ Fiscal Tax
105
CLASSIFICATION OF TRANSFER TAXPAYERS
AND THEIR EXTENT OF TAXATION
⬥ Residents OR Citizens – GLOBAL TRANSFERS
⬥ RC
⬥ RA
⬥ NRC
⬥ Non-Resident Aliens – PHILIPPINE TRANSFER
106
TYPES OF PROPERTIES
1. Real Properties – immovable properties

2. Tangible Personal Properties – movable
properties
3. Intangible Personal Properties
107
TYPES OF PROPERTIES
Intangible Personal Properties
a. Franchise which must be exercised in the Philippines
b. Shares, obligations or bond issued by any corporation or
sociedad anonima organized and constituted in the Philippines in
accordance with it law.
c. Shares, obligation or bonds issued by any foreign corporation,
85% of the business of which is located in the Philippines
d. Shares, obligation or bonds issued by any foreign corporation if
such shares, obligation or bonds have acquired business situs in
the Philippines
e. Shares or rights in any partnership, business or industry
established in the Philippines
108
ILLUSTRATION OF RECIPROCITY
109
EXAMPLE:
A decedent left the following properties:
⬥ Land in Italy (with P1M unpaid mortgage) P 2,000,000
⬥ Land in Laguna, Philippines 500,000
⬥ Franchise in USA 100,000
⬥ Receivable from debtor in Philippines 70,000
⬥ Receivable from debtor in USA 100,000
⬥ Bank deposits in USA 80,000
⬥ Shares of stocks in PLDT, Philippines 75,000
⬥ Shares of stocks of ABC, foreign corporation
⬥ 75% of the business in the Philippines 125,000
⬥ Other personal properties 300,000
⬥ Zonal value of the land in Laguna 750,000
Determine the GE if the decedent is a (1) RC; (2)NRA; (3) NRA with reciprocity
110
PART 1: ESTATE TAX
SUCCESSION
WHAT IS SUCCESSION? ⬥ Inheritance includes ALL the
Mode of acquisition by virtue of property, rights, and obligations
which the property, rights and of a person which are NOT
obligations to the EXTENT of the EXTINGUISHED by his death.
value of the inheritance, of a ⬥ The rights to the succession are
person are transmitted through transmitted from the moment
his death to another or other of the death of the decedent.
either by his will or by operation
of law. (Art 774, Civil Code)
112
SUCCESSION
TYPES OF SUCCESSION ELEMENTS OF SUCCESSION
⬥ Testate or Testamentary ⬥ Decedent (Testator)
Succession ⬥ Estate
⬦ With last will and ⬦ Legitime
testatment
⬦ Free portion
⬦ Types of Will: (1)
Holographic; (2) Notarial; ⬥ Heirs
(3) Codicil ⬦ Compulsory Heirs
⬥ Legal or Intestate Succession ⬦ Voluntary Heirs
⬥ Mixed Succession ⬦ Legatee or Devisee
⬥ Executor/Administrator
113
ESTATE TAX
excise tax on the right of ⬥ Governed by the statute in
transmitting property at force at the time of death of
the decedent
the time of death and on
the privilege that a ⬥ The estate tax accrues as of
person is given in the death of the decedent
controlling to a certain and the accrual of the tax is
extent the disposition of distinct from the obligation
to pay the same.
his property to take
effect upon death.
114
ESTATE TAX
NATURE:
⬥ Excise Tax
⬥ Fiscal Tax
⬥ Ad Valorem Tax
⬥ National Tax
⬥ Proportional Tax
⬥ One-time Tax
115
ESTATE TAX MODEL: SINGLE DECEDENT
ESTATE TAX MODEL: MARRIED DECEDENT
GROSS ESTATE
Consists of the totality of the value of all property of the
decedent at the time of his death, whether real or personal,
tangible or intangible, wherever situated. The items to be
included and excluded in the gross estate depend upon the
citizenship and/or residence of the decedent.
118
GROSS ESTATE
Decedent Real Property Tangible Personal Intangible Personal Property
Property
Within Without Within Without Within Without

Citizen √ √ √ √ √ √
Resident Alien √ √ √ √ √ √
√
Non-Resident Alien √ X √ X X (if there is X

reciprocity)
119
COMPOSITION OF GROSS ESTATE
1. Decedent’s Interest
2. Transfer in Contemplation of Death
3. Revocable Transfers
4. Property Passing Under the General Power
of Appointment
5. Proceeds of Life Insurance
6. Transfer for Insufficient Consideration
120
DECEDENT’S INTEREST
This refers to the value of any interest in property or rights in
favor of the decedent on or before his death which was
accrued and received only after decedent’s death.
⬥ Dividends Receivable
⬥ Partnership’s share
⬥ Accrued interest
121
TRANSFER IN CONTEMPLATION OF DEATH
⬥ Donations made which are motivated by the THOUGHT OF
DEATH.
⬥ It may include:
⬦ Transfer of property to take effect in possession or
enjoyment after death
⬦ Transfer of property with retention of the right of
possession or enjoyment or right over income of the
property until death
⬦ Transfer of property with retention of the right to
designate, alone or in conjunction with any person, the
person who shall enjoy the property or the income
there from
122
REVOCABLE TRANSFERS
Transfers of possessions over property during the lifetime of
the decedent, but not transfer of ownership over said
property.
Note: the power to alter, amend or revoke shall be

considered to exist on the date of the decedent's death and
shall be considered to have been given, or the power
exercised, on the date of his death.
123
TRANSFER UNDER GENERAL POWER OF
APPOINTMENT (GPA)
GPA enables the holder of such power to do with the
property anything which he could do as if the property were
his own.
124
PROCEEDS OF LIFE INSURANCE
General Rule: To the extent of the amount receivable by the estate of the
deceased, his executor, or administrator, as insurance under policies taken
out by the decedent upon his own life
Exceptions:
⬥ When the designation of the third person (not the estate, executor or
administrator) beneficiary is irrevocable
⬥ The proceeds or benefits are from SSS and GSIS
⬥ The proceeds are from a group insurance taken by the employer
Include in the gross estate if the beneficiary is:

⬥ Revocable
⬥ Estate, his administrator or his executor
125
TRANSFER FOR INSUFFICIENT
CONSIDERATION
If any one of the transfers, trusts, interests, rights or powers is made,
created, exercised or relinquished for a consideration in money or
money's worth, but is not a bona fide sale for an adequate and full
consideration in money or money's worth, there shall be included in the
gross estate only the excess of the fair market value, at the time of death,
of the property otherwise to be included on account of such transaction,
over the value of the consideration received therefor by the decedent.
126
EXCLUSIONS FROM GROSS ESTATE
1. Merger of usufruct in the owner of the naked title
2. The transmission or delivery of the inheritance or legacy by fiduciary
heir or legatee to the fideicommissary
3. The transmission from the first heir, legatee, or donee in favor of
another beneficiary, in accordance with the desire of the predecessor
4. All bequests, devises, legacies or transfers to social welfare, cultural,
and charitable institutions, no part of the net income of which goes
to the benefit of any individual; provided, however, that not more
than 30% of the said bequests, devises, legacies, or transfers shall be
used by such institutions for administrative purposes.
127
MERGER OF THE USUFRUCT IN THE OWNER
OF THE NAKED TITLE
128
The transmission or delivery of the
inheritance or legacy by fiduciary heir or
legatee to the fideicommissary
129
The transmission from the first heir, legatee,
or donee in favor of another beneficiary, in
accordance with the desire of the
predecessor
130
Other Exemptions and Exclusions from Gross Estate
1. Bequests to be used actually, directly, and exclusively for
educational purposes
2. Proceeds of life Insurance
a.Beneficiary is irrevocably appointed
b.Under a group insurance taken by the employer in favor of the employee
3. Transfer by way of bona fide sales
4. Properties held in trust by the decedent
5. Separate property (capital of husband or paraphernal of wife) of the
surviving spouse.
6. Exemptions due to reciprocity
Exemptions from Special Laws
1. Benefits received from SSS or GSIS
2. Benefits received from U.S Veterans Administration
3. War benefits given by the Philippine government and U.S.
government due to damages suffered during the war
4. Grants and donations to the Intramuros Administration
5. Personal Equity and Retirement Account (PERA) assets of the
contributor
GROSS ESTATE for MARRIED DECEDENT
⬥ Exclusive Properties – owned separately by the
husband/wife
⬦ Capital – exclusive property of the husband
⬦ Paraphernal – exclusive property of the wife
⬥ Communal / Conjugal Properties – owned by both

