An Overview on

Philippine Income
Tax Laws
LAWS GOVERNING INCOME
TAX IN THE PHILIPPINES
• The basic source of Philippine tax law is the National Internal
Revenue Law, which codifies all tax provisions, the latest of
which is embodied in Republic Act No. 8424 (“The Tax Reform
Act of 1997”).  It amended previous national internal revenue
codes, which was approved on December 11, 1997. A copy of
the Tax Reform Act of 1997, which took effect on January 1,
1998.
INCOME TAX
•  Income Tax is a tax on a person's income, emoluments,
profits arising from property, practice of profession, conduct
of trade or business or on the pertinent items of gross
income specified in the Tax Code of 1997 (Tax Code), as
amended, less the deductions if any, authorized for such types
of income, by the Tax Code, as amended, or other special
laws.
WHO ARE LIABLE FOR INCOME TAXES?
Section 23. General Principles of Income Taxation in the Philippines. - Except
when otherwise provided in this Code:

(A) A citizen of the Philippines residing therein is taxable on all income

derived from sources within and without the Philippines;

(B) A nonresident citizen is taxable only on income derived from sources

within the Philippines;

(C) An individual citizen of the Philippines who is working and deriving income
from abroad as an overseas contract worker is taxable only on income derived
from sources within the Philippines: Provided, That a seaman who is a citizen
of the Philippines and who receives compensation for services rendered
abroad as a member of the complement of a vessel engaged exclusively in
international trade shall be treated as an overseas contract worker;
(D) An alien individual, whether a resident or not of the
Philippines, is taxable only on income derived from sources
within the Philippines;

(E) A domestic corporation is taxable on all income derived from

sources within and without the Philippines; and

(F) A foreign corporation, whether engaged or not in trade or

business in the Philippines, is taxable only on income derived
from sources within the Philippines.
SUMMARY
TAXABLE INCOME TAXABE INCOME
CITIZENSHIP AND INSIDE THE PHILIPPINES OUTSIDE THE
RESIDENCY PHILIPPINES
Resident Citizen YES YES
Non-Resident Citizen YES NO
Overseas Contract YES NO
Worker
Resident Alien YES NO
Non-resident Alien YES NO
Domestic Corporation YES YES
Foreign Corporation YES NO
Who are taxable on income derived from all
sources, whether within or outside the Philippines?

1. Resident Citizens
2. Domestic Corporations

All the other kinds of taxpayers are subject to tax only on income
derived from Philippine Sources.
GROSS INCOME FROM TAXES WITHIN THE PHILIPPINES
(Sec. 42,NIRC)

1. Interests
2. Dividends
3. Services
4. Rentals and Royalties
5. Sale of Real Property
6. Sale of Personal Property
SALE OF REAL PROPERTY
(par. 5, Sec.42, NIRC Code)

• The gains, profits and income from sale of real property located in
the Philippines.

• On sale of real property in the Philippines held as a capital asset,

6% of the gross selling price, or the current market value at the time
of the sale, whichever is higher.
• If the sale was made to the government or to GOCCs, it is either 6%
of the gross selling price/current market value or under the normal
income tax rate, taxpayer’s option.
Section 39. Capital Gains and Losses. – (NIRC)

(1) Capital Assets. - the term 'capital assets' means property held by the taxpayer
(whether or not connected with his trade or business), but does not include stock in
trade of the taxpayer or other property of a kind which would properly be included in
the inventory of the taxpayer if on hand at the close of the taxable year, or property
held by the taxpayer primarily for sale to customers in the ordinary course of his
trade or business, or property used in the trade or business, of a character which is
subject to the allowance for depreciation provided in Subsection (F) of Section 34; or
real property used in trade or business of the taxpayer.

• (2) Net Capital Gain. - The term 'net capital gain' means the excess of the gains
from sales or exchanges of capital assets over the losses from such sales or
exchanges.

• (3) Net Capital Loss. - The term 'net capital loss' means the excess of the losses
from sales or exchanges of capital assets over the gains from such sales or
exchanges.
xxxxx
• Net capital gain is the excess of the gains from such sales or
exchanges of capital assets over the losses from the sales or
exchanges.

• Net capital loss is the opposite.

• Net capital gain shall be reported in the taxpayer’s income tax

return and shall be subject to the graduated income tax rates
in addition to the net income from other sources.
 Capital Gains Tax only applies to the sale or
disposition of the following:

1. Shares of Stock of a domestic corporation not traded through the

local stock exchange; and

2. Sale of real property in the Philippines which is held as a capital

asset.
WHAT ARE CAPITAL ASSETS?
• It is important to know whether the asset sold or exchanged
was held as ordinary asset or capital asset because of the
different rules that apply to each.
Capital Assets are property held by the taxpayer (whether
or not connected with his trade or business) but does not
include:
• Stock in trade of the taxpayer;
• Other property of a kind which would properly be included in the
inventory of the taxpayer if on hand at the close of the year;
• Property held by the taxpayer primarily for sale to customers in the
ordinary curse of his trade or business;
• Property used in trade or business of a character which is subject
to allowance for depreciation.
Examples of properties classified as capital assets:
• Personal property not used in trade or business;
• Movable properties in one’s residence, vehicles, appliances,
furniture, jewelry, sculpture etc..
• Real property not used in trade or business.
• Residential house and lot, idle and not used in business
operations.
For those engaged in the real estate business, the
following are ordinary assets:
• All real properties acquired by the real estate dealer;
• All real properties acquired by the real estate developer,
whether developed or underdeveloped;
• All real properties held for sale or lease in the ordinary course
of business or which would be properly be included in the
inventory;
• All real properties acquired for lease/rent;
• All real properties acquired in the ordinary course of business
by a taxpayer habitually engaged in the sale of real estate.
REAL ESTATE TRANSACTIONS
• BIR Ruling 27-02 gives some steps to determine the tax in real
estate transactions:
1. First, determine the character of the property being sold.
• If the property is used in business of seller, then it is a capital asset
and the gain of the seller is subject to 6% capital gains tax based on
gross selling price or fair market value.
• If the property is used in the business of the seller, it is treated as
an ordinary asset so the withholding tax rates shall apply. Rates will
depend on:
a. Whether the seller is engaged in real estate business or
not
b. Whether the seller is exempt o taxable
c. If the seller is engaged in real estate business, what was the
gross selling price?
The TRAIN Law
• The Tax Reform for Acceleration and Inclusion (TRAIN) or the
Republic Act No. 10963 was signed into law by President
Rodrigo Duterte on December 19, 2017 and implemented on
January 1, 2018.

• It was the initial package of the Comprehensive Tax Reform

Program, which aims to rationalize the Philippine tax system.
CHANGES INTRODUCED
BY THE TRAIN LAW
OTHER CHANGES INCLUDE: