CHAPTER 2:

Income Tax for Individuals

Written Report

Presented By:

BSBA FM 2-2 (Group 1)

Dionisio, Rhylline Dennize

Legaspi, Cindy

Maron, Chryssa

Saura, Reynalyn

Presented To:

Dr. Rosario A. Calamba, CPA

Professor

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 TABLE OF CONTENTS
pg.
Individual Taxpayers ……………………………………………………………………...03
Definition …………………………………………………………………………………...03
Citizens of the Philippines ………………………………………………………………….03
Non-resident Citizens of the Philippines …………………………………………………...03
Overseas Contract Workers (OCWs) ……………………………………………………….04
Resident Citizen …………………………………………………………………………….05
Alien (Foreign) Taxpayers ………………………………………………………………….05
Resident Aliens ……………………………………………………………………………..05
Non-resident Aliens ………………………………………………………………………...05
Applicable Taxes and Tax Rates ……………………………………………………………06
Ordinary Income ……………………………………………………………………………09
Passive Incomes …………………………………………………………………………….09
Summary of Income and the Applicable Income Tax……………………………………….10
Graduated Tax Rate………………………………………………………………………….10
Self - Employed and Professionals (SEP)…………………………………………………...11
Purely SEP…………………………………………………………………………...11
SEP’s GS/GR Exceeded the VAT Threshold during the year………………………..13
Sep with Mixed Income……………………………………………………………...14
Passive Income……………………………………………………………………………….15
Final Withholding Tax………………………………………………………………………..17
Deposit Substitutes …………………………………………………………………………..18
Pre-termination of Long-term Deposits ……………………………………………………..20
Capital Gains Tax ……………………………………………………………………………22
CGT on Sale of Share of Stock ……………………………………………………………...22
CGT on Sale of Real Properties ……………………………………………………………..23
Sale of Principal Residence ……………………………………………………………….27
Format in Computing Taxable Income ………………………………………………………27
Creditable vs. Final Tax ……………………………………………………………………...29
Quarterly Tax Returns ……………………………………………………………………….33
Income Tax Due of Married Individuals ……………………………………………35
Minimum Wage Earners …………………………………………………………….35
Senior Citizens and PWDs …………………………………………………………………..37
Benefits for Senior Citizens and/or PWDs …………………………………………..38
Taxation of Alien Individuals Employed by POGOs or OGLs ……………………………...38
Definition of Terms ………………………………………………………………….39
Filing of Income Tax Returns ………………………………………………………………..40

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REPORTER: Maron, Chryssa A.

Individual Taxpayers are natural persons with income derived from within the territorial
jurisdiction of a taxing authority.

In simple terms, individual taxpayers are people who are required to pay taxes to the
government based on their income, earnings, or other financial activities. This includes
individuals who earn salaries, wages, or income from businesses or investments.

Citizens of the Philippines

Under Sec. 1, Article IV of the Philippine Constitution, the following are citizens of the
Philippines:
1. Those who are citizens of the Philippines at the time of the adoption of the 1987 Philippine
Constitution. (this refers to individuals who were already Filipino citizens when the current
Constitution was ratified.)
2. Those whose fathers or mothers are citizens of the Philippines
3. Those born before January 17, 1973, of Filipino mothers, who elect Philippine citizenship
upon reaching the age of majority. (because there are cases, which individuals born with dual
citizenship had to make a choice upon reaching the age of majority. if they elected Philippine
citizenship, then they retained their status as citizens of the Philippines.)
4. Those who are naturalized in accordance with law. (these refer to Foreigners who acquire
Philippine citizenship through a legal process known as naturalization. This involves meeting
specific requirements and going through a formal application and approval process.)

Illustration:
Maria, born and raised in Manila. She holds Filipino citizenship, and her primary
allegiance is to the Philippines. Maria actively participates in the local community,
exercises her rights to vote in national elections, and enjoys the privileges of being a
citizen, such as access to public services and legal protection.

Nonresident Citizen (NRC) of the Philippines

Sec. 22(E) of the NIRC describes a nonresident citizen as a citizen who:

1. Establishes, to the satisfaction of the Commissioner of Internal Revenue the fact of his
physical presence abroad with a definite intention to reside therein (they are not physically in
the Philippines and they have an intention to stay and be a resident in another country.);
2. Leaves the Philippines during the taxable year to reside abroad (if they leave the
Philippines during the taxable year to reside abroad. The taxable year here pertains to the
calendar year, so from January to December. They leave the Philippines during this period as
an immigrant or to work in another country permanently.);
3. A citizen of the Philippines who shall have stayed outside the Philippines for one hundred
eighty-three days (183) or more by the end of the year (aggregate). (If you are in that country
most of the time, for employment purposes, you are considered a nonresident citizen. So when
we say 'most of the time', it's more than 1/2, if we have 365 days in a year divided by 2, it

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would be 182.5 or 183 days and It doesn't have to be 183 consecutive days. But if they stay
there for more than 183 days, it will still not be considered as nonresident as long as they are
not working there, or they just went there as a tourist.)

Illustration:
Carlos, who was born in the Philippines but has been living and working abroad for an
extended period.

A non-resident citizen who arrives in the Philippines at any time during the taxable
year to reside permanently in the Philippines shall be considered a nonresident citizen for the
taxable year in which he arrives in the Philippines with respect to income derived from
sources abroad until the date of his arrival in the Philippines [Section 22(E)(4) NIRC].

