Regular Income

Tax
(as amended by TRAIN LAW)
BY: Christopher L. de Guzman, CPA, CAT
Classification of Income
1. Compensation Income (Normal tax – taxable income)
2. Profession or Business Income (Normal tax – taxable income
3. Passive Income – merely waits for the amount to come in
(Final Tax) (PIDRO)
4. Capital Gains – sale of assets not used in business, otherwise
business income. (Final Tax) (Shares not traded and real
property as capital asset)
5. Others – normal tax
Taxable Income defined
Sec. 31 – pertinent items of gross income specified in this Code, less
deductions, if any, authorized for such types of income by this Code or
other special laws.

Formula:
Gross Income P xxx
Allowable Deductions (xxx)
Taxable Income P xxx
Taxable Income

Gross Income P xxx (Sec. 32 – 33)

Less: Deductions xxx (Sec. 34 – 42)
Taxable Income P xxx (Sec. 31)
Tax on Individuals
Sec. 24 - 26
Tax on Individuals
o RC; NRC; RA; NRA engaged in business,
o Normal / Basic Tax (taxable income) – Sec. 24A
o Final Tax (Passive income)- Sec. 24B
o Capital gain tax on sale of shares of stock not listed in stock market – Sec.
24C
o Capital gain tax on sale of real property as capital assets – Sec. 24D
o NRA not engaged in business,
o 25% of gross income of all sources except for Sec. 24C and 24D.
 Tax Table (Graduated)- Sec. 24A
Effective January 1, 2018 to December 31, 2022
Not over P 250,000 0%
Over P 250,000 but not over P 400,000 ……….. 20% of the excess over P 250,000
Over P 400,000 but not over P 800,000 ………..P 30,000 + 25% of the excess over P 400,000
Over P 800,000 but not over P 2,000,000 ……...P130,000 + 30% of the excess over P 800,000
Over P 2,000,000 but not over P 8,000,000 ……P 490,000 + 32% of the excess over P 2,000,000
Over P 8,000,000 …………………………………..P2,410,000 + 35% of the excess over P 8,000,000

Effective January 1, 2023 and onwards – different tax table

Taxable income: 950,000                                                        1,050,000
           1st 800,000                                 P130,000           1st 800,000                P 130,000
           Excess: 150,000 x 30%                 45,000             Excess 250T x 30%      75,000
           Total tax                                     P 175,000                                            P 205,000
Normal/ Basic Tax (taxable income)
o Types of individual income taxpayers
1. Compensation income earners
2. Self – employed
3. Professional
4. Mixed income earners
o Minimum wage earners are exempt, including senior and PWD; Included in
exemption is HONH… however, if they earn other income, the said income are taxable
excluding the minimum wage which is still exempt. (GR # 184450)
o Married individuals – separate computation but to file consolidated income tax return.
If the income cannot be separated, be divided equally;
Tax on individuals (Taxable Income)
o For professionals or self - employed:
o Has the option to avail 8% tax of the gross sales/ receipts and
other non-operating income in excess of P 250,000 in lieu of the
graduated tax and the percentage tax provided:
o That its gross sales or receipts and other non-operating
income shall not exceed the VAT threshold (P 3,000,000).
o Registration updates (RR 8-2018)
Tax table on individuals (Taxable Income)

o For mixed income earners:

o Income from compensation – tax table (graduated tax)
o Income from business or practice of profession -
o Has the option to avail 8% tax of the gross sales/ receipts and other
non-operating income in excess of P 250,000 in lieu of the graduated
tax and the percentage tax provided:
o That its gross sales or receipts and other non-operating income shall not
exceed the VAT threshold (P 3,000,000), otherwise subject to tax table
(graduated tax.
o For more than VAT threshold, and taxpayer subject to other
percentage tax other than Sec. 116, the graduated tax rate shall be
used.
Not allowed to avail 8%

