Income

Taxation
Individuals

Mark Alex B. Cadiao, CPA, MBA

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 To know the different classification of
individual taxpayers.
 Identify the tax rate and tax source of
each taxpayers
 To understand the different categories of
income and taxes
 To know how to compute for the income
tax due.
 Define TRAIN law
 Know the purpose and the benefits of
TRAIN law

Income Taxation on Individuals

Learning Objectives 2
Who are Individual
taxpayers?
Individual taxpayers are natural persons with
income derived from within the territorial
jurisdiction of a taxing authority.

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Classification of
Individual Taxpayers
Citizens
 Resident Citizens (RC)
 Non-resident Citizens (NRC)

Aliens
 Resident Aliens (RA)
 Non-resident Alien Engaged in Trade or Business (NRA-ETB)
 Non-resident Alien Not Engaged in Trade or Business (NRA-NETB)

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 A citizen of the Philippines who establishes to the
satisfaction of the Commissioner the fact of his physical
presence abroad with a definite intention to reside therein.
Immigrant

A citizen of the Philippines who leaves the Philippines

Non-resident during the taxable year to reside abroad, either as an
immigrant or for an employment on a permanent basis.
Citizens Permanent employee abroad

A citizen of the Philippines who works and derives income

from abroad and whose employment requires him to be
Sec. 22 (E) of the NIRC physically present abroad most of the time during the
taxable year. OFW/OCW
A citizen who has been previously considered as non-
resident citizen and who arrives in the Philippines at
anytime during the taxable year to reside permanently in the
Philippines shall likewise be treated as non-resident citizen
for the taxable year in which he arrives in the Philippines
with respect to his income derived from sources abroad until
the date of his arrival in the Philippines
Balik-bayan
 Means an individual whose residence is within the
Philippines and who is not a citizen thereof.

Aliens who are actually present in the Philippines and who

are not mere transients or sojourners.

Resident Aliens
An alien who lives in the Philippines with no definite
intention as to his stay.
Sec. 22 (F) of the NIRC

An alien who comes to the Philippines for the purposes that

requires extended stay for its accomplishments, so he makes
his home temporarily in the Philippines.
 Means an individual whose residence is not within the
Philippines and who is not a citizen thereof.

Non-Resident
Aliens Aliens who are actually present in the Philippines and who
are mere transients or sojourners.

Sec. 22 (F) of the NIRC

An aliens who come to the Philippines for a definite
purpose, which in its nature maybe promptly accomplished.
Non-Resident Alien Aliens who have business income in the Philippines.
Engaged in Trade or
Business
Aliens who have stayed in the Philippines for an aggregate
period of more than 180 days during the taxable year.
Sec. 22 (F) of the NIRC
Non-Resident Alien Aliens who have come to the Philippines for a definite
Not Engaged in Trade purpose which in its nature maybe promptly accomplished

or Business
Aliens who have stayed in the Philippines for an aggregate
period of not more than 180 days during the taxable year.
Sec. 22 (F) of the NIRC
Summary of Tax Rate and
Tax Source for Individual
Taxpayers
Taxpayer Tax Base Tax Rate Taxable Source
Resident Citizen Net Income Graduated or 8% on GS/R* Within and Without
Non-resident Citizen Net Income Graduated or 8% on GS/R* Within only
Resident Alien Net Income Graduated or 8% on GS/R* Within only
Non-resident Alien Engaged in Net Income Graduated or 8% on GS/R* Within only
Trade/Business
Non-resident Alien Not Gross Income Final Tax at 25% Within only
Engaged in Trade/Business

*In lieu of income and percentage tax for self-employed and professionals.

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CATEGORIES OF
INCOME AND TAXES

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 Compensation Income. In general, the term “compensation” means all remuneration for services
performed by an employee for his employer under the employer-employee relationship, unless
specifically excluded by the Code.

Business Income arises from self-employment or practice of profession. This shall not
include income from performance of services by the taxpayer as an employee.

