INDIVIDUAL TAXATION

Source: https://www.nbc.com.au/wp-content/uploads/2016/05/Albert-Einstein-quote__1464648137_203.206.139.187.jpg
 CLASSIFICATION OF TAXPAYERS

As to citizenship:

 Citizens of the Philippines

 Resident citizen
 Nonresident citizen

 Aliens
 Resident alien
 Nonresident alien engaged in trade or business
 Nonresident alien not engaged in trade or business
 TAXABLE INCOME

As to citizenship:

 Citizens of the Philippines

 Resident citizen (Within and Without)
 Nonresident citizen (Within)

 Aliens
 Resident alien (Within)
 Nonresident alien engaged in trade or business (Within)
 Nonresident alien not engaged in trade or business (Within)
 TAXABLE INCOME

ILLUSTRATION
 NONRESIDENT CITIZEN

“(1) 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.
(2) a citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad,
either as an immigrant or for employment on a permanent basis.
(3) a citizen of the Philippines who works and derives income from abroad and whose employment
thereat requires him to be physically present abroad most of the time during the taxable year.
(4) a citizen who has been previously considered as nonresident citizen and who arrives in the
Philippines at any time during the taxable year to reside permanently in the Philippines shall
likewise be treated as a nonresident 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.
(5) the taxpayer shall submit proof to the commissioner to show his intention of leaving the
Philippines to reside permanently abroad or to return to and reside in the Philippines as the case may
be for purpose of this section.” [Sec. 22 (e), NIRC]
 MOST OF THE TIME

 Outside Philippines for not less than 183 days in a

particular taxable year. [Sec. 2, RR 1-79]
 OVERSEAS CONTRACT WORKER

“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.” [Sec. 23 (C), NIRC]
 OVERSEAS CONTRACT WORKER

“To be considered as an OCW or OFW, they must be

duly registered as such with the Philippine Overseas
Employment Administration (POEA) with a valid Overseas
Employment Certificate (OEC).” [Sec. 2, RR 1-2011]
PREVIOUSLY CONSIDERED NRC

ILLUSTRATION
A nonresident alien individual who shall come to the Philippines and stay therein for an aggregate period of more than one hundred eighty (180) days during any calendar year shall be deemed a 'nonresident a
doing business in the Philippines'. Section 22 (G) of this Code notwithstanding.

NONRESIDENT ALIEN ENGAGED IN TRADE/BUSINESS

“A nonresident alien individual who shall come to the

Philippines and stay therein for an aggregate period of
more than one hundred eighty (180) days during any
calendar year shall be deemed a 'nonresident alien doing
business in the Philippines.”

[Sec. 25 (A), R.A. 8424]

 NONRESIDENT ALIEN NOT ENGAGED IN TRADE/BUSINESS

“There shall be levied, collected and paid for each taxable year
upon the entire income received from all sources within the
Philippines by every nonresident alien individual not engaged in
trade or business within the Philippines as interest, cash and/or
property dividends, rents, salaries, wages, premiums, annuities,
compensation, remuneration, emoluments, or other fixed or
determinable annual or periodic or casual gains, profits, and income,
and capital gains, a tax equal to twenty-five percent (25%) of such
income.”

[Sec. 25 (B), NIRC]

 CLASSIFICATION OF TAXPAYERS

As to source of income:
 Purely compensation income earner (BIR form 1700)
 Purely business or profession income earner (BIR form 1701A)
 Mixed income earner (BIR form 1701)
 FILING OF INCOME TAX RETURN (ITR)

 Self assessment
 Pay as you file
 Substituted filing
PURELY COMPENSATION INCOME EARNER
(BIR form 1700)
 SUBSTITUTED FILING SYSTEM

 Purely compensation income earner

 Only one employer
 Issuance of BIR form No. 2316
 Consolidated income tax return (BIR form 1700)
PURELY COMPENSATION INCOME

ILLUSTRATION
(how to use tax table)
PURELY BUSINESS OR PROFESSION
INCOME EARNER
(BIR form 1701A)
 8% TAX OPTION

“Self-employed individuals and/or professionals shall

have the option to avail of an eight percent (8%) tax on
gross sales or gross receipts and other non-
operating income in excess of two hundred fifty
thousand pesos (P250,000) in lieu of the graduated
income tax rates under subsection (a)(2)(a) of this section
and the percentage tax under section 116 of this code” [Sec
24 A.2.b, NIRC]
 8% TAX OPTION

The option to be taxed at 8% income tax rate is not available to:

 A VAT-registered taxpayer, regardless of the amount of gross
sales / receipts;
 Taxpayer who is subject to Other Percentage Taxes under title V of
the tax code, as amended, except those subject under section 116
of the same title.
 Partners of a general professional partnership (GPP) by virtue of
their distributive share from GPP which is already net of cost and
expenses cannot avail of the 8% income tax rate option.
 PROPERLY INFORM THE BIR

