Bureau of Internal Revenue
Republic of the Philippines


Tax Information



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INCOME TAX

Description
Who Are Required to File Income Tax Returns
Annual Income Tax for Individuals Earning Purely Compensation Income (Including Non-Business/Non-Professional Related Income)
Annual Income Tax for Self-Employed Individuals, Estates and Trusts (Including Those With Business and Compensation Income)

Account Information Form for Self-Employed Individuals, Estates and Trusts (Including Those With Business and Compensation Income)

Quarterly Income Tax for Self-Employed Individuals, Estates and Trusts (Including Those With Business and Compensation Income)

Annual Income Tax for Corporations and Partnerships

Account Information Form for Corporations and Partnerships

Quarterly Income Tax for Corporations and Partnerships

Improperly Accumulated Earnings Tax for Corporations

Annual Income Information for Non Resident Citizens/OCWs and Seamen (For Foreign-Sourced Income)

Tax Rates

Related Revenue Issuances

Codal Reference

Frequently Asked Questions


DESCRIPTION
Income Tax is a tax on all yearly profits arising from property, profession, trades or offices or as a tax on a person's income, emoluments, profits and the like.

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WHO ARE REQUIRED TO FILE INCOME TAX RETURNS
Individuals
·Resident citizens receiving income from sources within or outside the Philippines

- individuals deriving compensation income from 2 or more employers, concurrently or successively at anytime during the taxable year

- employees deriving compensation income regardless of the amount, whether from a single or several employers during the calendar year, the income tax of which has not been withheld correctly (i.e. tax due is not equal to the tax withheld) resulting to collectible or refundable return

- employees whose monthly gross compensation income does not exceed P5,000 or the statutory minimum wage, whichever is higher, and opted for non-withholding of tax on said income

- individuals deriving other non-business, non-professional related income in addition to compensation income not otherwise subject to a final tax

- individuals receiving purely compensation income from a single employer, although the income of which has been correctly withheld, but whose spouse is not entitled to substituted filing

· Non-resident citizens receiving income from sources within the Philippines
· Citizens working abroad receiving income from sources within the Philippines

· Aliens, whether resident or not, receiving income from sources within the Philippines

Corporations no matter how created or organized including general professional partnerships

· domestic corporations receiving income from sources within and outside the Philippines

· foreign corporations receiving income from sources within the Philippines

Estates and trusts engaged in trade or business



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Annual Income Tax For Individuals Earning Purely Compensation Income (Including Non-Business/Non-Profession Related Income)

Tax Form
BIR Form 1700 - Annual Income Tax Return (For Individual Earning Purely Compensation Income Including Non-Business/Non-Profession Related Income)

Documentary Requirements

1. Certificate of Income Tax Withheld on Compensation (BIR Form 2316)

2. Waiver of the Husband’s right to claim additional exemption, if applicable

3. Duly approved Tax Debit Memo, if applicable

4. Proof of Foreign Tax Credits, if applicable

5. Return previously filed return and proof of payment, if amended return

Procedures

1. Fill-up BIR Form 1700 in triplicate copies.

2. If there is payment:

Proceed to the nearest Authorized Agents Banks (AABs) of the Revenue District Office where you are required to register and present the duly accomplished BIR Form 1700, together with the required attachments and your payment.
· In places where there are no AABs, proceed to the Revenue Collection Officer or duly Authorized City or Municipal Treasurer located within the Revenue District Office where you are required to register and present the duly accomplished BIR Form 1700, together with the required attachments and your payment.
Receive your copy of the duly stamped and validated form from the teller of the AABs/Revenue Collection Officer/duly Authorized City or Municipal Treasurer.

3. For Refundable Returns and for those returns with second installment:
Proceed to the Revenue District Office where you are required to register or to any established Tax Filing Centers established by the BIR and present the duly accomplished BIR Form 1700, together with the required attachments.
· Receive your copy of the duly stamped and validated form from the RDO/Tax Filing Center representative.