Illustration:
Pedro, an OFW, returned to the Philippines for good in May 2021. He shall be classified
for 2021 taxable year as follows:

January to April 2021 - nonresident citizen

From May 2021 onwards — resident citizen

NOTE: For taxation purposes, Individual Taxpayers are only allowed to use the calendar
year period.

The same rule shall apply to a resident citizen who leaves the Philippines anytime during the
for the following reasons:
-As an immigrant abroad; or
-For employment abroad on a permanent basis.

Overseas Contract Workers(OCW)/ Overseas Filipino Workers (OFW)

Revenue Regulation 1-2011 defines OCWs as Filipino citizens employed in foreign
countries, commonly referred to as OFWs, who are physically present in a foreign country as
a consequence of their employment thereat.

For income taxation purposes; OCWs/OFWs are classified as nonresident citizens.

(they are defined as Filipino citizens employed in foreign countries, commonly referred to as
OFWs, who are physically present in a foreign country as a consequence of their employment
thereat. Their employer from a foreign country is the one who pays their salaries and wages,
and the expenses are not shouldered by entities or individuals within the Philippines.
Overseas Contract Workers (OCWs) or Overseas Filipino Workers (OFWs) are often
classified as non-resident citizens for tax purposes due to the nature of their work and their
residential status.)

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Resident citizen of the Philippines
A Filipino citizen taxpayer not classified as a nonresident citizen is considered a
resident citizen for tax purposes.

Alien
An alien is a foreign-born person who is not qualified to acquire Philippine citizenship
by birth or after birth.

Resident aliens
Section 22(F) of the Tax Code defines resident alien as an individual whose residence is
within the Philippines and who is not a citizen thereof. Aliens who are actually aliens are
transient or not present in the Philippines and who are not mere transients or sojourners are
classified as resident aliens.

Non-resident aliens
The term “nonresident 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 thereof.

Aliens who stayed in the Philippines for an aggregate period of more than 180 days
during the taxable year and/or aliens who have business income in the Philippines are
considered as nonresident aliens engaged in trade or business (NRAET).

A nonresident alien not engaged in trade or business (NRA-NETB) is subject to

25% income tax based on gross income from all sources within the Philippines

ILLUSTRATION:
Determine the correct classification of the taxpayer from the independent cases provided
below:
Case 1: Mia was born in the Philippines but lived and worked abroad for many years. On
March 1 2023, she decided to permanently return to the Philippines.
Answer:
From Jan. to Feb. 2022: Mia is classified as NRC.
From March 1, 2022 onwards: Mia is classified as RC.

Case 1: Alex, who is originally from Canada, planned a short-term visit to the Philippines
for work. However, due to unforeseen circumstances, he decided to extend his stay in the
Philippines for an indefinite period.
Answer: He is a resident alien
An alien who comes to the Philippines for the purpose that requires
extended stay for its accomplishment, so he makes his home temporarily in
the EPO, is a resident, regardless of his intention to return to his residence
abroad.

Case 1: Sarah, who is originally from Korea, decided to take a vacation to explore the

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 Philippines. During her stay, she enjoyed the beautiful beaches, cultural attractions, and
local cuisine, and expressed her intention to regularly visit the Philippines.
Answer: She is a nonresident alien

Case 1: Using the same data in Case 3, assume that Sarah invested in shares of stocks of
various domestic corporations during his recent stay in the Philippines.
Answer: She is a NRA-NETB
Passive income such as dividend income is not considered as income
derived from trade or business.

Case 1: Daniel, who is originally from Canada, decides to establish a business with his
friend who is a resident citizen in the Philippines that involves selling unique handmade
crafts to Filipino customers.
Answer: She is a NRA-ETB
He is engaged in actual conduct of trade or business in the Philippines but
is nonresident.

APPLICABLE INCOME TAXES AND TAX RATES

The applicable taxes for individuals depend on several factors such as but not limited
to:
-Classification of the taxpayer
-Source of income
-Type of income

Classification of the taxpayer

It is important to properly classify individual taxpayers because resident citizens are
taxable on their income derived from sources within and without the Philippines while other
taxpayers are taxable only on their income derived from Philippine sources.

Source of Income
It is important to know the source of income for tax purposes (income derived from
within or without the Philippines) because as resident citizens are taxable based on their
worldwide income while others are taxable only on their income derived from sources within
the Philippines.
Taxpayers Tax Base Source of Taxable Income

RC Net Income Within and Without

NRC, RA, NRA-ETB Net Income Within only

NRA-NETB Gross Income Within only

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Types of Income
For income taxation purposes, the three (3) types of incomes subject to income tax are
as follows:
-Ordinary or regular income.
-Passive income derived from Philippine sources; and
-Capital gains subject to capital gains tax

Ordinary or regular income refers to income other than those subject to final taxes and
capital gains tax of the Tax Code, as amended.

Passive incomes subject to Final Withholding Taxes (FWT) are certain passive incomes from
sources within the Philippines as enumerated
The specific passive incomes derived from Philippine sources that are subject to final
withholding taxes are as follows:
1. Interest income
2. Dividend income
3. Royalties
4. Prizes; and
5. Other winnings

Incomes from sale of capital assets subject to capital gains tax (CGT):
1. Capital gains from sale of shares of stocks of a domestic corporation not traded in the local
stock exchange [Sec. 24(C) NIRC]; and
2. Capital gains from sale of real property in the Philippines [Section 24(D) NIRC}].

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REPORTER: Dionisio, Rhylline Dennize

Summary of Income and the Applicable Income Tax

TYPE OF INCOME APPLICABLE TAX

Regular Income Graduated Rate

Passive Income, Phils Final Withholding Tax (FWT)

Capital gains Capital Gains Tax (CGT)

Graduated Tax Rate - a tax rate basis that shows how an individual is taxed based on the
amount of money they earn. The higher the income, the higher the tax will be.