Unless the taxpayer signifies the intention to

elect the 8% income tax rate in the 1st quarter
Percentage and / or Income Tax Return, or on the initial
quarter return of the taxable year after the
commencement of a new business/practice of profession,
the taxpayer shall be considered as having availed of
the graduated rates. Such election shall be
irrevocable and no amendment of option shall be
made for the said taxable year.
 8% TAX OPTION – FS NOT REQUIRED

A taxpayer who signifies the intention to avail of the 8% income tax

rate option, and is conclusively qualified for said option at the end of the
taxable year [annual gross sales/receipts and other non-operating
income did not exceed the VAT threshold (Php3,000,000.00)], shall
compute the final annual income tax due based on the actual annual
gross sales/receipts and other non-operating income. The said income
tax due shall be in lieu of the graduated rates of income tax and the
percentage tax under sec. 116 of the tax code, as amended. The
Financial Statements (FS) is not required to be attached in filing the
final income tax return. However, existing rules and regulations on
bookkeeping and invoicing/receipting shall still apply.
 EFFECT OF EXCEEDING VAT THRESHOLD

A taxpayer shall automatically be subject to

the graduated rates, even if the flat 8% income
tax rate option is initially selected, when
VAT threshold =
taxpayer's gross sales/receipts and other P3,000,000
non-operating income exceeded the VAT
threshold during the taxable year. In such
case, his income tax shall be computed under the
graduated income tax rates and shall be allowed
a tax credit for the previous quarter/s income tax
payment/s under the 8% income tax rate option.
MIXED INCOME EARNER
(BIR form 1701)
 MIXED INCOME

COMPENSATION INCOME

AND
INCOME FROM BUSINESS or PRACTICE OF
PROFESSION
 COMPENSATION INCOME

 Always subject to graduated income tax

rates
INCOME FROM BUSINESS or PRACTICE OF PROFESSION

Gross sales/receipts do not exceed VAT

threshold , graduated income tax rates or 8%
income tax rate may be used.

Gross sales/receipts exceed VAT threshold,

graduated income tax rates shall be used.
 250,000 ANNUAL DEDUCTION NOT APPLICABLE

REASON:
SUCH DEDUCTION IS ALREADY
INCORPORATED IN THE GRADUATED INCOME TAX
RATES.
MINIMUM WAGE EARNERS
MWE’s EXEMPTIONS:

 MINIMUM WAGE
 HOLIDAY PAY
 OVERTIME PAY
 NIGHT SHIFT DIFFERENTIAL
 HAZARD PAY
 STATUTORY MINIMUM WAGE (SMW)

 Rate fixed by the regional tripartite wage and

productivity board (RTWPB).

 Not uniform

 https://nwpc.dole.gov.ph/stats/current-real-minimum-
wage-rates/
 REVENUE REGULATION 2-1998

“Holiday pay, overtime pay, night shift differential pay and

hazard pay earned by the aforementioned MWE shall likewise be
covered by the above exemption. Provided, however, that an
employee who receives/earns additional compensation such
as commissions, honoraria, fringe benefits, benefits in
excess of the allowable statutory amount of ₱30,000.00,
taxable allowances and other taxable income other than the
SMW, holiday pay, overtime pay, hazard pay and night shift
differential pay shall not enjoy the privilege of being a MWE
and, therefore, his/her entire earnings are not exempt from
income tax, and consequently, from withholding tax.”
 EFFECT OF EXCEEDING THE MINIMUM

“When the wages received exceed the minimum

wage anytime during the taxable year, the employee
necessarily loses the MWE qualification. Therefore,
wages become taxable as the employee ceased to be an
MWE. But the exemption of the employee from tax on
the income previously earned as an MWE remains.”
[Soriano v. Secretary of Finance, G.R. No. 184450, 24 January 2017]
 FILING OF
INCOME TAX RETURN
KNOW THE DEADLINES
OF
FILING TAX RETURNS
PENALTY & INTEREST
 PENALTY

NIRC SEC. 248. - CIVIL PENALTIES.

(A) THERE SHALL BE IMPOSED, IN ADDITION TO THE TAX REQUIRED TO BE PAID, A PENALTY
EQUIVALENT TO TWENTY-FIVE PERCENT (25%) OF THE AMOUNT DUE, IN THE FOLLOWING
CASES:
(1) FAILURE TO FILE ANY RETURN AND PAY THE TAX DUE THEREON AS REQUIRED UNDER
THE PROVISIONS OF THIS CODE OR RULES AND REGULATIONS ON THE DATE PRESCRIBED;
OR
(2) UNLESS OTHERWISE AUTHORIZED BY THE COMMISSIONER, FILING A RETURN WITH AN
INTERNAL REVENUE OFFICER OTHER THAN THOSE WITH WHOM THE RETURN IS REQUIRED
TO BE FILED; OR
(3) FAILURE TO PAY THE DEFICIENCY TAX WITHIN THE TIME PRESCRIBED FOR ITS PAYMENT
IN THE NOTICE OF ASSESSMENT; OR
(4) FAILURE TO PAY THE FULL OR PART OF THE AMOUNT OF TAX SHOWN ON ANY RETURN
REQUIRED TO BE FILED UNDER THE PROVISIONS OF THIS CODE OR RULES AND
REGULATIONS, OR THE FULL AMOUNT OF TAX DUE FOR WHICH NO RETURN IS REQUIRED
TO BE FILED, ON OR BEFORE THE DATE PRESCRIBED FOR ITS PAYMENT.
 INTEREST