 Partners of GPP
 Taxpayers under Barangay Micro Business Enterprise (BMBEs)
 Purely Compensation Income Earners
 VAT registered taxpayers
 Subject to OPT except Sec. 116
 Ref. RMC 50 - 2018
Taxes on Individuals – special employees
1. Special employees
a. Employed by regional or area headquarters and regional
operating headquarters of multinational companies;
b. Employed by offshore banking units
c. Employed by petroleum service contractor and subcontractor
2. The gross income includes salaries, wages, annuities,
compensation, remuneration, and other emoluments, such as
honoraria, and allowances.
3. That the tax rate is Sec. 24A (tax table)
Taxes on Individuals (GPP)

o Partners in general professional partnership shall be liable to

tax on their separate and individual capacities

o Each partner shall report as gross income his distributive

share , actually or constructively received in the net income of
the partnership.
 Taxes on
Corporation
Sec. 27 - 30
 Regime on Regular Income Tax
DC and RFC NRFC

Regular Corporate 30% of net taxable 30% of gross income

Income Tax (RCIT) income (Sec. 27A & (Sec. 28B)
28A)
Minimum Corporate 2% of gross income N/A
Income Tax (MCIT) (Sec. 27E & 28A(2))

Optional Standard 40% of gross income N/A

Deduction in liue of (Sec. 34L)
itemized deduction
Domestic and Resident Foreign Corporations

o Regular rate of 30% of taxable income except:

o Proprietary educational institutions and non-profit hospitals provided that
the gross income from unrelated business does not exceed 50% of the total
gross income from all sources; the tax is 10% of the taxable income.

o GOCC, agencies or instrumentalities taxable (proprietary)

except:
o SSS, GSIS, PHILHEALTH, Local Water Districts (LWD), but
o Subject to tax (and withholding tax) are income from the sale of real and
personal property. (RR 11-2018,)
Domestic and Resident Foreign Corporations

o Minimum Corporate Income Tax (MCIT) – 2% of the Gross Income

beginning on the FOURTH taxable year IMMEDIATELY following the year of
business commencement.

o MCIT > RCIT = MCIT

o The excess shall be carried forward and credited against the normal income tax
for the three (3) immediately succeeding taxable year.
o MCIT < RCIT = RCIT
GROSS INCOME: 2M X 2% = 40,000                   2M x 2% = 40,000 
 TAXABLE INCOME 1,500,000 X 30% = 450T       100T X 30% = 30,000
EXCESS: 10,000 – CARRIED FORWARD
Domestic and Resident Foreign Corporations

o MCIT may be suspended:

o suffering losses on account of prolonged labor dispute, or force majeure,
or business legitimate reverses.

o Not applicable to:

o Hospitals; Educational Institution; Non-resident foreign corporations;
International Carrier; Offshore Banking Units (HENIO)

Note: In service business, for purposes of MCIT, gross income = gross

sales/receipts – cost of service.
Special Resident Foreign Corporation

1. Resident International (air and sea) Carrier – 2.5% of Gross

Billings, Philippines;

2. Offshore Banking Units – 10% from Interest income from

foreign currency loans granted to residents, otherwise
exempt;
Special Resident Foreign Corporation
o Gross Philippine Billings for international AIR carrier –
 carriage of persons, excess baggage, cargo and mail originating from the
Philippines in a continuous and uninterrupted flight, irrespective of the place of
sale or issue and the place of payment of the ticket or passage document.
 The tickets revalidated, exchanged and/or indorsed to another international airline
form part of the Gross Philippine Billings if the passengers boards a plane in a
port or point in the Philippines.
 The flight which originates from the Philippines, but transshipment of passengers
takes place at any port outside the Philippines or another airline, only the aliquot
portion of the cost of the ticket corresponding to the leg flown from the
Philippines to the point of transshipment shall form part of the Gross
Philippine Billings.
Special Resident Foreign Corporation

o Gross Philippine Billings under International SHIPPING Carrier –

revenue whether from passenger, cargo or mail originating from the
Philippines up to final destination, regardless of the place of the place of
sale or payments of the passage or freight documents.

o It may avail of the preferential rate or exemption from the tax herein
imposed on their gross revenue based on the tax treaty or international
agreement.
Special Resident Foreign Corporation

o Income derived by the offshore banking units authorized by BSP, from foreign
currency transactions with non-residents, other offshore banking units, local
commercial banks, including branches of foreign banks that maybe authorized by
BSP to transact business with offshore banking units shall be exempt from all taxes
except net income from such transactions as maybe specified by the Secretary of
Finance, upon recommendation of the Monetary Board, which shall be subject to the
regular income tax payable by banks.
o Interest income derived from foreign currency loans granted to residents other than
offshore banking units, local commercial banks, including local branches of foreign
banks, is subject to 10% final tax rate.
Special Resident Foreign Corporation