AMOUNT OF INCOME TAX (2018 to 2022) TAX (beg. 2023)

Not over P250,000 Exempt Exempt

Over P250,00 but not over 20% of excess over 15% of excess over
P400,000 P250,000 P250,000

Over P400,00 but not over P30,000 +25% in excess of P22,500 + 20% in excess of
P800,000 P400,000 P400,000

Over P800,00 but not over P130,000 +30% in excess of P102,500 + 25% in excess
P2,000,000 P800,000 of P400,000

Over P2,000,000 but not P490,000 +32% in excess of P402,500 + 30% in excess
over P8,000,000 P2,00,000 of P2,000,000

Over P8,000,000 P2,410,000 +35% of excess P2,202,500 + 35% in excess

of 8,000,000 of P8,000,000

Illustration:
Taxable Income for the year = P550,000

TAX (2018 - 2022)

First P400,000 P30,000

In excess of P400,000 (P150,000 x 25%) P45,000

Tax Due P70,000

TAX (2023 onwards)

First P400,000 P22,500

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In excess of P400,000 (P150,000 x 20%) P30,000
Tax Due P52,500

SELF-EMPLOYED & PROFESSIONALS (SEP)

Self - employed - refers to individuals who work for themselves and/or not employed in a
company.
Professionals - refers to someone who uses his/her expertise, knowledge and training as a
profession/livelihood; renders service with their professionalism.

NOTE:
- Income derived from self-employment is considered income derived from the conduct
of trade or business. Classified as REGULAR OR ORDINARY INCOME, subjected
to Graduated Tax Rate.
- SEP is generally subjected to Income tax and business tax.
- Upon the effectivity of RA 10963 (Tax Reform Acceleration and Inclusion Law aka
TRAIN Law), regular income of SEP amounting to more than P250k in a taxable year
but with a gross/sales receipts and other non-operating income not exceeding the
revised vat threshold of P3,000,000 shall have the option to avail 8%
PREFERENTIAL TAX RATE

Requisites to avail the 8% Preferential Tax Rate

● The gross sales/receipt and other non operating income does not exceed the vat
threshold of P3,000,000
● The SEP shall be non-vat registered:
● The gross sales/receipts were not derived from vat-exempt sales and transactions;
● The SEP is not subject to Percentage Tax other than the Section 116 of the Tax Code,
as amended
● The SEP signifies his/her intention to elect the 8% income tax

PURELY SEP - income does not come from ANY employee employment relationship.
Not more than P3M
- Income Tax - Graduated Tax Rate
- Business Tax - 1% Percentage Tax under Sec. 116 NIR C as amended by CREATE
Act
- OR at the Option of SEP *% of GS/GR and other non-operating income on excess of
P250k IN LIEU of the graduated income tax rate Section 116 of the Tax Code (NIRC)
More than P3M
- Income Tax - Graduated tax rate
- Business Tax - 12% Value added tax unless engaged in vat exempt sales and
transactions under Sec. 109 of the Tax Code.

Illustrations A: Not more than P3M

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Gross sales P2,000,0000
Cost of sales (1,000,000)
Operating expenses (500,000)
Net income P500,000

TAX 2018 - 2022

First P400,000 P30,000
In excess of P400,000 (P100,000 x 25%) P25,000
Tax Due P55,000

TAX 2023 onwards

First P400,000 P22,500
In excess of P400,000 (P100,000 x 20%) P20,000
Tax Due P42,500

With business tax

OPT = P2M x 1% = P20,000

NOTE: The basis of Business Tax is the GROSS/SALES RECEIPTS AND OTHER NON-
OPERATING INCOME.

Opted to avail the 8% tax under the TRAIN LAW

(P2,000,000 - 250,000) = 1,750,000
1,750,000 x 8% = P140,000

ILLUSTRATION B: More than 3M

Gross sales P4,000,0000

Cost of sales (2,000,000)
Operating expenses (1,000,000)
Net income P1,000,000

TAX 2018 - 2022

First P800,000 P130,000
In excess of P800,000 (P200,000 x 30%) P60,000
Tax Due P190,000

TAX 2023 onwards

First P800,000 P102,500
In excess of P800,000 (P200,000 x 25%) P50,000
Tax Due P152,500

With business tax

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VAT = P4,000,000 x 12% = P480,000

NOTE: 8% tax is not applicable because it exceeds the P3M threshold and therefore is now
subjected to VAT.

ILLUSTRATION C: Purely SEP + GR/GS ≤ P3M + SEP is VAT Registered

Gross sales P2,000,0000

Cost of sales (1,000,000)
Operating expenses (500,000)
Net income P500,000

Income Tax:
TAX 2018 - 2022
First P400,000 P30,000
In excess of P400,000 (P100,000 x 25%) P25,000
Tax Due P55,000

Business Tax
P2M x 12% P240,000
________
Total Tax Due P295,000

NOTE: Companies/Business/SEP can voluntarily register for VAT.

NOTES: Some companies are subject to other business taxes.

Eg. Under 117 of the tax code domestic common carriers engaged in passenger transport by
land are subject to CCT which is a 3% tax to their GS/GR, that being said such companies
cannot avail the 8% preferential tax.

What happens when a taxpayer is subject to an 8% income tax rate on GS but his/her
GS exceeds the threshold of P3M by the end of his quarterly records?