NIRC SEC. 249. INTEREST. -

(A) IN GENERAL. - THERE SHALL BE ASSESSED AND
COLLECTED ON ANY UNPAID AMOUNT OF TAX,
INTEREST AT THE RATE OF TWENTY PERCENT (20%)
PER ANNUM, OR SUCH HIGHER RATE AS MAY BE
PRESCRIBED BY RULES AND REGULATIONS, FROM
THE DATE PRESCRIBED FOR PAYMENT UNTIL THE
AMOUNT IS FULLY PAID.
IMPORTANCE OF
BIR FORM 2307
 BIR FORM 2307

“A certificate to be accomplished and issued to

recipients of income subject to expanded withholding tax
paid by a payor/withholding agent including government
money payments made by a government office showing therein
the monthly breakdown of the total income payments made and
the total taxes withheld and remitted during the
quarter/period.”

Source: https://www.bir.gov.ph/index.php/bir-forms/certificates.html#c2307
 BIR FORM 2307

“For EWT - this certificate in turn should be attached to the

quarterly/annual income tax return - BIR forms 1701Q / 1701 for
individuals, or BIR form 1702Q/ 1702 for non-individuals, in which
case, the amount of withholding tax shall be allowed as a tax
credit against the income tax liability of the income recipient
in the taxable quarter or year in which the income was
earned or received.”

Source: https://www.bir.gov.ph/index.php/bir-forms/certificates.html#c2307
OTHER TOPICS
ESTATES
&
TRUST
ESTATES

What is estate?
 SETTLEMENT OF ESTATE

 Judicial settlement of the estate

 Extra-judicial settlement of the estate

 PROBATE PROCEEDING

“No will shall pass either real or personal

property unless it is proved and allowed in
accordance with the rules of court.” [Art. 838, Civil Code]
 EXTRAJUDICIAL SETTLEMENT

“If the decedent left no will and no debts and the heirs are
all of age, or the minors are represented by their judicial or legal
representatives duly authorized for the purpose, the parties may
without securing letters of administration, divide the estate among
themselves as they see fit by means of a public instrument filed in the
office of the register of deeds, and should they disagree, they may do
so in an ordinary action of partition.” [Section 1, Rule 74, Rules of Court]
 ESTATES – What should be taxed?

 Properties left behind by the decedent

 Same treatment as that of individual taxpayer
 Income earned during probate proceeding (judicial settlement of the
estate)

 BIR Form 1701, and BIR Form 1701Q

Can you give example of

the properties that will
generate income?
ILLUSTRATION
TRUST
What is trust
agreement?
 TRUST BUSINESS

“Trust business shall refer to any activity resulting from a

trustor-trustee relationship (trusteeship) involving the appointment of a
trustee by a trustor for the administration, holding, management of
funds and/or properties of the trustor by the trustee for the use,
benefit or advantage of the trustor or of others called beneficiaries”
[Manual of Regulations for Banks]
 TRUST AGREEMENT

Trustor Trustee Trustor/Beneficiary

Prior to the actual transfer of properties to the

trustor/beneficiary, those properties may generate
income.
 IRREVOCABLE TRUST

 Cannot be modified
 The asset involved is removed from the trustor’s list of
properties
 The asset will be distributed according to the agreed
plan
 Taxable
ILLUSTRATION
MARRIED TAXPAYER
 MARRIED TAXPAYERS

“Married individuals, whether citizens, resident or

nonresident aliens, who do not derive income purely from
compensation, shall file a return for the taxable year to include
the income of both spouses, but where it is impracticable for
the spouses to file one return, each spouse may file a separate
return of income but the returns so filed shall be consolidated
by the Bureau for purposes of verification for the taxable
year.” [Sec. 51.D, NIRC]
 MARRIED TAXPAYERS

 One income tax return

 Separate computation on the same form except for the

“Aggregate Amount Payable/(Overpayment)”.
 MARRIED TAXPAYERS

 If it is impractical to file one return, two separate

returns shall be filed.

 Those income that cannot be identified as to who

earns it, shall be reported by both spouses on 50:50
basis.
 MANDATORY DEDUCTIONS - PAYROLL

GSIS/SSS
PHILHEALTH
PAG-IBIG CONTRIBUTIONS
UNION DUES
WITHHOLDING TAX
THANK YOU!