spouses (equally)
133
EXCLUSIVE PROPERTY OF THE
DECEASED
+
COMMUNAL/CONJUGAL
PROPERTIES
134
PROPERTY RELATIONS (in order of priority)
⬥ By marriage settlement executed before the marriage
(pre-nuptial/ante-nuptial agreement)
⬥ The regime of absolute community (for marriage August
3, 1988 and onwards)
⬥ Conjugal partnership of gains (for marriage prior to
August 3, 1988)
⬥ By the local customs (Art. 74, Family Code)
135
CONJUGAL PARTNERSHIP OF GAINS
⬥ Shall commence at the precise moment that the marriage is
celebrated.
⬥ Any stipulation, express or implied, for the commencement of the
community regime at any other time shall be void.
Notes:
• CPG shall be governed by the rules on the contract of partnership
• Administration and enjoyment shall belong to both spouses jointly
136
ABSOLUTE COMMUNITY OF PROPERTIES
⬥ Shall commence at the precise moment that the marriage is celebrated.
⬥ Any stipulation, express or implied, for the commencement of the
community regime at any other time shall be void.
Notes:
• The provisions on co-ownership
• Property acquired during the marriage is presumed to belong to the
community unless proven that it is one of those excluded
• Administration and enjoyment shall belong to both spouses jointly
137
PROPERTY CLASSIFICATION
PROPERTY CPG ACP
Properties owned BEFORE marriage EXCLUSIVE COMMUNAL, except if there
is legitimate descendants
Properties derived DURING/AFTER marriage
• From fruits, income and gains
• From exclusive properties CONJUGAL EXCLUSIVE
• From conjugal/communal properties CONJUGAL COMMUNAL
• From labor, business and practice of profession CONJUGAL COMMUNAL
• From GRATUITOUS acquisitions EXCLUSIVE EXCLUSIVE
• Exchange of Property
• Exclusive Property EXCLUSIVE EXCLUSIVE
• Conjugal/Communal Property CONJUGAL COMMUNAL
Properties for EXCLUSIVE USE of either spouse EXCLUSIVE EXCLUSIVE, except Jewelries
138
CONJUGAL ABSOLUTE
PARTNERSHIP OF COMMUNITY OF
GAINS PROPERTIES
EXC. CONJ EXC. COMM.
Cash of P100,000 owned by the decedent before the marriage
Real property amounted to P1,000,000 inherited by the decedent during
the marriage. It generated an income of P100,000 a year after.
Personal property received by the wife as gift before marriage,
P500,000. This personal property was sold by the wife during marriage
at P800,000.
A new car purchased by the decedent with cash owned before marriage
Clothes of the decedent purchased with exclusive money of the wife
Jewelry for the use of the decedent purchased from business income of
the surviving spouse
Various properties amounting to P600,000 unidentified when and by
whom acquired
Real Property of P500,000 acquired before marriage by the decedent
who has legitimate descendants by a former marriage
CONJUGAL ABSOLUTE
PARTNERSHIP OF COMMUNITY OF
GAINS PROPERTIES
EXC. CONJ EXC. COMM.
Cash of P100,000 owned by the decedent before the marriage 100k 100k
Real property amounted to P1,000,000 inherited by the decedent during 1M 100k 1.1 M
the marriage. It generated an income of P100,000 a year after.
Personal property received by the wife as gift before marriage, 500k 300k 800k
P500,000. This personal property was sold by the wife during marriage
at P800,000.
A new car purchased by the decedent with cash owned before marriage X X
Clothes of the decedent purchased with exclusive money of the wife X X
Jewelry for the use of the decedent purchased from business income of X X
the surviving spouse
Various properties amounting to P600,000 unidentified when and by 600k 600k
whom acquired
Real Property of P500,000 acquired before marriage by the decedent 500k 500k
who has legitimate descendants by a former marriage
VALUATION OF GROSS ESTATE
General Rule: Gross estate Fair Market Value at time of death
Exception: Real property Zonal value or Assessed Value whichever is higher
Shares of stocks UNLISTED- Book value (appraisal valuation no longer applicable)
COMMON
Shares of stocks UNLISTED- Par Value
PREFERRED
Shares of stocks – LISTED G.R. FMV at the time of death.
Exception: Arithmetic Mean between the highest and
lowest quotation at a date nearest at the time of
death
141
Valuations – Real Property
Valuations – Listed Shares
ALLOWABLE DEDUCTIONS
⬥ ORDINARY DEDUCTIONS
⬦ Claims against the estate
⬦ Unpaid Mortgages
⬦ Claims against insolvent persons
⬦ Losses
⬦ Transfer for Public Use
⬦ Unpaid Taxes
⬦ Property Previously Taxed (Vanishing Deduction)
⬥ SPECIAL DEDUCTIONS
⬦ Family Home
⬦ Standard Deduction
⬦ Share of Surviving Spouse 144
⬦ RA 4917
CLAIMS AGAINST THE ESTATE
⬥ Debts or demands of a pecuniary nature
⬥ Can be enforced against the deceased in his lifetime
⬥ May arise out of:
⬦ Contract
⬦ Tort
⬦ Operation of Law
145
Claims Against the Estate - REQUISITES
a. The liability represents a personal obligation of the deceased existing

at the time of his death
b. The liability was contracted in good faith and for adequate and full
consideration in money or money’s worth.
c. The claim must be a debt or claim which is valid in law and
enforceable in court
d. The indebtedness must not have been condoned by the creditor or
the action to collect from the decedent must not have been
prescribed.
CLAIMS AGAINST THE ESTATE –
SUBSTANTIATION REQUIREMENTS
In Case of Simple Loan (Advances)
G.R. Debt instrument is notarized
Exception: loans granted by financial institution where notarization is not part of the business
practice/policy
Notarized Certificate from creditor of unpaid balance of debt with interest.
Signatories:
1. Corporation – President or Vice-President or principal officer
2. Partnership – Any General Partners
3. Bank – Branch Manager
4. Individual – creditor himself
G.R. Signatory must not be a relative of decedent within 4th civil degree (consanguinity or affinity)
Except: Promissory note or evidence of indebtedness was filed within the RDO of the borrower
within fifteen (15) days from execution thereof
Proof of financial capacity of creditor to lend or Declaration of Capacity (if non-resident, the
certification must be authenticated by the tax authority of the country where he is a resident)
If required to file ITR, the Audited financial statements with detailed schedule of receivable 147
showing the unpaid balance
CLAIMS AGAINST THE ESTATE – SUBSTANTIATION REQUIREMENTS
Obligation arose from purchase (goods/service)
1. Sales invoice or
2. Delivery receipt or
3. Contract of service or
4. Acknowledgement receipt or
5. Statement of Account
Notarized Certificate from creditor of unpaid balance of debt with interest.
Signatories:
1. Corporation – President or Vice-President or principal officer
2. Partnership – Any General Partners
3. Bank – Branch Manager
4. Individual – creditor himself
G.R. Signatory must not be a relative of decedent within 4th civil degree (consanguinity or affinity)
Except: Promissory note or evidence of indebtedness was filed within the RDO of the borrower within
fifteen (15) days from execution thereof
1. Certified true copy of the latest audited FS with detailed schedule of receivable of unpaid balance
AND 148
2. Certified true copy of updated latest subsidiary ledger/records