Answer: RR 8-2018. Graduated tax will be applied since he/she is now subject to VAT, the
8% preferential tax income tax rate will no longer be applicable and the taxes deducted from
the previous quarters (the 8% each quarter) will be deducted to his/her Annual Income Tax
payable.
Rules/Guidelines regarding breach of the VAT threshold during the year:
- The taxpayer shall be allowed an income tax credit of quarterly payments initially
made under the 8% income tax option
- Taxpayer is likewise liable for business tax (es), in addition to income tax

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 - The taxpayer is required to update registration from non-vat to vat taxpayer, WITHIN
THE 30 DAYS FROM THE CLOSE OF THE MONTH THE VAT THRESHOLD
WAS BREACHED
- Percentage tax under Sec.116 shall still be imposed from the beginning of the year
until the taxpayer is liable to vat.
- Percentage tax due on the P3M shall be collected without penalty, if timely paid on
the due date immediately following the month the threshold was breached

SEP WITH MIXED INCOME - taxpayer that has income both from self-employment and
income from an employer-employee relationship.

Not more than P3M (exclude compensation income)

- Income Tax - Graduated income tax rate on compensation income and income from
self-employment
- Business Tax - Percentage Tax under Sec. 116 of the tax Code on income derived
from self - employment only.
- OR, at the option of SEP:
- Compensation income - Graduated rate
- From Self - employment: - 8% of GS/GR and other non-operating income on
excess of P250k IN LIEU of the graduated income tax rate Section 116
More than P3M (exclude compensation income)
- Income Tax - Graduated tax rate for both types of income (The option to be taxed at
8% is not applicable)
- Business Tax - Value Added Tax unless engaged in vat exempt sales and transactions
under Sec. 109 of the Tax Code.

ILLUSTRATION A: Not more than P3M (excluding compensation income)

Compensation income P700,000

Gross sales 2,500,0000
Cost of sales (1,000,000)
Operating expenses (700,000)
Total taxable net income P1,500,000

Income Tax
TAX 2018 - 2022
First P800,000 P130,000
In excess of P800,000 (P700,000 x 30%) 210,000
Tax Due P340,000

Business tax (Business income only, excluding compensation income)

OPT = 2,500,000 x 1% = P25,000

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What if the SEP availed the 8% tax under the TRAIN LAW?

Answer: His/her COMPENSATION INCOME TAX will be computed based on the

Graduated Tax Rate, and his/her BUSINESS INCOME TAX will be computed based on the
8%.
Tax on compensation income + Tax on Business Income = TOTAL TAX DUE\

NOTE: 8% cannot be applied on compensation income and 250k deduction is not allowed in
mixed income earners.

ILLUSTRATION B: Exceeded P3M (excluding compensation income)

Compensation income P700,000

Gross sales 5,000,0000
Cost of sales (2,000,000)
Operating expenses (1,000,000)
Total taxable net income P2,700,000

Income Tax
TAX 2018 - 2022
First P2,000,000 P490,000
In excess of P2,000,000 (P700,000 x 32%) 224,000
Tax Due P714,000

Business Tax (excluding compensation income)

OPT = P5M x 12% = P600,000

PASSIVE INCOME SUBJECT TO FINAL WITHHOLDING TAX (FWT)

Passive Income - refers to earnings generated from assets, investments, or businesses that
require minimal ongoing effort or active involvement.

The 5 passive incomes derived from the Philippine sources subject to FWT:
- Interest Income
- Dividend Income
- Royalties - intellectual properties
- Prizes
- Other winning

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FINAL WITHHOLDING TAX - tax is deducted and paid at the source of income, the tax is
already deducted from what the payee will receive.

NOTE: Failure to withhold the tax for underwithholding, the deficiency shall be collected
from the PAYOR/WITHHOLDING AGENT. Payor is required to issue a final withholding tax
certificate to the payee. Passive income from ABROAD is subject to BASIC INCOME TAX.

ILLUSTRATION: Determine the Passive Incomes and it’s final tax

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REMEMBER: The tax Percentage from each passive income is different from one another,
refer to Passive Incomes derived from Philippine Sources subject to Final Withholding Tax
Table.

ANSWER:
Interest income - BDO Philippines (20%) P20,000
Dividend income from a domestic corporation (10%) 12,500
Interest Income received from FCDU deposit (15%) 7,500
PCSO Winnings (P500,000 x 20%) 100,000
Other winnings-Ph (P50,000 x 20%) 10,000
Prizes - SM Manila (P20,000 x 20%) 4,000
TOTAL FINAL TAX ON PASSIVE INCOME P154,000

Reporter: Maron, Chryssa A.

Deposit Substitute
RR 14-2012 defines “deposit substitute” as an alternative form of obtaining funds from
the public other than deposits, through the issuance, endorsement, or acceptance of debt
instruments for the borrower’s own account, for the purpose of re-lending or purchasing of
receivables and other obligations, or financing their own needs or the needs of their agent or
dealer.

Interest Income from Long-term Deposit or Investment Certificates

Long-term deposit or Investment certificate refers to certificate of time deposit or
investment in the form of savings, common or individual trust funds, deposit substitutes,
investment management accounts and other investments with a maturity period of not less
than five (5) years, the form of which shall be prescribed by the Bangko Sentral ng Pilipinas
(BSP) and issued by banks only to individuals (should not be under the name of a corporation
or a bank or a trust department of a bank) in denominations of P10,000 and other
denominations as prescribed by BSP (RR 14-2012).

