ILLUSTRATION 1

Pedro left the Philippines on July 1, 2018 to go abroad and work there for two
years. The following data were provided for 2018 taxable year (assume 40% of gross income
and business expenses presented below were derived from abroad:

Gross Income Business Expense

January 1 to June 30 ₱ 600,000 ₱ 280,000
July 1 to December 31 400,000 120,000

Question 1: His taxable income is

Answer: 432,000

Question 2: Assuming he arrived from abroad on July 1, 2018 to permanently resettle in

the Philippines, his taxable income for 2018 is:
Answer: 408,000

 A Filipino citizen taxpayer not classified as non-resident citizen is considered a

RESIDENT CITIZEN for tax purposes

 An ALIEN is a foreign-born person who is not qualified to acquire Philippine

citizenship by birth of after birth.

 Section 22 (F) of the Tax Code defines RESIDENT ALIENS as an individual whose
residence is within the Philippines and who is not a citizen

 The term NON-RESIDENT ALIEN under Section 22 (G) of the Tax Code means an
individual whose residence is not in the Philippines and who is not a citizen

 Under Section 22n (S) of the Tax Code, “trade or business” includes performance of
the functions of a public service or performance of personal service in the Philippines.

 A non-resident alien not engaged in trade or business is subject to 25% income tax
based on gross profit from all sources within the Philippines.
ILLUSTRATION 2
Determine the correct classification of the taxpayer from the independent cases
provided below:
Case 1: Allan is a natural born Filipino citizen. His family migrated to the U.S. fifteen years
ago. For personal reasons, he decided to return and reside permanently in the Philippines on
March 1, 2018.
Answer: 2003 Non-Resident Citizen and 2018 Resident Citizen

Case 2: G.I. Joe is an American information technology expert. He was signed by Noypi
Telecom (a local telecommunication company) from January to March 2018 to improve its
internet services. Due to the anticipated entry of competitors from other countries, Noypi
decided to extend indefinitely the services of G.I.Joe.
Answer: Resident Alien

Case 3: Greg Popovich, head coach of San Antonio Spurs in the NBA is in the Philippines
for a month-long NBA promotional tour. He also expressed his intention to regularly visit the
Philippines.
Answer: Non-Resident Alien – Not Engaged in Trade or Business

Case 4: Using the same data in Case 3, assume that Greg Popovich invested in shares of
stock of various domestic corporations during his recent stay in the Philippines.
Answer: Non-Resident Alien – Not Engaged in Trade or Business

Case 5: Mika “The Iceman” Immonen, a Finnish cue artist and former world billiard
champion is a resident of Finland. He won the world 9-ball championships in 2005 in the
Philippines. He is also the owner of one of the disco pubs in Malate since then.
Answer: Non-Resident Alien – Engaged in Trade or Business

ILLUSTRATION
Use the following data for Cases A-E
An individual taxpayer provided the following information for 2018:
Gross business income, Philippines ₱5,000,000
Gross business income, Canada 2,000,000
Gross business income, Singapore 1,000,000
Business expenses, Philippines 3,000,000
Business expenses, Canada 1,000,000
Business expenses, Singapore 500,000

Determine the taxable income assuming:

Case A: The taxpayer is a resident citizen

Gross business income, Philippines ₱5,000,000

Gross business income, Canada 2,000,000
Gross business income, Singapore 1,000,000
Business expenses, Philippines (3,000,000)
Business expenses, Canada (1,000,000)
Business expenses, Singapore (500,000)
3,500,000
Case B: The taxpayer is a non-resident citizen
Gross business income, Philippines ₱5,000,000
Business expenses, Philippines (3,000,000)
2,000,000
Case C: The taxpayer is a resident alien
Gross business income, Philippines ₱5,000,000
Business expenses, Philippines (3,000,000)
2,000,000
Case D: The taxpayer is a non-resident alien engaged in trade or business
Gross business income, Philippines ₱5,000,000
Business expenses, Philippines (3,000,000)
2,000,000
Case E: The taxpayer is a non-resident alien not engaged in trade or business
Gross business income, Philippines ₱5,000,000