UNPAID MORTGAGES
⬥ Amount OWED by the decedent supported by collaterals and still
outstanding
⬥ Requisites:
⬦ Gross amount of the mortgaged property should be included as part of the
gross estate
⬦ Whole amount of the unpaid mortgage is deductible
⬦ If the interest of the decedent on the mortgaged property is less than its full
amount, the amount of unpaid mortgage shall be proportionately reduced
149
UNPAID MORTGAGES
⬥ Accommodation Loan: The value of the unpaid loan must be included as
a receivable of the estate
⬥ In case the unpaid mortgage payable is being claimed by the estate,

VERIFICATION of the loan proceeds by the beneficiary must be made
150
UNPAID MORTGAGES - EXAMPLE
At the time of Yatap’s death, one of the properties left to the heirs was a
commercial building with a FMV of P5,000,000. Two years before his death,
Yatap borrowed from BPI the amount of P3,000,000 and mortgaged the
commercial building. At the time of his death, there was still an unpaid
balance on the mortgage of P500,000.
For Estate tax purposes, how should the above items be treated?
151
CLASSIFICATION RULES FOR CLAIMS AGAINST THE
ESTATE AND UNPAID MORTGAGE
⬥ Family Benefit Rule
⬦ If the obligation was contracted or incurred for the benefit of the family, the
claim shall be classified as deduction against common property.
⬥ Property Classification Rule

⬦ Claims follow the classification of the relevant property
152
CLAIMS AGAINST INSOLVENT PERSONS
⬥ Receivable of the decedent on persons who are declared by competent
persons or authorities as insolvent or those whose financial liabilities
are more than their assets
⬥ REQUISITES:
⬦ The amount of claims has been included as part of the gross estate of the
decedent
⬦ The insolvency of a person or debtor is declared and proven by a competent
body
153
CLAIMS AGAINST INSOLVENT PERSONS - EXAMPLE
On December 15 of the current taxable year, Tonyo died with total
receivables, both secured and unsecured with collaterals, amounting to
P800,000. One of debtors was Siony who has an outstanding obligation to
the decedent of P150,000. The financial status of Siony that she has total
assets of P300,000 and total liabilities of P480,000.
What is the (a) gross taxable estate; and (b) allowable deduction of the
decedent?
154
LOSSES
⬥ Casualty losses incurred during the settlement of the estate. The loss
should be incurred from the time of death of the decedent up to the
settlement of the estate.
⬥ REQUISITES:
⬦ Arose from fire, storm, theft, robbery, embezzlement, shipwreck,
or other forms of calamities
⬦ Amount of loss is not compensated by insurance
⬦ Loss was not claimed as deduction from income in the income

tax return
⬦ Loss occurred during the settlement of the estate
⬦ Loss was incurred not after the last day of payment of estate tax
155
TRANSFER FOR PUBLIC USE
⬥ Transferred by the decedent to the government of the Philippines as
stated in his/her last will and testament.
⬥ REQUISITES:
⬦ The transfer through donation is in favor of the government of
the Philippines or any of its political subdivisions
⬦ The property shall be used exclusively for public purpose
⬦ The value of the property shall be its fair market value
156
UNPAID TAXES
⬥ Taxes that the decedent was subjected to while he/she was still alive
but remained unpaid up to the time of his/her death.
⬥ REQUISITES:
⬦ The tax should be accrued or incurred prior to the death of the
decedent
⬦ The tax is enforceable against the decedent at the time of
his/her death
157
UNPAID TAXES
⬥ NON-DEDUCTIBLE TAXES
⬦ Income tax on income earned or received after death
⬦ Property taxes that accrue after death
⬦ Estate tax due from the transmission of the decedent’s estate
158
PROPERTY PREVIOUSLY TAXED
(VANISHING DEDUCTION)
⬥ Applies to the property included in the gross estate of the present

decedent which was acquired through either donation or inheritance
from a prior donor or decedent as the case may be.
159
⬥ REQUISITES:
⬦ Property was acquired within 5 years before the death of the present
decedent
⬦ Property subject for vanishing deduction must be located within the
Philippines
⬦ The applicable estate or donor’s tax on the prior decedent should
have been paid
⬦ Property must be identified as the one received from the prior
decedent, or something acquired in exchange therefore
⬦ No vanishing deduction on the property was allowable to the estate
of the prior decedent
160
Initial basis (FMV at the time of transfer or at the time of death,
whichever is lower) xxxx
Less: Mortgage PAID during the lifetime of the decedent (xxxx)
INITIAL BASIS xxxx
Less: DEDUCTIONS (Initial Basis / Gross Estate x Ordinary Deductions)
xxxx
FINAL BASIS xxxx
Multiply: Vanishing Deduction Rate (100%, 80%, 60%, 40%, 20%) %%%
VANISHING DEDUCTION XXXX
161
VANISHING DEDUCTION %
PERIOD VD Rate
Within 1 year or less 100%
More than 1 year but not more than 2 years 80%
More than 2 years but not more than 3 years 60%
162
VANISHING DEDUCTION - EXAMPLE
Ms. Gayna, single, died leaving a property she inherited 3 ½ years ago with
a fair market value of P800,000. During her father’s death, it had a value of
P750,000, and an unpaid mortgage of P100,000. P50,000 of the unpaid
mortgage was paid by the present decedent. Her gross estate, other than
her inherited property had a fair market value of P1,300,000. The total
expenses, claims against the estate, claims against insolvent person, unpaid
mortgage and transfer for public purpose amounted to P300,000.
163
FAMILY HOME
⬥ The amount is equivalent to the current fair market value of the
decedent’s family, provided that if the said current FMV exceeds
P10,000,000, the excess shall be subject to estate tax.
⬥ Note: RR 2-2003 and RR 12-2018 defines “Family Home” as the dwelling

house, including the land on which it is situated, where the husband and
wife, or a head of the family, and members of their family reside, as
certified by the Brgy. Captain of the locality. The family home is deemed
constituted on the house and lot from the time it is actually occupied as
a family residence and is considered as such for as long as any of its
beneficiaries actually resides therein.
164
Exercises: Determine the Allowable Family Home
Status of Classification of Actual Value of Allowable FH
Decedent Property FH
Unmarried Exclusive Php 30 Million Php 10 Million
Married Conjugal Php 30 Million Php 10 Million
Married Exclusive Php 30 Million Php 10 Million
Unmarried Exclusive Php 9 Million Php 9 Million
Married Conjugal Php 9 Million Php 4.5 Million
Married Exclusive Php 9 Million Php 9 Million
Married H Conjugal/L Exc* Php 10M/4M Php 9 Million

STANDARD DEDUCTIONS
A deduction in the amount of Php
5,000,000 shall be allowed for either a citizen
or resident (RC, NRC, RA) without the need of
substantiation.
166
AMOUNT RECEIVED UNDER RA 4917
Any amount received by the heirs from the employer as a consequence of the
death of the decedent-employee in accordance with Republic Act No. 4917:
Provided, That the amount of the separation benefit is included in the gross
estate of the decedent.
167
DEDUCTIONS OF A NON-RESIDENT ALIEN
DECEDENT
1.Standard deduction in the amount of Php 500,000.00
2. The proportion of the total losses and indebtedness which the value of such part
bears to the value of his entire gross estate wherever situated.
A. Claims against the estate
B. Claims against the insolvent person
C. Unpaid mortgages, taxes and casualty losses
Formula:
Phil Gross Estate
World Gross Estate x Item No. 2 = Allowable Deduction
3. Property previously taxed
4. Transfers for public use
5. Net share of the surviving spouse in the conjugal property or community property.
168
Total Total Common/ Total Gross Estate
Exclusive Conjugal
Property Property
ELIT
1. Claims against the estate xx xx
2. Claims against insolvent persons xx xx
3. Unpaid mortgages xx xx
4. Taxes xx xx
5. Losses xx xx
Transfer for Public Use xx
Vanishing Deduction xx xx
Net Estate before Special Deduction xxxx xxxx xxxx
Family Home xx
Amounts received by heirs under RA 4917 xx
Standard Deduction Xx
Share of surviving spouse in conjugal assets Xx
NET ESTATE NET ESTATE
DEDUCTIONS OF A NON-RESIDENT ALIEN
DECEDENT - EXAMPLE
Mickey Mouse, a non-resident alien decedent had the following information on
properties and expenses related to his death:
Philippines Australia Total