Requisites/Conditions for exemption:

1) The depositor or investor is an individual citizen, a resident alien or a _ nonresident alien
engaged in trade or business in the Philippines.
2) The long-term deposits or investment certificates should be under the name of the
individual and not under the name of the corporation or the bank or the trust department/unit
of the bank.
3) The long-term deposits or investments must be in the form of savings, common or
individual trust funds, deposit substitutes, investment management accounts and other
investments evidenced by certificates in such form prescribed by the Bangko Sentral ng
Pilipinas (BSP).
4) The long-term deposits or investments must be issued by banks only and not by other
financial institutions.
5) The long-term deposits or investments must have a maturity period of not less than five (5)

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years.
6)The long-term deposits or investments must be in denominations of Ten thousand pesos
(P10,000) and other denominations as may be prescribed by the BSP.
7) The long-term deposits or investments should not be terminated by the original investor
before the fifth (5th) year, otherwise they shall be subjected to final tax rates of 5%, 12% or
20% on interest in income earnings as shown in Table 2-3.
8) Except those specifically exempted by law or regulations, any other income such as gains
from trading, foreign exchange gain shall not be covered by income tax exemption.

RMC 7-2015 dated March 6, 2015 provides that, for interest income derived by individuals
investing in common or individual trust funds or investment management accounts to be
exempt from income tax, the following additional characteristics/conditions must ALL be
present:

1) The investment of the individual investor in the common or individual trust fund or
investment management account must be actually held/managed by the bank for the named
individual for at least five (5) years without interruption. The term "bank" referred to herein
are banks duly licensed as such by the Bangko Sentral ng Pilipinas;
2) The underlying investments of the common or individual trust account or investment
management accounts must comply with the requirements of Section 22(FF) of the NIRC of
1997, as amended, as well as the requirements mentioned above;
3) The common or individual trust account or investment management account must hold on
to such underlying investment in continuous and uninterrupted period for at least five (5)
years.

For nonresident aliens not engaged in trade or business in the Philippines, interest income
received from long-term deposit or investment shall be subject to a Final Withholding Tax at
the rate of twenty five percent (25%).

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Reporter: Saura, Reynalyn D.

PRE-TERMINATION OF LONG TERM DEPOSIT

- In case of pre-termination, transfer or negotiation of said long-term deposit or
investment by the depositor or investor before the fifth (5th) year, the interest income
of shall be subject to the following graduated final withholding tax rates as follows:

Four years to less than five years – 5 %

Three years to less than four years – 12 %

Less than three years – 20 %

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ORDINARY ASSET VS. CAPITAL ASSET

Ordinary Asset Capital Asset

● ●
- inventory, prepaids, and
account receivables, cash
- The stock or property held by
taxpayer for the purpose of
sale
- significant pieces of property
such as homes, cars,
investment properties,
stocks, bonds, and even
collectibles or art.
- not used or held for sale in
the ordinary course
- Held by the taxpayer
(whether or not connected
with his trade or business)

● Sale
- may be taxed creditable
withholding tax ranging from
a 1.5 % to 6 % tax rate to the
ordinary income in
accordance with the 12
percent Value Added Tax and
Documentary Stamp Tax
● Sale
- rate for this tax is six percent
(6%) of the gross selling
price or fair market value at
the time the sale occurred,
whichever amounts to higher

● Profit
- As the sale of ordinary
assets falls under the regular
and ordinary day-to-day
operations of taxpayers
engaged in the business of
real properties, they must be
computed under ordinary
income tax
● Profit
- made from the sale of items
not included in the
day-to-day operations of a
company and is often
computed, including the
depreciation expense.

CAPITAL GAINS TAX (CGT)

- When capital assets increase in value, when the price of a stock you own goes up,
the result is what’s called a “capital gain.”
- In jurisdictions with a capital gains tax, when a person “realizes” a capital gain, sells
an asset that has increased in value they pay tax on the profit they earn

CAPITAL GAINS MAY BE:

1. Subject to Capital Gains Tax (CGT) pertains the sale of :
A. Sale of shares of stock of a domestic corporation sold directly to a buyer
- 15% of capital gains tax

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 B. Sale of real properties located in Philippines
- CGT = 6% of the higher of Gross Selling Price (GSP) and Fair Market
Value (FMV)

Sale of Real Property to the Government

- The individual taxpayer shall have the option taxed at: 6% CGT
or basic income tax using the graduated tax rate .

2. PERCENTAGE TAX
- is not an income tax but a business tax.
- imposed on persons or entities who sell or lease goods, properties or services
in the course of trade or business whose gross annual sales or receipts do not
exceed P550,000 and are not VAT-registered.
- The applicable tax for this is known as "stock transaction tax".
- 6/10 of 1% of gross selling price ( GSP)
3. Subject to Basic Tax - examples :
- Gain on sale of vehicle for personal use
- Gain on sale of jewelry for personal use

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SUMMARY OF CAPITAL GAINS SUBJECT TO CGT

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PRINCIPAL RESIDENCE
- Is the family home of the individual taxpayer which refers to his dwelling including
his family
- Subject to 6% capital gain tax based on the selling price or fair market value,
whichever is higher except:

Requisite For Tax Exemption

1. Fully utilized in acquiring a new principal residence within 18 calendar months from
the date of disposition

2. Historical basis or adjusted basis of the real property sold or disposed shall be carried
over to the new principal residence built or acquired
3. BIR shall have been duly notified by the taxpayer within 30 days from the date of
sale or disposition through a prescribed return of his intention to avail of the tax
exemption
4. Tax exemption can only be availed of once every 10 years

TAXABLE INCOME SUBJECT TO BASIC TAX

1. Pure Compensation Income Earner
- individuals whose source of income is purely derived from an
employer-employee relationship

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2. Pure Business Income Earner
(Under TRAIN Law;using graduated tax rate):
- earned income and is classified as ordinary income for tax purposes

3. Mixed Income Earner (Business and Compensation Income)

(Under TRAIN Law;using graduated tax rate on business income)

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 - those engaged in the trade/business or profession who are also earning
compensation income.