Deadline

On or before the 15th day of April of each year covering income for the preceding taxable year


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Annual Income Tax For Self-Employed Individuals, Estates and Trusts (Including Those With Business and Compensation Income)

Tax Form
BIR Form 1701 - Annual Income Tax Return (For Self-Employed Individuals, Estates and Trusts Including Those With Business and Compensation Income)

Documentary Requirements
1. Certificate of Income Tax Withheld on Compensation (BIR Form 2316), if applicable

2. Certificate of Income Payments not Subjected to Withholding Tax (BIR Form 2304) if applicable

3. Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable

4. Waiver of the Husband’s right to claim additional exemption, if applicable

5. Duly approved Tax Debit Memo, if applicable

6. Proof of Foreign Tax Credits, if applicable

7. Return previously filed return and proof of payment, if amended return

8. Account Information Form (AIF) and the Certificate of the independent CPA or Audited Financial Statements except for taxpayers who opted for the Optional Standard Deduction (The CPA Certificate is required if the gross quarterly sales, earnings, receipts or output exceed P 150,000.00)

9. Proof of prior year’s excess tax credits, if applicable

Procedures
1. Fill-up BIR Form 1701 in triplicate copies.

2. If there is payment:

Proceed to the nearest Authorized Agents Banks (AABs) of the Revenue District Office where you are required to register and present the duly accomplished BIR Form 1701, together with the required attachments and your payment.
In places where there are no AABs, proceed to the Revenue Collection Officer or duly Authorized City or Municipal Treasurer located within the Revenue District Office where you are required to register and present the duly accomplished BIR Form 1701, together with the required attachments and your payment.
Receive your copy of the duly stamped and validated form from the teller of the AABs/Revenue Collection Officer/duly Authorized City or Municipal Treasurer
3. For Refundable Returns and for those returns with second installment:

Proceed to the Revenue District Office where you are required to register or to any established Tax Filing Centers established by the BIR and present the duly accomplished BIR Form 1701, together with the required attachments.
· Receive your copy of the duly stamped and validated form from the RDO/Tax Filing Center representative.

Deadline

Final Adjustment Return - On or before the 15th day of April of each year covering income for the preceding year

 

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Account Information Form For Self-Employed Individuals, Estates and Trusts (Including Those With Business and Compensation Income)

Tax Form
BIR Form 1701 AIF - Account Information Form For Self-Employed Individuals, Estates and Trusts (Including those with Business and Compensation Income)

NOTE: Pursuant to Revenue Memorandum Circular No. 6 – 2001, corporations, companies or persons whose gross quarterly sales, earnings, receipts or output exceed P 150,000.00 may not accomplish this form. In lieu thereof, they may file their annual income tax returns accompanied by balance sheets, profit and loss statement, schedules listing income-producing properties and the corresponding income therefrom, and other relevant statements duly certified by an independent CPA.

Documentary Requirements
None

Procedures

1. Accomplish BIR Form 1701 AIF in triplicate.

2. Attach the same to BIR Form 1701.

Deadline

Same deadline as BIR Form 1701 - On or before the 15th day of April of each year covering income for the preceding year


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Quarterly Income Tax For Self-Employed Individuals, Estates and Trusts (Including Those With Business and Compensation Income)

Tax Form

BIR Form 1701Q - Quarterly Income Tax Return (For Self-Employed Individuals, Estates and Trusts) (Including those with Business and Compensation Income)

Documentary Requirements

1. Certificate of Income Tax Withheld at Source (BIR Form 2307), if applicable

2. Certificate of Income Payments not Subjected to Withholding Tax (BIR Form 2304) if applicable

3. Duly approved Tax Debit Memo, if applicable

Procedures

1. Fill-up BIR Form 1701Q in triplicate copies.

2. If there is payment:
Proceed to the nearest Authorized Agents Banks (AABs) of the Revenue District Office where you are required to register and present the duly accomplished BIR Form 1701 Q, together with the required attachments and your payment.
In places where there are no AABs, proceed to the Revenue Collection Officer or duly Authorized City or Municipal Treasurer located within the Revenue District Office where you are required to register and present the duly accomplished BIR Form 1701Q, together with the required attachments and your payment.
Receive your copy of the duly stamped and validated form from the teller of the AABs/Revenue Collection Officer/duly Authorized City or Municipal Treasurer.

3. For Refundable Returns and for those returns with second installment:
Proceed to the Revenue District Office where you are required to register or to any established Tax Filing Centers established by the BIR and present the duly accomplished BIR Form 1701Q, together with the required attachments.
· Receive your copy of the duly stamped and validated form from the RDO/Tax Filing Center representative.