Real properties P 4,000,000 P 9,000,000 P 13,000,000
Tangible Personal Prop 2,000,000 3,000,000 5,000,000
Intangible Personal Prop 500,000 1,500,000 2,000,000
Losses, Indebtedness, Taxes - - 2,900,000
Transfer for public use 800,000 - 800,000
Determine the net taxable estate under the following assumptions:

1. With reciprocity
2. Without reciprocity
170
ESTATE TAX DUE
⬥ BASIS: Net Taxable Estate

⬥ Rate: 6%
171
Administrative Requirements
Notice of Death Notice of Death removed
Period to File Estate Tax Within one (1) year from date of death
Return (BIR Form 1801) Required to file when:
1. the transfer is subject to tax
2. regardless of the gross value of the estate, where the estate
consists of registered or registrable property for which Certificate
Authorizing Registration from the BIR is required as a condition
precedent to the transfer of title/ownership in the name of the
transferee, the executor, or the administrator or any of the legal
heirs, as the case may be
Registrable Properties include, but is not limited, to:

1. real properties
2. motor vehicles
3. shares of stocks
4. guns
Venue/Place of filing General Rule: In the Revenue District Office (RDO) of the
City/municipality where the decedent is domiciled at the time
of death
Exceptions for Non-residents (NRC or NRA):
a. In case executor or administrator is registered with the BIR
– venue is the RDO where the executor or administrator is
registered
b. In case the executor or administrator is unregistered –
venue is RDO where the legal residence of the executor or
administrator is
c. In case there is no executor or administrator – venue is the
Office of the Commissioner of Internal Revenue thru RDO
No. 39 – South Quezon City
Note: The CIR has power to allow different venue in the filing
of tax returns
Extension of time to In meritorious cases, a reasonable extension for filing the
file estate tax return return, not exceeding 30 days shall be granted by the BIR
Commissioner or any authorized Revenue Officer
Time for payment General Rule: At the time the return is filed (Pay as you file)
Extension of time to When the Commissioner finds that the payment of the
pay estate tax estate tax or any part thereof would impose hardship upon
the estate or any of the heirs, he may extend the time of
such tax or any part thereof –
- Not to exceed five (5) years in case the estate is settled
through the courts
- Two (2) years in case estate is settled extra-judicially
Any amount paid after the statutory due date of the tax, but
within the extension period shall be subject to interest but
not to surcharge.
Posting of bond in Not exceeding double the amount of estate tax and
case of extension with such sureties as the CIR deems necessary
No extension Due to fraud
Intentional disregard of the rules
Negligence
CPA Certificate Gross value of estate exceeds Php 5 Million (Old
rule is Php 2 Million)
Information in CPA Itemized assets with corresponding gross value
Certificate Itemized liabilities
Estate tax due whether paid or still due and
outstanding
Payment of tax No transfer of shares, obligations, or bonds without electronic
antecedent to the Certificate Authorizing Registration (e-CAR)
transfer of shares, If a bank has knowledge of the death of a person, who
bonds, or rights maintained a bank deposit account alone, or jointly with
another, it shall allow any withdrawal from the said deposit
account, subject to a final withholding tax of (6%).
Requirement for withdrawal: duly stamped received BIR Form
1904 (Application for TIN of Estate)
Enforce Action The Commissioner may enforce action against the estate after
the due date of the estate tax provided that all the applicable
laws and required procedures are observed.
Liability of parties in Primary Liability – Executor or administrator has primary
paying estate tax obligation to pay estate tax.
Subsidiary Liability – Heir or beneficiary are liable for the
payment of that portion of the estate which his distributive
Estate Tax Amnesty
Coverage
• Estates of decedents who died on or before December 31,
2017
• With or without assessments
• Taxes have remained unpaid or have accrued as of December
31, 2017
• RA 11956 implemented by RR 10-2023

• Covers decedents who died on or before May 31, 2022, regardless
of whether or not their estate was assessed, and whose estate
taxes remained unpaid or have accrued as of May 31, 2022
Exceptions (not covered by Amnesty)
1.Shall have become final and executory, and
2.To properties involved in cases pending in appropriate courts
a.Falling under the jurisdiction of Presidential Commission
on Good Governance
b.Involving unexplained or unlawfully acquired wealth
c.Involving violations of Anti-Money Laundering Law
d.Tax evasion and other criminal offenses under NIRC
e.Involving felonies of frauds, illegal exactions and
transactions, and malversation of public finds and
property under the Revised Penal Code
Definition of Terms
• Basic Tax Assessed refers to the latest amount of tax
assessment issued by the BIR against the taxpayer, exclusive
of interest, penalties and surcharges
• Net Estate refers to the gross estate less all allowable

deductions prevailing at the time of death of the decedent
• Net Undeclared Estate refers to the difference between the

total net estate valued at the time of death and the net estate
previously declared with the BIR, if any
Estate Tax Amnesty Tax
Without previously filed return With previously filed return
Rate 6% 6%
Base Total net estate at the time of Net undeclared estate
death
Notes:
1. The provisions of NIRC, as amended applies suppletorily
2. The law which shall govern is the law that is applicable at the time of death
subject to the Amnesty Law
3. If allowable deductions applicable at the time of death of the decedent exceed
the value of the gross estate, the heirs, executors, or administrators may avail of
the benefits of tax amnesty and pay the minimum estate tax amnesty tax of Php
5,000.00
4. Installment payment not allowed
5. Amnesty granted shall become final and irrevocable.
DOCUMENTARY REQUIREMENTS
MANDATORY Requirements
• A Certified true copy of the Death Certificate, or if not available, the certificate
of no record of death from the Philippine Statistics Authority together with any
valid secondary evidence;
• Taxpayer's Identification Number (TIN) of the decedent and heir(s);
• Notarized promissory note for “claims against the estate” arising from contract
or loan (if applicable);
• Proof of claim of properties previously taxed (if any);
• Proof of claim of properties transferred for public use (if any);
• At least one government-issued identification card of the executor,
administrator, heir, beneficiary, or representative;
• Other documents if the subject properties of the estate are real or personal (if
applicable);
• Alternative documents at the request of the Commissioner of Internal
Revenue if the abovementioned documents are lacking.
Availment of the Estate Tax Amnesty
Resident decedents Non-resident decedent
What to file Estate Tax Amnesty Return and Acceptance Payment Form
Who shall file Heirs, executors or administrators
When to file Within two years from the effectivity of the IRR of the Tax
Amnesty Law (June 14, 2021)*
Which RDO Decedent’s last residence RDO 39 – South Quezon City
Method Electronically or Manually
Payment Installment payment shall be allowed within 2 years
without civil penalty and interest
*Extended to June 14 2023 per RA 11569 and RR 17-2021
**Extended to June 14, 2025 per RA11956 and RR 10-2023
Note: Availment DO NOT imply admission of criminal, civil or administrative liability on the part of the availing estate.
Certificate of Availment of the Estate Tax Amnesty
The Bureau of Internal Revenue shall issue the certificate
within fifteen (15) calendar days from submission of the
Acceptance Payment Form and the Estate Tax Amnesty
Return.
The duplicate copies, stamped as received, shall be