Creditable Withholding Tax

- A kind of withholding tax is prescribed on certain income payments and is creditable
against the income tax due of the payee for the taxable quarter/year in which the
particular income was earned.

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Reporter: Legaspi, Cindy R.

QUARTERLY TAX RETURNS

- Income tax returns for income derived from business and/or practice of profession are
required to be filled on a quarterly basis.

- Therefore, for example, Maria Clara is a natural person, an individual taxpayer.

Where does Maria Clara’s Income come from? For example, she is a purely
compensation income earner, meaning she is just an employee without business
income. So, without business income she doesn’t need to file on a quarterly basis and
she only files once a year. And that is on / before April 15 of the following year. In
fact, she doesn’t need to file, if she is under “Substituted filing,” I will discuss it later
on.
- Moving onto another example: Darwin Furio is a businessman, therefore, he will file
income tax returns, quarterly and annually. 4 times of Filing, 1st quarter, 2nd. 3rd, and
1 time for annual, 4th quarter is not separate, it will become annual.
- And then there is no separate for 4th quarter, but we have “Annual Return” or the
“Final Adjusted Return” and that is to be filed on or before April 15 of the succeeding
year. So that the results of Individual ITR in 2023 has a deadline of April 15,2024.

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- Now, the Quarterly Tax Returns is for
1. Purely business Income earner
2. Mixed Income earner It means that aside from being an employee you are also
a businessman.
- If you are a mixed Income earner, an employee and a businessman, is
the Salary is kasama in the quarterly? The answer is “no” because
quarterly is all about business income.
- Discussion of Formula:
● CUMULATIVE - Increasing number of months, quarterly.

- There are other taxes to be paid.

- INTEREST INCOME is included in FWT
- SALE OF LAND is included in CGT,

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 - DIVIDEND RECEIVED FROM DOMESTIC CORP is included in Final
withholding taxes
- Therefore, those are all not included in quarterly tax returns, so we will ignore them.
- But when we say ITR/ QITR, we pertain only to the income taxes of the income
subjects in basic income tax or subjects in graduated rate. So we should focus on
income, ordinary or regular income.

INCOME TAX DUE OF MARRIED TAXPAYERS

- Under Section 24(A)(2), for married individuals, the husband and wife, subject to the
provision of section 51(D) hereof, shall compute separately their individual income
tax based on their respective total taxable income: Provide, that if any income cannot
be definitely attributed to or identified as income exclusively earned or realized by
either of the spouses, the same shall be divided equally between the spouses for the
purpose of determining their respective taxable income.
- Example: The identifiable income of Mr. Aquino is 1 million. And the identifiable
income of Mrs. Aquino is 2 million. And if there is an income that cannot be
definitely attributed to or identified as income exclusively earned or realized by either
of the spouses. Then the rule is they will divide the income by two for the purpose of
determining their respective taxable income.

MINIMUM WAGE EARNER (MWE)

- "Statutory Minimum Wage Earner" (SMWE)
- Pertains to a worker in the private sector paid the SMW, or to an employee in the
public sector with compensation income of not more than the SMW in
non-agricultural sector where he/she is assigned.
- Statutory minimum - the law assigned the amount.
- Statute - by the law of the land
- It is not the same for all, it depends on the region where you are working.
- Article 99. Regional Minimum Wages Labor Code of the Philippines.
● The minimum wage rates for agricultural and non-agricultural employees and
workers in each and every region of the country shall be prescribed by the
Regional Tripartite Wages and Productivity Board.
- Section 3: Basis of Minimum Wage Rates
● The minimum wage rates prescribed under this order shall be for the normal
working hours which shall not exceed 8 hours of work a day.
- National Wage and Productivity Commission (NWPC) https:))nwpc.dole.gov.ph/
● This is where you can find what is the minimum wage of every region in the
Philippines.

MINIMUM WAGE EARNER ARE EXEMPT FROM INCOME TAX ON:

1. Minimum Wage
2. Holiday Pay
3. Overtime Pay
4. Night Shift - work at night, from 10 PM to 6 AM

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 5. Hazard Pay
- Example:
● Ms. Cruz, a minimum wage earner employed by KGS Company, derived the
following benefits of the year:

Basic Minimum Wage P 124,000

13th Month Pay 11,000

Overtime Pay 80,000

Night Shift Differential Pay 30,000

Hazard Pay 15,000

Holiday Pay 15,000

TOTAL P 275,000

LESS: SSS, PhilHealth, HDMF (5,000)

contributions

NET TOTAL P 270,000

Gross Compensation Income P 275,000

Less: Non-taxable compensation income
Mandatory deduction P 5,000
Exempt benefits 270,000 P275,000
Taxable Compensation Income P 0

MWE with Additional Compensation Income in Excess of P90, 000

- An employee receiving additional compensation income will still be exempted from
tax, even if the total additional compensation income exceeded the P90, 000 ceiling.
MWE with additional "business income"
- Minimum wage earners receiving other income such as income from the conduct of
trade, business or practice of profession, except income subject to final tax, in
addition to compensation income are not exempted from income tax on their entire
income earned during the taxable year. This rule, notwithstanding, statutory minimum
wage, overtime pay, holiday pay, night shift differential, and hazard pay shall still be
exempt from income tax and consequently to withholding tax.