The income and expenses of a Filipino citizen for 2018 were provided as follows:
January to June Philippines Canada
Gross Income ₱5,000,000 ₱2,000,000
Allowable Deductions 2,000,000 1,000,000
July to December
Gross Income 2,000,000 3,000,000
Allowable Deductions 1,000,000 1,200,000

Assume that the taxpayer is a resident who left the country in July of the current year to
reside permanently in Canada, how much is his taxable income?

❖ Answer: ₱5,000,000

Philippines - Gross Income 7,000,000

Canada - Gross Income 2,000,000
Philippines - Allowable Deductions (3,000,000)
Philippines - Allowable Deductions (1,000,000)
₱5,000,000
Assume the same data in Case F except that the taxpayer is a non-resident who returned and
resided permanently in the country in July of the current year. His taxable income before
personal exemptions is?

❖ Answer: ₱5,800,000

Philippines - Gross Income 7,000,000

Canada - Gross Income 2,000,000
Philippines - Allowable Deductions (3,000,000)
Philippines - Allowable Deductions (1,200,000)
₱5,800,000

ILLUSTRATION - COMPUTATION OF BASIC INCOME TAX DUE

Purely Compensation Income Earner
1. Determine the income tax due assuming the taxable compensation income for 2018 is
₱240,000. 0 exempt
 2. Determine the income tax due assuming the taxable compensation income for 2018 is
₱300,000.

10,000 in 2018 7,500 in 2023 onwards

300,000 – 250,000 = 50,000 x 20% = 10,000

300,000 – 250,000 = 50,000 x 15% = 7,500

3. Determine the income tax due assuming the net taxable compensation income for
2018 is ₱1,850,000.

315,000 in 2018 262,500 in 2023 onwards

1,850,000 – 800,000 = 1,050,000 x 30% = 315,000

1,850,000 – 800,000 = 1,050,000 x 25% = 262,500

Assume that the taxpayer is a resident citizen.

Determination of Applicable Tax, Final Withholding tax on passive income, basic
income tax

1) Interest from peso bank deposit, BDO, Makati PASSIVE INCOME - 20%

2) Interest from US dollar bank deposit, BPI-Manila PASSIVE INCOME - 20%

3) Interest from a foreign currency deposit in Japan BASIC TAX

4) Interest from money market placement, Philippines PASSIVE INCOME - 20%

5) Interest from a foreign currency deposit in Australia by a non-resident citizen

EXEMPT

6) Interest from overdue accounts receivable, Philippines BASIC TAX

7) Compensation income, Philippines BASIC TAX

8) Business income, Philippines BASIC TAX

9) Gain from sale of car for personal use CAPITAL GAIN TAX

10) Gain from sale of delivery truck CAPITAL GAIN TAX

11) Royalties, in general, Davao City PASSIVE INCOME - 20%

12) Royalties, books published in Manila PASSIVE INCOME - 10%

13) Prices amounting to P30,000, Philippines PASSIVE INCOME - 20%

14) Prizes amounting to P10,000, Philippines BASIC TAX

15) Prizes amounting to P40,000. USA BASIC TAX

16) P30,000 other winnings, Philippines PASSIVE INCOME - 20%

17) P10,000 other winnings, Philippines PASSIVE INCOME - 20%

18) P12,000 other winnings, Canada BASIC TAX

19) P10,000 Phil. Lotto/PCSO winnings EXEPMT

20) P100,000 PCSO winning by a resident alien PASSIVE INCOME

21) Philippines Lotto/PCSO winning by a non-resident alien not engage in trade or

business EXEPMT

22) Lotto winnings in London

23) Interest income from long-term bank deposit by a resident alien EXEPMT

24) Interest income from long-term bank deposit by a non-resident alien not engage
in trade or business EXEPMT