deemed as sufficient proof of availment.
Immunities and Privileges
1. Immune from the payment of all estate taxes,
increments and additions thereto
2. Immune from all appurtenant civil, criminal and
administrative cases and penalties under the NIRC, as
amended
The BIR, in coordination with the applicable regulatory
agencies, shall set up a system enabling the transfer of title
over properties to heirs and/or beneficiaries and cash
withdrawals from the bank accounts of the decedent,
when applicable.
Illustration – Not Qualified
Nicanor died on January 1, 2018. Since the one-year period to
file the estate tax return was already lapsed, the estate was
subjected to penalties (25% surcharge, 12% interest and
compromise penalty). One of the heirs suggested to avail the
estate tax amnesty.
Answer: Estate of Nicanor is NOT qualified. Only estates of

decedents who died in 2017 or prior years are covered by the
Estate Tax Amnesty Law.
Illustration – No Estate Tax Due
Nicanor, single, died on June 30, 2017. He left a real property (family home)
amounting to Php 1 Million and cash deposits of Php 1 Million. Actual funeral
expenses paid is Php 100,000.00. If his heirs will avail estate tax amnesty,
compute the amount to be paid.
Real property Php 1,000,000
Cash 1,000,000
Gross estate Php 2,000,000
Less: Deductions
Funeral expense 50,000*
Standard deduction 1,000,000
Family home 1,000,000
Net estate Php 0 .
Estate Tax Amnesty Amount Due (Minimum) Php 5,000
*Allowable Funeral expenses prior to TRAIN law is lower of actual funeral expenses or 5% of gross estate but not
exceeding Php 200,000 and FH and Standard Deduction is maximum of Php 1 Million only
Illustration – No Estate Tax Return Previously Filed
Nicanor, married with surviving spouse, died on June 30, 2017. The following
information are available:
• Conjugal Properties:
• Real and Personal Properties – Php 14,000,000
• Family Home - Php 30,000,000
• Exclusive Properties – Php 5,000,000
• Conjugal Deductions:
• Funeral Expenses – Php 200,000
• Other Conjugal Deductions – Php 2,000,000
• Special Deduction of Medical Expenses – Php 500,000
Compute the Estate Tax Amnesty Amount Due.

Exclusive Conjugal Total
Real and personal Php 14,000,000 Php 14,000,000
Family home 30,000,000 30,000,000
Exclusive Php 5,000,000 . 5,000,000
Gross estate Php 5,000,000 Php 44,000,000 Php 49,000,000
Less: Ordinary Deductions:
Funeral expenses 200,000
Other conjugal deductions 2,000,000 2,200,000
Special Deductions:
Family home 1,000,000
Standard deduction 1,000,000
Total deductions 4,000,000
Net estate Php 44,800.000
Less: Share of surviving spouse 41,800,000/2 20,900,000
Net taxable estate Php 23,900,000
Multiply by 6%.
Estate Tax Amnesty Amount Due Php 1,434,000
Illustration – With Estate Tax Return Previously Filed
Nicanor died on June 30, 2017. After filing the estate tax return under BIR
Form 1801 on November 15, 2017, the heirs discovered that a conjugal real
property with FMV of Php 3Million was not included in the gross estate
declared.
FMV of the property Php 3,000,000
Less: Share of surviving spouse 1,500,000
Net Undeclared Property Php 1,500,000
Multiply by 6%
Estate Tax Amnesty Amount Due Php 90,000
Illustration – With Estate Tax Amnesty Return (ETAR) Filed
Nicanor died on June 30, 2017. Since no estate tax return has been previously
filed, the heirs availed of the estate tax amnesty on June 26, 2019. After few
months, the heirs discovered that a conjugal real property with FMV of Php 3
Million was not included in the gross estate declared.
FMV of the property Php 3,000,000

Less: Share of surviving spouse 1,500,000
Net Undeclared Property Php 1,500,000
Multiply by 6%
Estate Tax Amnesty Amount Due Php 90,000
VALUE ADDED TAX
REGISTRATION OF BUSINESS ACTIVITY
§ SEC 236 (A) of NIRC, “Every person subject

to any tax shall register once with the
appropriate Revenue District Office”
§ SEC 236 (B) of NIRC, “An annual registration

fee in the amount of FIVE HUNDRED PESOS
for every separate or distinct establishment or 19
5
place of business…”
▪ REGISTRATION CERTIFICATE
▫ Certificate of Registration as a proof that
taxpayer has complied with the registration
requirements.
▫ COR, together with the validated Registration
Fee, must be posted at a conspicuous place
in the principal place of business. 19
6
197
MANDATORY VAT REGISTRATION (Sec 236 G)

▪ Any person who, in the course of trade or business, sells, barters or
exchanges goods or properties or engages in the sale or exchange of
services shall be liable to register the VAT tax type if:
▪ His gross sales or receipts for the past 12 months, other than those
that are exempt, have exceeded P3,000,000.
▪ There are reasonable grounds to believe that his gross sales or
receipts for the next 12 months, other than those that are exempt,
will exceed P3,000,000. 19
8
NON VAT REGISTRATION (Sec 236)

▫ Those persons subject to OTHER
PERCENTAGE TAXES
▫ Those whose transactions are VAT-exempt
▫ Marginal income earners as herein defined.
19
9
OPTIONAL VAT REGISTRATION (Sec 236 H)
▫ Any person whose general sale of goods and services (those that are
not mandatorily subject to percentage tax) do not exceed
P3,000,000, and are not required to register for VAT may elect to be
VAT-registered.
▫ Any person who is VAT registered but enters into transactions which
are exempt from VAT may opt that the VAT apply to his transactions
which would have been exempt
▫ Franchise grantees of radio and/or television broadcasting whose
annual gross receipts of the preceding year do not exceed
20
P10,000,000 derived from business covered by law granting the 0
franchise may opt for VAT registration.
VALUE ADDED TA X
D R . C E D R I C V A L R . N A R A N J O , C PA
VALUE ADDED TAX
• IS AN INDIRECT BUSINESS TAX IMPOSED AND
COLLECTED ON EVERY:
– Sale, barter, or exchange of goods or properties (Real or
Personal)
– Lease of Goods or Properties
– Rendition of services in the course of trade or business
– Importation of goods (whether or not in the course of trade or
business)
VALUE ADDED TAX
• CHARACTERISTICS:
– It is a tax on value added of a taxpayer
– It is an excise tax based on consumption
– It is a national tax, imposed by the national government
– It is collected through the tax credit method
– It is an indirect tax where tax shifting is always presumed
– It is a revenue or general tax.
TAX CREDIT METHOD
VAT PAYABLE = OUTPUT VAT – INPUT VAT
• OUTPUT VAT: The VAT due on the sale or lease of taxable

goods, properties or services by any person registered or
required to register under the tax code.
• INPUT VAT: The VAT due from or paid by a VAT-registered
person in the course of his trade or business on importation
of goods or local purchase of goods, properties or services,
including lease or use of property, from a VAT registered
person.
VALUE ADDED TAX
• CLASSIFICATION OF TRANSACTIONS UNDER
THE VAT SYSTEM:
– VAT – taxable transactions
• Subject to 12% VAT rate
• Zero-rated transactions
– EXEMPT transactions
VALUE ADDED TAX
TRANSAC OUTPUT INPUT VAT VAT
TION VAT PAYABLE
Subject to
12% VAT
√ √ √
Zero-Rated NEGATIVE
Sales
X √
Exempt Sales X X X
TAX BASE
• SALE OF GOODS: Gross Selling Price
Gross Sales XXX
Less: Sales Returns XXX
Sales Allowances XXX
Sales Discounts XXX XXX
Total Net Sales XXX
Add: Excise Tax, if Any XXX
GROSS SELLING PRICE XXX
TAX BASE
• SALE OF SERVICES AND LEASE OF
PROPERTIES: Gross Receipts
Cash Received (actually or constructively) XXX