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HAZARD PAY GIVEN TO MINIMUM WAGE EARNERS
- A duty performed on high structure where protective facilities are not used, or on an
open structure where adverse conditions such as darkness, lightning, gasses, steady
rain, or high wind velocity exist, etc.
- Given to those on working on hazardous workplaces where primary duty performed
under circumstances in which am accident could result in serious injury or death.
- However , exposures to hazard which affects the entire population in a locality as air,
land, and water borne and noise hazard are compensable under these Regulations, RR
10-2008.
1. The nature of work exposes the workers to dangerous environmental elements,
contaminants or work conditions.
2. The workers are engaged in construction work, logging, fire-fighting, mining,
quarrying, blasting, stevedoring, dock work, deep-sea fishing and mechanized
farming;
3. The workers are engaged in the manufacture or handling of explosives and
other pyrotechnic products;
4. The workers use or are exposed to power driven or explosive powder actuated
tools:
5. The workers are exposed to biologic agents such as bacteria, fungi, viruses,
protozoa, nematodes, and other parasites.

Senior Citizens (SCs) and Persons with Disabilities (PWDs)

Generally, Senior Citizens and PWDs are subject to income tax in the Same manner as
an ordinary individual taxpayer. Hence, qualified Senior Citizens and PWDs deriving
returnable income during the taxable year, Whether . from compensation or otherwise, are
required to file their income tax return and pay the tax as they file the return.

a senior citizen/PWD can still be liable for other taxes such as:
1. The 20% final withholding tax on interest income from any currency bank deposit.
2. The 15% final withholding tax on interest income from a depository bank under the

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expanded foreign currency. deposit system (Sec. 24(B)(1), tax code
3. Pre-termination of long-term deposit or investment under Section 24(B)(1) of the Tax
Code:
Four years to less than five years 5%
Three years to less than four years . 12%
Less than three years 20%
4. The 10% final withholding tax:
* On cash and/or property dividends actually or constructively received - from a domestic
corporation or from a joint stock company, insurance or mutual fund company and a regional
operating headquarters of a multinational company; or
* On the share of an individual in the distributable net income after tax of a partnership
(except a general professional partnership) of which he is a partner; or
* On the share of an individual in the net income after tax of an association, a joint account,
or a joint venture or consortium taxable as a corporation of which he is a member or a
co-venturer (Se¢- 24(B)(2), Tax Code),
5. The Capital gains tax from sales of shares of stock not traded in the Stock exchange (Sec.
24(C), Tax Code); and
6. The 6% final withholding tax on presumed capital gains from sale of real property,
classified as capital asset, except capital gains presumed to have been realized from the sale
or disposition of principal residence (Sec. 24(D), Tax Code).
7. OTHER TAXES. A Senior Citizen/PWD shall also be subject to the following internal
revenue taxes, among others, imposed under the Tax Code:
*Value Added Tax or Other Percentage Taxes.
*Donor’s Tax on all donations made by a Senior Citizen/PWD during any calendar year,
unless exempt under a Specific provision of law (Donor’s Tax is discussed in
volume2—Transfer and Business Taxes).
*Estate Tax.
* Excise Tax on certain goods
*Documentary stamp tax

Benefits for Senior Citizens and/or PWDs

Senior citizens and/or PWDs, as the case may be, under under the law are entitled to the
following benefits
*20% discount and exemption from VAT on their purchase of specified goods and services (a
more detailed discussed is presented in volume2-Transfer and Business Taxes);
*5% discount on basic and prime commodities
*P500 monthly social pension, for indigent senior citizens;
*Death benefit assistance;
*5% discount on utilities; and
*Income tax exemption for minimum wage earners or for senior citizens/PWDs whose annual
taxable income is not more than P250,000

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TAXATION OF ALIEN INDIVIDUALS EMPLOYED BY POGOs or OGLs
- Under RA 11590 and RR 20-2021, regardless of residency and term and class of
working permit or visa.
- Section 3 of RA 11590, "An Act Taxing Philippine Offshore Gaming Operations
(POGOs)
● (G) Alien Individuals Employed by an Offshore Gaming Licensee and Service
Providers

APPLICABLE INCOME TAX

TYPE OF INCOME INCOME TAX PER MONTH

Gross Income from OGL 25% FWT or P12,500 per month,

whichever is higher

Income from all other sources within the Subject to pertinent income tax imposed
Philippines under the Tax Code, as amended

GROSS INCOME
- Basic salary/wage, annuities, compensation, remuneration and other emoluments
- OGLs and Service Providers shall submit to the BIR the original copy of notarized
contract of employment clearly stating therein the annual salary and other benefits and
entitlements of the concerned alien.
FINAL WITHHOLDING TAX (FWT)
- Withheld and remitted monthly by the employer
- It includes corresponding penalties, interest, and surcharges, if any.
- It is in accordance with RR 2-98, as amended.

All foreign employees of OGL and their Service Providers regardless of nature of
employment shall have a Tax Identification Number (TIN)

DEFINITION OF TERMS ( RR 20-2021)

1. PHILIPPINE OFFSHORE GAMING OPERATION (POGO)
- Also refer to OGLs and accredited services providers.
- Refers to the operation by an OGL of online games of chance or sporting
event via the internet using a network and software program.
- Exclusively for offshore customers or players who are non filipinos.
2. OFFSHORE GAMING LICENSEE (OGL)
- Refers to an offshore gaming operator whether organized in the Philippines
(Philippine-based) or abroad (offshore or foreign-based).
- Duly licensed and authorized through a gaming license issued by a POGO
Licensing Authority to conduct offshore gaming operations.
● Including the acceptance of bets from offshore customers.