25) Interest income from a government issued bonds with maturity of ten years
EXEPMT

26) Interest income from bonds issued by PLDT with maturity of ten years
EXEPMT

27) Dividend income from a domestic corporation PASSIVE INCOME – 10%

28) Dividend income from a resident foreign corporation BASIC TAX

29) Dividend income from a non-resident foreign corporation EXEPMT

30) Dividend income from a domestic corporation by a non-resident alien engaged

in trade or business EXEPMT

31) Dividend income from a domestic corporation by non-resident alien not engaged
in trade or business EXEPMT
 32) Gain on sales of shares of stock of a domestic corporation sold directly to buyer
CAPITAL GAIN TAX

33) Gain on sale of shares of stock of a domestic corporation trade in the local stock
exchange CAPITAL GAIN TAX

34) Gain on sale of real properties used in business BASIC TAX

35) Gain on sale of real properties classified as capital asset located in Singapore

Determination of Income Tax Due/Payable

1. Pedro is a resident citizen, earning purely compensation income as follows for 2018
taxable year:

a. P200,000
b. P250,000
c. P800,000
d. P2,800,000

2. Juan is a resident citizen, earning purely business income for 2018 taxable year:

Gross Sales P2,800,000

Cost of Sales 1,200,000
Operating expenses 650,000
Creditable withholding taxes 80,000

3. Ana is a practicing professional with the following data for 2018 taxable year:

Gross receipts P4,000,000

Cost of direct services 1,800,000
Other operating expenses 825,000

4. Lorna is a resident citizen, earning compensation and business income for 2018 as
follows:
Compensation income P1,400,000
Gross sales 2,800,000
Cost of sales 1,200,000
Operating expenses 650,000
Withholding tax on compensation income 310.000
Other creditable withholding taxes 80,000

5. Determine the following assuming the taxpayer is a resident citizen:

a. Taxable net income

b. Income tax payable
c. Total final taxes on passive income
d. Total income tax expense

6. Determine the following assuming the taxpayer is a non-resident citizen:

a. Taxable net income

b. Income tax payable
c. Total final taxes on passive income
d. Total income tax expense

7. Determine the following assuming that taxpayer is resident alien:

a. Taxable net income

b. Income tax payable
c. Total final taxes on passive income
d. Total income tax expense

8. Determine the following assuming that taxpayer is non-resident alien engaged in trade
or business:

a. Taxable net income

b. Income tax payable
c. Total final taxes on passive income
d. Total income tax expense

ADDITIONAL DATA:

 In February, the taxpayer bought a lot deemed as capital asset. The acquisition cost
was P840,000. He later sold the house in December for P1,060,000.

 In September, the taxpayer sold his 560 shares of stock of Ayala Investment
Corporation held by him as capital asset, thru a local stock exchange. The cost was
P36,900 whereas the sale price was P154,000.

 In October, the taxpayer sold for P820,000 his house and lot located at Makati, held as
capital asset (not his principal residence). The fair market value on the date of the sale
was P950,000 and the acquisition cost was P475,000

1. A resident citizen taxpayer sold a vacant lot (held as investment) in the Philippines.
Other data regarding the sale are as follows:

Selling price P5,500,000

Fair market value 6,000,000
Zonal value 5,850,000
Expenses on the sale 275,000
Required: compute the capital gain tax

2. A resident citizen taxpayer sold a vacant lot (held as investment) in the Philippines.
Other data regarding the sale are as follows:

Gain on sale P500,000

Zonal value 2,200,000
Cost 2,000,000
Expenses on the sale 150,000
Required: Compute the capital gain tax
 3. A resident citizen taxpayer sold a residential lot (principal residence) in the
Philippines. Other data regarding the sale are as follows:

Selling price P5,000,000

Fair market value 6,000,000
Zonal value 5,500,000
Expenses on the sale 275,000