Add: Advance payments for future service XXX
Materials charges with the services XXX XXX
GROSS RECEIPTS XXX
TRANSACTIONS
SUBJECT TO
12% VAT
TRANSACTIONS SUBJECT TO 12% VAT
• Sale of Goods
– Based on GROSS SELLING PRICE
• Sale of Services
– Based on GROSS RECEIPTS
• Sale and Lease of Properties
• Transactions Deemed Sale
TRANSACTIONS DEEMED SALE
• Transfer, Use or consumption not in the course of

business of goods or properties originally intended
for sale or for use in the course of business.
– There must be a transfer of ownership

– If the property donated is an ordinary asset, the completed gift is VATABLE.
• Distribution or transfer to:

–Shareholders or investors share in the profits of
VAT-registered persons
• In the form of Property Dividends
–Creditors in payment of debt or obligation

• Dacion en pago arrangement
• Consignment of goods if actual sale is not made

within 60 days following the date such goods were
consigned.
– To prevent taxpayer from deferring recognition of output VAT by non-
reporting or delayed reporting of the sales.
• Retirement from or cessation of business

–All goods on hand whether capital goods, stocks in trade,
supplies or materials as of the date of cessation
–Whether or not the business is continued by the new
owner or successor.
• Cessation of status as a VAT-registered person

–Change of activity from VAT-taxable to VAT-exempt
–Cancellation of registration due to
• revert to exempt status after the lapse or 3 consecutive
years
• Failure of the taxpayer to exceed the gross sales/receipts
during the twelve months of operations.
• NOT considered as Deemed Sale

–Change of control of a corporation by the acquisition of the
controlling interest of such corporation by another
stockholder or group of stockholder
–Change in the trade or corporate name of the business
–Merger or consolidation of corporations
TRANSACTIONS DEEMED SALE -
EXAMPLE
• Cebu Company is a wholesaler/retailer of RTW. The
consignment data showed the following:
– Consignment to Mandaue City (1 to 30 days) = P 200,000
– Consignment to Lapulapu City (31 to 60 days) = P220,000
– Consignment to Carcar City (61 to 90 days) = P 260,000
– Consignment to Naga City (over 90 days) = P150,000
For the month, the consignment to Mandaue has a sale of

P120,000. What is the amount subject to VAT? How much is the
Output VAT?
SALE OF PROPERTIES
• BASIS: Whichever is HIGHER:
– Consideration – VAT inclusive, unless stated

– Fair Market Value of the Property – VAT exclusive
SALE OF PROPERTIES
• TIME OF REPORTING
– LUMP SUM PAYMENT: In the month of sale

– INSTALLMENT PAYMENT: The OUTPUT VAT may be reported
in installment provided that:
• Initial Payment do not exceed 25% of the SELLING PRICE.
• OUTPUT VAT to be REPORTED =
Payments / Contract Price x OUTPUT VAT
VAT EXEMPT
TRANSACTIONS
EXEMPT SALES
• EXEMPT consumption of goods or services from domestic sellers.
Exempt sales ARE NOT SUBJECT to VAT and Percentage Tax.
• Hence,
– VAT taxpayers making exempt sale of goods, properties, or services
shall not bill any output VAT to their customers because the sale is
not subject to VAT
– A non-VAT person making exempt sales shall not be subject to the
3% percentage tax on the sales or receipt
VAT-EXEMPT TRANSACTIONS -GOODS
• AGRICULTURAL OR MARINE FOOD PRODUCTS AND
INPUTS
– Sale and importation of agricultural and marine food products in
their original state, livestock and poultry of a kind generally used
as, or yielding or producing foods for human consumption; and
breeding stock and genetic materials therefore.
SALE OF AGRICULTURAL MARINE AND
FOOD PRODUCTS IN ORIGINAL STATE
• ORIGINAL STATE
– Unprocessed or undergoes a SIMPLE PROCESS of:
• Preparation for the market
– Boiling , Broiling, Husking, Roasting, Stripping, Grinding
• Preservation
– Freezing, Drying, Salting, Smoking
• Packaging, including advanced technological means of packaging
• AGRICULTURAL OR MARINE FOOD PRODUCTS AND
INPUTS
– Sale and importation of fertilizers; seeds, seedlings, and

fingerlings; fish, prawn, livestock and poultry feeds, including
ingredients, whether locally produced or imported, used in the
manufacture of finished feeds (except specialty feeds for race
horses, fighting cocks, aquarium fish, zoo animals and other
animals generally considered as pets)
SALE OF FERTILIZERS…..
• Sale of Certain Farm of Fishery Inputs
– For plants or fruits cultivation: fertilizers, seeds and seedlings
– For animal husbandry: livestock, feeds, and ingredients for livestock and poultry
feeds (except if ingredients which may also be used for the production or
processing of food for human consumption is vatable)
– For fishery operations: fingerlings, fish and prawn

SALE OF FEEDS…..
• Sale of Feeds
– Feeds/Feeds’ ingredients capable of human consumption shall be subject to 12%

VAT
– Certification from Bureau of Animal Industry that it is NOT fit for human
consumption.
• OTHER EXEMPT TRANSACTIONS
– Sale and importation of books, newspapers and magazines,

review or bulletin, or any such educational reading
material covered by United Nations Educational, Scientific, and
Cultural Organization (UNESCO) agreement on the
importation of educational, scientific and cultural materials,
including the DIGITAL or ELECTRONIC FORMAT
• Not devoted principally to the publication of paid advertisements.
• Compliant with the requirements setforth by the National Book
Development Board pursuant to RA 8047
• SALE OF COOPERATIVES
– AGRICULTURAL COOPERATIVES
• Sale to members – EXEMPT
• Sale to non-members – EXEMPT if the producer of the agricultural
products sold is the cooperative itself.
• Importation of direct farm inputs, machineries and equipment, including
spare parts thereof, to be used directly and exclusively in the
production and/or processing of their produce. - EXEMPT
• REMEMBER: Sale of agricultural products in their original state is
exempt
• SALE OF COOPERATIVES
– NON-AGRICULTURAL, NON-ELECTRIC AND NON-CREDIT