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 -Also referred to as Interactive Gaming Licensee (IGL) by other POGO
Licensing Authorities
- Shall be considered in doing business in the Philippines
3. ACCREDITED SERVICE PROVIDERS
- Refers to a natural person regardless of citizenship or residence, or juridical
person regardless of place of organization, which provides ancillary services
to an OGL or any other offshore gaming operator with license acquired from
other jurisdiction.
- ANCILLARY - providing necessary support to the primary activities or
operation of an organization, institution, industry, or system.
- SAMPLE ANCILLARY SERVICES RR (20-2021)
● Customer and technical relations support
● Information technology
● Gaming software
● Data provision
● Payment solutions
● Live studio and streaming services
4. POGO LICENSING AUTHORITY
- Refers to Philippine Amusement and Gaming Corporation (PAGCOR) or any
special economic zone authority, tourism zone authority or freeport authority
authorized by their respective charters to issue gaming licenses and
accreditation to POGO entities.
5. OGL-GAMING AGENT
- Refers to representative in the Philippines of a foreign-based OGL who shall
act as a resident agent for the mere purpose of receiving summons notices and
other legal process of the OGL and to comply with the disclosure requirements

FILING OF INCOME TAX RETURNS (ITR)

- BASIC TAX
● FOR PURELY COMPENSATION INCOME EARNERS:
- Once a year only (unless qualified for substituted filing)
- On or before April 15 of the following year
● FOR BUSINESS INCOME EARNERS including income from practice of
profession:
- The individual taxpayer is required to file a quarterly tax return on or
before the following dates (regardless of the results of operations):

SUBSTITUTED FILING
- Under RA 9504 and RR 10-2008, individual taxpayers may no longer file income tax
returns on or before April 15 of the following taxable year provided the taxpayers
is/has (all the requirements must be satisfied):
1. Receiving purely compensation income, regardless of amount.
- There is no business income

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 2. The amount of income tax withheld by the employer is correct (Tax due Tax
withheld)
- Your applicable income tax must be computed withheld by the
employer, exactly. So that your income tax due is zero.
- Example: Aleqs is an employee without business income. Tax is being
deducted to her salary because she is subject to income tax, if the right
tax is withheld, then it is correct.
3. Only one employer during the taxable year.
4. If married, the employee's spouse also complies with all three aforementioned
conditions, or otherwise receives no income.
- What if single?
● Every January, the employer will give his/her employee a BIR
FORM 2316, "Certificate of Compensation Payment/Tax
Withheld". This will certify you as an employee with tax that
the employer is withheld. This now will be your ITR.

Now that we are talking about the BIR FORMS, here are the other forms of BIR FORM:
1. BIR FORM 1700 (ANNUAL INCOME TAX RETURN)
- Purely compensation income earners
2. BIR FORM 1701 (ANNUAL INCOME TAX RETURN)
- Business Income Earners
- Mixed Earners
3. BIR FORM 1701 A (ANNUAL INCOME TAX RETURN)
- Businessman but used optional standard deduction or 8% tax
4. BIR FORM 2307 (CERTIFICATE OF CREDITABLE TAX WITHHELD AT
SOURCE)
- Example: Danica Eterna provided professional service to KBG Company.
KBG Company deducted 10% to Danica. Then, KBG Company must give her
BIR FORM 2307 to certify that KBG Company deducted Danica. And Danica
will claim this as deduction in income tax due.

MANNER OF FILING
- Filing of ITR may be made through:
a. Manual Filing
b. Electronic Filing and Payment System (EFPS)
c. eBIR Forms

PAYMENT
- Generally, the income tax payable shall be paid at the time the return is filed (also
known as "Pay as you file system").
- However, RA 10963 (TRAIN Law) provides, that, when the tax due is in excess of
P2,000, the individual taxpayer may elect to pay the tax in two equal installments as
follows:
● 1st installment: at the time of filing the annual ITR.

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 ● 2nd installment: on or before October 15 following the close of the calendar
year.
- If 1st quarter, May 15 is the deadline and you filed May 15, then you pay on May 15.

INDIVIDUALS REQUIRED TO FILE INCOME TAX RETURNS

1. Engage in business or profession.
2. Compensation from two or more employers.
3. The income tax of which has not been withheld correctly.
4. The moment you have business income or other than salary, then you are required to
file ITR.
5. Spouses are required to file income tax returns.
6. The legal basis is section 51. Individual Return A. Requirements

INDIVIDUALS NOT REQUIRED TO FILE INCOME TAX RETURNS

1. Purely compensation income earner that does not exceed 250,000.
2. Employees that can file substituted filing.
3. Sole income has been subjected to final withholding tax.
4. Minimum wage earners.

PLACE OF FILING INCOME TAX RETURNS

- The Income tax return shall be filed and paid with any of the following:
1. authorized agent banks
2. Revenue District Officer
3. Collection agent
4. Duly authorized city or municipal Treasurer

FOR "WITH PAYMENT" RETURNS

- Authorized Agent Bank (AAB)
- If there are no AAB's, the return shall be filed directly with the revenue collection
officer or duly Authorized Treasurer of the City or Municipality. If there is none, it is
applicable in the Office of the Commission

FOR "NO PAYMENT" RETURNS

- Revenue District Office (RDO)
But if late, there is a penalty, it should be paid in AABor in Collection/Deputized Municipal
Treasurer.

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