Categories Passive Income are subject to a separate and final tax. These are taxed at fixed rates
ranging from 5% to 25%.
of Income
and Taxes
Capital Gains from sale of shares of stock, not traded through local stock exchange.
Taxed at 15% for Individual.

Capital Gains from sale of real property. Taxed at 6% FT on the gross selling price or
fair market value at the time of sale, whichever is higher.

Fringe Benefits. It means any goods, services, or other benefits furnished or granted by an
employer in cash or in kind in addition to basic salaries, to an individual employee (except rank-
and-file employee) under employer-employee relationship 12
Graduated Tax Rates

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How to compute
income tax due?

What is income tax due?

 Income tax due means the amount of tax liability as
determined applying the tax laws, rules and regulations.

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ILLUSTRATION
An individual taxpayer provided the following information for 2020:

Required:

1. How much is the taxable income and the amount of income tax due if the taxpayer is a resident citizen?
2. How much is the taxable income and the amount of income tax due if the taxpayer is a non-resident
citizen?
3. How much is the taxable income and the amount of income tax due if the taxpayer is a resident alien?
4. How much is the taxable income and the amount of income tax due if the taxpayer is a non-resident
alien engaged in Trade or Business?
5. How much is the taxable income and the amount of income tax due if the taxpayer is a non-resident
alien not engaged in Trade or Business?
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TAX REFORM FOR
ACCELERATION AND
INCLUSION (TRAIN)
 The Tax Reform for Acceleration and Inclusion amends certain
provision of R.A. No. 8424.
 The enrolled bill was sent to President Duterte for approval and was
signed into law as R.A. No. 10963 on December 19, 2017. The law
takes effect January 1, 2018 following its complete publication in the
Official Gazette last December 27, 2017.
 The President has issued a separate letter vetoing five provisions of
the signed TRAIN law.
 The law is just the first tax reform package. The second package
(reduction of corporate income tax and rationalism of fiscal
incentives) is estimated to be releast by early 2019.

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Purpose of TRAIN law
The purpose of TRAIN is to make our country’s tax system:

1 2 3
SIMPLE FAIR EFFICIENT

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NEW TAX RATES
UNDER TRAIN LAW

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NEW TAX RATES
UNDER TRAIN LAW

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ILLUSTRATION
Ms. Everything is a government employee handling the vlogging department. She is not engaged in business nor has any
other source of income other than her employment. For 2019, Ms. Everything earned a total taxable compensation
income of P900,000.00. How much is the income tax due?

Important note:
Individuals earning purely compensation income shall be taxed only based on the graduated tax rates.

Pure Compensation Income Earner 24

 Not a VAT registered person

R.A. 10963
Total Gross Sales/ Receipts and non-operating income do
An eight percent (8%) tax not exceed P3,000,000.00
on gross sales or receipts
and other non-operating
income in excess of
P250,000 in lieu of the
Signified his intention to be taxed at 8%
income tax and business
tax. (Other percentage tax).

The eight percent (8%) tax on gross sales or receipts and

other non-operating income does not include
compensation income.

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ILLUSTRATION
Mr. A, an accountant, owns a small grocery. During taxable year 2019, he had the following gross receipts:

Important note:
Individuals earning purely from self-employment shall have the option to be taxed at:
a. Graduated tax rates; or
b. An eight percent (8%) tax on gross sales or receipts and other non-operating income in excess of P250,000 in
lieu of the income tax and business tax. (Other percentage tax).

Purely Self-Employed Income Earner 26

ILLUSTRATION
Mr. A, an accountant, owns a small grocery. During taxable year 2019, he had the following gross receipts:

Purely Self-Employed Income Earner 27

ILLUSTRATION
Mr. A, an accountant, owns a small grocery. During taxable year 2019, he had the following gross receipts:

Purely Self-Employed Income Earner 28

THANK
YOU!

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