COOPERATIVES
• Share capital contribution of each member does not exceed P15,000
and regardless of the aggregate capital and net surplus ratably
distributed among members.
• SALE OF REAL PROPERTIES
– SALE OF REAL PROPERTIES
• By a person NOT engaged in the realty business
• By a person ENGAGED in the realty business which complies
with statutory price ceilings
– Exemption applies to:
• Real property classified as capital assets of VAT taxpayers
• Any real properties of NON-VAT taxpayers
• Any real properties of persons not engaged in business
• SALE OR LEASE OF REAL PROPERTIES
– SALE OF REAL PROPERTIES
• By a person ENGAGED in the realty business which complies
with statutory price ceilings (if sale of adjacent lots within 12-
month period in favor of ONE buyer shall be treated as one)
– Utilized for Socialized Housing Unit
– Low Cost Housing – ALREADY SUBJECT TO VAT
EFFECTIVE JAN 1 2021
– Residential Lot – P1,919,500/ unit - ALREADY SUBJECT TO
VAT EFFECTIVE JAN 1 2021
– Residential Dwelling – P 3,199,200 / unit
• EXPORT SALE OF NON-VAT TAXPAYERS
• SALES EXEMPT UNDER TREATIES, INTERNATIONAL
AGREEMENTS OR SPECIAL LAWS
– Entities granted VAT exemption under special laws or international
agreements to which the Philippines is a signatory.
• SALE OF GOLD TO THE BANGKO SENTRAL NG
PILIPINAS
• IMPORTATION of PERSONAL and HOUSEHOLD
EFFECTS
– Belonging to residents of the Philippines returning from abroad OR
non-resident citizens coming to resettle in the Philippines
– Such goods are exempt from customs duties under the Tariff and
Customs Code of the Philippines
• IMPORTATION of PROFESSIONAL INSTRUMENTS AND
IMPLEMENTS,TOOLS OF TRADE, OCCUPATION OR
EMPLOYMENT, WEARING APPAREL, DOMESTIC ANIMALS,
AND PERSONAL AND HOUSEHOLD EFFECTS
– Belonging to persons coming to resettle in the Philippines or Filipinos or
their families and descendants who are now residents or citizens of other
countries, such parties herein referred to as overseas Filipinos
– In quantities and of the class suitable to the profession, rank or position of
the persons importing the said items
– For their own use and not for barter or sale, accompanying such persons,
or arriving within a reasonable time.
• MEDICINE
– Diabetes, High Cholesterol, Hypertension (January 1, 2019)
– Cancer, Mental Illness, Tuberculosis, Kidney Diseases (January 1, 2021)
– Drugs and Vaccines prescribed directly used for COVID 19 treatment
(January 1 2021 to December 31, 2023)
– Medical devices directly used for COVID 19 treatment (January 1 2021 to
December 31, 2023)
VAT-EXEMPT TRANSACTIONS - SERVICES
• EDUCATION
– Schools
• Accredited by DepEd, CHED and TESDA and government
educational institutions
• EMPLOYMENT
– Services performed by individuals in pursuant to an employer
and employee relationship.
• Professional practitioners, consultants, talents, TV artists, brokers
and agents are not employees, hence, subject to business tax.
– Director’s Fees
• Not subject to Business Tax even if the Director is not an employee of
a corporation.
• SERVICES BY AGRICULTURAL CONTRACT GROWERS
AND MILLING FOR OTHERS OF PALAY INTO RICE,
CORN INTO GRITS, AND SUGAR CANE INTO RAW
SUGAR
– AGRICULTURAL CONTRACT GROWER – refers to persons
producing for others poultry, livestock or other agricultural and
marine food products in their original state.
– Milling services for the processing of agricultural produce for
ultimate human consumption are specifically exempted.
• LEASE OF REAL PROPERTIES
– Lease of Residential Dwelling not exceeding P15,000 a unit per

month.
– Regardless of the amount of aggregate rentals received by the
lessor during the year.
– VATABLE: Prepaid Rent and Security Deposit (applied to rental)
– NON-VAT: Loan to the lessor, Option Money, Security Deposit
(not applied to rental)
• COOPERATIVES
– Lending, marketing or multi-purpose cooperatives
– Members and non-members
– Non-lending activities – SUBJECT TO 12% VAT
• HEALTH OR HOSPITAL SERVICES
– Medical, Dental, Hospital and Veterinary Services, except those
rendered by professional
– Sales of drug by a hospital drug store (for in-patients only)

• HOME OWNER’S ASSOCIATION OR CONDOMINIUM
CORPORATION
– Purely reimbursement basis
• TREATY-EXEMPT SALES OF SERVICES

• TRANSPORTATION
– Transport of PASSENGERS by INTERNATIONAL CARRIERS
– Importation of FUEL, GOODS and SUPPLIES by persons engaged in
international shipping and air transport operations
• REGIONAL OR AREA HEADQUARTER OF A
MULTINATIONAL COMPANY
– Services rendered by REGIONAL OR AREA HEADQUARTERS
• Established in the Philippines
• By multinational corporations
• Supervisory, Communications and coordinating centers for their affiliates,
subsidiaries or branches in the Asia Pacific Region and do not derive income
from the Philippines.
SALES OF SERCICES TO SENIOR CITIZENS AND
PERSONS WITH DISABILITY
– Lodging establishments
– Hospital and clinic
– Sports and recreation centers
– Restaurants such as eating places offering regular or special menus
– Land, air, and sea travel
– Medical, dental, diagnostic and laboratory fees and professional
medical fees
– Funeral or burial services
• OTHERS
– Those that are subject to OTHER PERCENTAGE TAXES
ZERO-RATED SALE
DIFFERENCE BETWEEN ZERO-RATED
AND EXEMPT TRANSACTIONS
ZERO-RATED TRANSACTIONS EXEMPT TRANSACTIONS
• The tax rate is set at zero. When • The taxpayer/seller shall not bill any
applied to the tax base, such rate output tax on his sales to his
obviously results in no tax customers
chargeable against the purchaser. • is not allowed any credit or refund
• The seller of such transactions on the input taxes he paid on his
charges no output tax purchases.
• can claim a refund or tax credit
certificate for the VAT previously
charged by suppliers.
• NO VAT shall be shifted or passed-
on by VAT registered seller
ZERO-RATED TRANSACTIONS
• EXPORTING
– The sale and actual shipment of goods from the Philippines to a Foreign
country
• irrespective of any shipping arrangement
• Paid for in acceptable foreign currency or its equivalent in goods or services
• Accounted for in accordance with the rules and regulations of BSP
– Services other than processing, manufacturing or repacking of goods
rendered to a person engaged in business conducted outside the
Philippines or to a nonresident person not engaged in business who is
outside the Philippines when the services are performed:
• Consideration is paid for in acceptable foreign currency
• Accounted for in accordance with the rules and regulations of BSP
• EXPORTING
– Sale of raw materials, inventories, supplies, equipment, packaging materials,
and goods, to a registered export enterprise, to be used directly and
exclusively in its registered project or activity pursuant to CREATE Law for
a maximum period of 17 years from the date of registration, unless
otherwise extended under the Strategic Investment Priority Plan (SIPP).
– Sale of services, including provision of basic infrastructure, utilities, and
maintenance, repair and overhaul of equipment, to a registered export
enterprise, to be used directly and exclusively in its registered project or
activity pursuant to CREATE Law for a maximum period of 17 years from
the date of registration, unless otherwise extended under the SIPP.
• OTHERS
– Sale of goods, supplies, equipment, fuel and services to persons
engaged in international shipping or international air transport
operations
– Sales to persons or entities whose exemptions under special laws
or international agreements to which the Philippines is a signatory
– Transport of passengers and cargo by air or sea vessel from the
Philippines to a foreign country (domestic)
ZERO-RATEDTRANSACTIONS
• OTHERS
– Sales to offshore gaming licenses who are subject to 5% gaming

tax. Sale of goods used in non-gaming operations are not subject
to 0% rate.
– Sale of power or fuel generated through renewable sources of
energy such as, but not limited to biomass, solar, wind,
hydropower, geothermal, ocean energy, and other emerging
energy sources using technologies such as fuel cells and
hydrogen fuels.
INPUT VAT
INPUT VAT
The VAT due from or paid by a VAT-registered person in the

course of his trade or business on importation of goods or local
purchase of goods, properties or services, including lease or use of
property, from a VAT registered person.
RULES IN CLAIMING
INPUT VAT
• Must be separately reflected in the VAT invoice or
official receipts issued by a VAT REGISTERED
supplier.
• Must be paid or incurred in the course of trade or
business
• Incurred in relation to VATable sales and not from
exempt sales
WHO CAN CLAIM INPUT VAT CREDITS
• Importer upon payment of VAT prior to release of

the goods from Customs custody
• Purchaser of the domestic goods or properties
upon consummation of sale
• Purchaser of service upon payment of the
compensation, rental, royalty or fee
TYPE OF CLAIMABLE INPUT VAT
• Regular Input VAT