o Tax on Branch Profits Remittances – 15% based on total profits

remitted to its head office without any deduction for the tax component
thereof (except those registered with PEZA)

o Interest, dividends, rents, royalties including remuneration for technical

services, salaries, wages, premiums, annuities, emoluments, or other fixed
or determinable annual, periodic or casual gains, profits, income and
capital gains received by foreign corporation during each taxable year
from all sources within the Phils. shall not be treated as branch profits
unless the same are effectively connected with the conduct of its trade
or business in the Philippines.
Special Resident Foreign Corporation

o Regional or Area Headquarters (supervisory, communicating,

and coordinating center)– exempt

o Regional Operating Headquarters – 10% of taxable income

Non-resident foreign corporation
o Regular income/ Ordinary income – tax of 30% of the gross income
except reinsurance premium and those subject to capital gains tax.

o Special corporation:
o Non-resident cinematographic film owner, lessor, or distributor – 25%
of gross income
o Non-resident owner or lessor of vessels chartered by Philippine
Nationals – 4.5% of gross income
o Non-resident owner or lessor of aircraft machineries and other
equipment – 7.5% of the gross income
Joint Venture or Consortium

 Taxable joint venture (JV) = treated as dividend income from

domestic corporation, therefore, exempt (intercompany
dividend).

 Tax exempt joint venture (JV) = treated as ordinary income;

thus not treated as dividend income.
Taxes on Corporations (IAET)
o IAET – Improperly Accumulated Earnings Taxes;

o 10% of the improperly accumulated taxable income;

o Taxes in lieu of dividends (earnings) not distributed to the

shareholders but accumulated, thus no income taxes paid by the
shareholders.
Taxes on Corporations (IAET)
o It does not apply to (BPI):
o Banks and other non-banks financial intermediaries
o Publicly held corporation
o Insurance companies

o IAE are allowed within the reasonable needs of the business,

which is necessary to prove by the corporations.
Taxes on Corporations (IAET)
o The term “improperly accumulated taxable income” means taxable income adjusted
(Increased) by:
 Income exempt from tax;
 Income excluded from gross income;
 Income subject to final tax;
 The amount of net operating loss carry-over (NOLCO)
o Deducted by:
 Dividend actually or constructively paid; and
 Income tax paid for the taxable year
o The final amount shall be multiplied by 10% to get IAET.
Exempt Corporation
1. Labor, agricultural or horticultural organization not organized principally for profit;
2. Mutual savings bank not having a capital stock represented by shares, and cooperative
bank without capital stock organized and operated for mutual purposes and without
profit;
3. A beneficiary society, order, or association, operating for the exclusive benefit of the
members such as fraternal organization operating under the lodge system, or a mutual
aid association or a non-stock corporation organized by employees providing for the
payment of life, sickness, accident, or other benefits exclusively to the members of such
society, order, or association, or non-stock corporation or their dependents;
4. Cemetery company owned and operated exclusively for the benefit of its members;
Tax on Corporation (Exempt)
5. Nonstock corporation or association organized and operated exclusively for religious,
charitable, scientific, athletic, or cultural purposes or for the rehabilitation of veterans,
no part of its net income or asset shall belong to or inure to the benefit of any member,
organizer, officer or any specific person;
6. Business league, chamber of commerce, or board of trade, not organized for profit and
no part of the net income of which inures to the benefit of any private stockholder or
individual;
7. Civic league or organizations not organized for profit but operated exclusively for the
promotion of social welfare;
8. A nonstock and nonprofit educational institution;
9. Government educational institution;
Tax on Corporation (Exempt)
10. Farmers’ or other mutual typhoon or fire insurance company, mutual ditch or irrigation
company, mutual or cooperative telephone company, or like organization of a purely local
character, the income of which consists solely of assessments, dues, and fees collected
from members for the sole purpose of meeting its expenses;
11. Farmers’, fruit growers’ or like association organized and operated as a sales agent for the
purpose of marketing the products of its members and turning back to them the proceeds
of sales, less the necessary selling expenses on the basis of the quantity of produced
finished by them;
 The income of whatever kind and character of the foregoing organizations from any of their
properties, real or personal, or from any of their activities conducted for profit,
regardless of the disposition made of such income, shall be subject to tax.