• Transitional Input VAT
• Presumptive Input VAT
REGULAR INPUT VAT
• Purchase or importation of goods intended for:
– Sale
– Conversion into or to form part of a financial product for sale,
including packaging materials
– Use as supplies in the course of business
– Use as raw materials supplied in the sale of services
– Use in trade or business for which deduction for depreciation
or amortization is allowed
• Purchases of real properties for which VAT has actually been
paid
• Purchases of services in which VAT has actually been paid.
REGULAR INPUT VAT - EXAMPLE
Princess Merchandise, a VAT-registered taxpayer, provided the following
information:
Local purchase of goods intended for sale
On cash basis P 150,000
On account 400,000
Purchase of packaging supplies 20,000
Returned goods due to defects 15,000
Purchase discounts granted by the seller 10,000
Gross Sales
Cash Sales 300,000
On Account 400,000
Sales returns and allowances 20,000
Inventory ending 50,000
TRANSITIONAL INPUT VAT
• Input Tax allowed for a taxpayer who elected to be a

VAT-registered person from being a NON-VAT
person.
• TRANSITIONAL INPUT
2% value of ending inventory
Actual VAT paid
WHAT IS THE BASIS OF THE 2%
• ENDING INVENTORY at the time the taxpayer
shifted to VAT.
–Ending inventory when sold will be subject to VAT
–Regardless from where the inventory was purchased
(VATable or NON-VATable supplier)
–Gross amount of the inventory
TRANSITIONAL INPUT VAT - EXAMPLE
Princess Merchandising becomes liable to the VAT
system during the current taxable year since the
gross sales from the past 12 months are more than
P3,000,000. At the beginning of the year, the inventory
has a current value of P250,000 with actual input tax
on VAT purchases of P6,500. The business entity also
has a carrying value of supplies of P12,000 with
P1,440 VAT payment. How much is the amount of
transitional input tax to be charged against the output
tax?
PRESUMPTIVE INPUT TAX
• Presumptive input tax is provided to a limited number
of taxpayers engaged in the manufacture of goods
where the inputs to the production make use of
primary agricultural products.
–Processors of sardines, mackerel, and milk
–Manufacturers of refined sugar and cooking oil
–Manufacturers of packed noodles
• HOW MUCH? 4% of GROSS VALUE OF PRIMARY
AGRICULTURAL PRODUCTS
PRESUMPTIVE INPUT VAT - EXAMPLE
Sardines Processing Company has the following data:
Local sales P 780,000
Export Sales ($1=P40) $ 10,000
Fishes purchased from various fishermen P 350,000
Cans from supplier, exclusive of VAT, used
for local and export sale 40,000
Oil, tomato paste, and other ingredients
from supplier, exclusive of VAT, used for
local and export sale 32,000
Onions, pepper, and garlic from various
farmers, used for local and export sales 20,000
Packaging materials and labels from suppliers
exclusive of VAT, used for local and export sales 10,000
INPUT TAX: SALE TO THE
• RULES:
GOVERNMENT
– Government or any of its political subdivisions
SHALL deduct and withhold a final VAT due at the
rate of 5% (effective January 1, 2021 - - it shall shift
from FINAL to CREDITABLE withholding VAT)
INPUT TAX: SALE TO THE GOVERNMENT
Reven Enterprises, a VAT-registered taxpayer,
presented the following data for August 2021
(exclusive of VAT):
Sales Purchases
Local sales to private entities 280,000 200,000
Local sales to government 112,000 80,000
How much is the VAT payable?

VAT PAYABLE: FILING
• VAT returns must be filed and VAT Payable be paid on a
Monthly (2550M) and Quarterly Basis (2550 Q).
• Deadline:
–Monthly VAT return – 20th day of the following month
–Quarterly VAT return – 25th day of the month after the
close of the quarter
• VAT CREDIT:
– Monthly VAT Payments (for quarterly returns)
– Creditable VAT Withheld
– Advance Payment for Sugar and Flour Industries
– VAT Paid in previously filed returns, if amended
– Advance Payments
VAT PAYABLE: FILING - EXAMPLE
The following data, exclusive of VAT, were recorded by a VAT taxpayer:
April to July August September

June
Sales P 1,600,000 P 400,000 P 500,000 P 600,000

Purchases
from VAT 1,200,000 300,000 200,000 320,000
The Company paid P20,000 VAT for April and May

OTHER VAT ADMINISTRATIVE ISSUES
• SUSPENSION OF BUSINESS OPERATIONS AND
TEMPORARY CLOSURE OF BUSINESS
–For VAT registered person
• Failure to issue receipts or invoices
• Failure to file VAT return
• Understatement of taxable sales or receipt by 30% or
more of his correct taxable sales or receipts for the
taxable quarter
–Failure to register as a taxpayer
OTHER VAT ADMINISTRATIVE ISSUES
• LIABILITY OF A NON-VAT PERSON WHO ISSUES A
VAT INVOICE
–Subject to Percentage Tax
–Subject to Output Tax
–No benefit of INPUT
–50% surcharge

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INCLUSIONS AND

• Compensation for Services

• WAGE is paid on an hourly or daily basis

*Mandatory GSIS, SSS, Philhealth, PAG-IBIG contributions and

Gross Salaries P 50,000

• May either be FIXED or VARIABLE

• OTHER BENEFITS include Christmas bonus, productivity

GROSS INCOME = GROSS SALES less SALES RETURNS,

Resident Non- Domestic and NRFC

• Active Royalties are subject to BASIC TAX.

• Prizes from sports competitions that are sanctioned

DR. Cedric Val R. Naranjo, CPA

• The term person means (NIRC Sec. 22 A)

• 8% income tax on gross sales or gross receipts in excess of

• COMPENSATION: Graduated rate

• The option is NOT AVAILABLE to a VAT-registered taxpayer,

• A taxpayer who signifies the intention to avail of the 8% income

• A taxpayer shall automatically be subject to the graduated rates

CASE 2: How much is the tax due (income and percentage) if

CASE 3: How much is the tax due (income and percentage) if

CASE 5: How much is the tax due (income and percentage) if

CASE 5: How much is the tax due (income and percentage) if

Sales Cost of Sales Operating

2. Resident Foreign Corporation - corporation organized and

3. Non-Resident Foreign Corporation – corporation organized and

July 1, 2020 Not Applicable

10% July 1, 2023

Gross Income – Philippines Php 2,000,000

Compute the tax due if the taxpayer is:

Disregard rule on MCIT.

• January 1, 1998 to June 30, 2020 – 2%

Effective rate is 1.5%

The imposition of minimum corporate income tax may be

• Gains From Dealings in Properties

• GAINS = Excess of Selling Price over Costs

• LOSSES = Excess of Costs over Selling Price

DETERMINATION OF GAIN (LOSS)

DETERMINATION OF COST OF PROPERTY

WHAT IS THE IMPORTANCE OF CLASSIFYING

The need to classify an asset as ordinary or

• Shall refer to all real properties held by a taxpayer,

• Capital Gains Tax on Sale of Domestic Shares not

• CAPITAL LOSSES (not including losses for

OF THE CAPITAL GAINS SUBJECT TO BASIC

IF THE TAXPAYER IS A CORPORATION:

OF THE CAPITAL GAINS and LOSSES SUBJECT

If NET CAPITAL LOSS CANNOT BE DEDUCTED,

HOW MUCH CAN THE INDIVIDUAL CARRY OVER

IF AFTER 1 YEAR, THE NCL WAS NOT CARRIED

• SUBJECT TO 6% CAPITAL GAINS TAX

• SCOPE AND APPLICABILITY

• EXCEPTIONS TO THE 6% CGT

• EXCEPTIONS TO THE 6% CGT

• Exempt under the Tax Code

• Exempt under the Tax Code

• DOMESTIC SHARES THAT LISTED IN THE STOCK

• THE CAPITAL GAINS TAX RATE

FAIR MARKET VALUE

⬥ Non-Resident Aliens – PHILIPPINE TRANSFER

1. Real Properties – immovable properties

Within Without Within Without Within Without

Non-Resident Alien √ X √ X X (if there is X

Note: the power to alter, amend or revoke shall be