Deadlines

· April 15 – for the first quarter

· August 15 – for the second quarter

· November 15 – for the third quarter

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Annual Income Tax For Corporations and Partnerships

Tax Form

BIR Form 1702 - Annual Income Tax Return (For Corporations and Partnerships)

Documentary Requirements

1. Certificate of Income Payments not Subjected to Withholding Tax (BIR Form 2304) if applicable

2. Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable

3. Duly approved Tax Debit Memo, if applicable

4. Proof of Foreign Tax Credits, if applicable

5. Return previously filed return and proof of payment, if amended return

6. Account Information Form (AIF) and the Certificate of the independent CPA or Audited Financial Statements except for taxpayers who opted for the Optional Standard Deduction (The CPA Certificate is required if the gross quarterly sales, earnings, receipts or output exceed P150,000.00)

7. Proof of prior year’s excess tax credits, if applicable

Procedures

1. Fill-up BIR Form 1702 in triplicate copies.

2. If there is payment:

Proceed to the nearest Authorized Agents Banks (AABs) of the Revenue District Office where you are required to register and present the duly accomplished BIR Form 1702, together with the required attachments and your payment.
In places where there are no AABs, proceed to the Revenue Collection Officer or duly Authorized City or Municipal Treasurer located within the Revenue District Office where you are required to register and present the duly accomplished BIR Form 1702 with the required attachments and your payments.
Receive your copy of the duly stamped and validated form from the teller of the AABs/Revenue Collection Officer/duly Authorized City or Municipal Treasurer.
3. For No Payment Returns and Refundable Returns:

Proceed to the Revenue District Office where you are required to register or to any established Tax Filing Centers established by BIR and present the duly accomplished BIR Form 1702, together with the required attachments.
· Receive your copy of the duly stamped and validated form from the RDO/Tax Filing Center representative

Deadline

Final Adjustment Return - On or before the 15th day of the fourth month following the close of the taxpayer’s taxable year

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Account Information Form For Corporations and Partnerships

Tax Form

BIR Form 1702 AIF - Account Information Form (For Corporations and Partnerships)

NOTE: Pursuant to Revenue Memorandum Circular No. 6 – 2001, corporations, companies or persons whose gross quarterly sales, earnings, receipts or output exceed P 150,000.00 may not accomplish this form. In lieu thereof, they may file their annual income tax returns accompanied by balance sheets, profit and loss statement, schedules listing income-producing properties and the corresponding income therefrom, and other relevant statements duly certified by an independent CPA.

Documentary Requirements

None

Procedures

1. Accomplish BIR Form 1702 AIF in triplicate.

2. Attach the same to BIR Form 1702.

Deadline

Same deadline as BIR Form 1702 - On or before the 15th day of the fourth month following the close of the taxpayer’s taxable year

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Quarterly Income Tax For Corporations and Partnerships

Tax Form
BIR Form 1702 Q - Quarterly Income Tax Return (For Corporations and Partnerships)

Documentary Requirements

1. Certificate of Income Tax Withheld at Source (BIR Form 2307), if applicable

2. Certificate of Income Payments not Subjected to Withholding Tax (BIR Form 2304) if applicable

3. Duly approved Tax Debit Memo, if applicable

Procedures

1. Fill-up BIR Form 1702 Q in triplicate copies.

2. If there is payment:

Proceed to the nearest Authorized Agents Banks (AABs) of the Revenue District Office where you are required to register and present the duly accomplished BIR Form 1702 Q, together with the required attachments and your payment.
In places where there are no AABs, proceed to the Revenue Collection Officer or duly Authorized City or Municipal Treasurer located within the Revenue District Office where you are required to register and present the duly accomplished BIR Form 1702 Q.
Receive your copy of the duly stamped and validated form from the teller of the AABs/Revenue Collection Officer/duly Authorized City or Municipal Treasurer.
3. For Refundable Returns and for those returns with second installment:

Proceed to the Revenue District Office where you are required to register and present the duly accomplished BIR Form 1702 Q, together with the required attachments.
· Receive your copy of the duly stamped and validated form from the RDO representative.

Deadline

Corporate Quarterly Declaration - On or before the 60th days following the close of each of the quarters of the taxable year


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Improperly Accumulated Earnings Tax For Corporations

Tax Form

BIR Form 1704 - Improperly Accumulated Earnings Tax Return (For Corporations)

Documentary Requirements

1. Photocopy of Annual Income Tax Return (BIR Form 1702) and Audited Financial Statements or Account Information Form of the taxable year covered duly received by the BIR; and

2. Sworn declaration as to dividends declared taken from the covered year earnings and the corresponding tax withheld, if any

Procedures

1. Fill-up BIR Form 1704 in triplicate copies.

2. If there is payment:

· Proceed to the nearest Authorized Agents Banks (AABs) of the Revenue District Office where you are required to register and present the duly accomplished BIR Form 1704, together with the required attachments and your payment.

· In places where there are no AABs, proceed to the Revenue Collection Officer or duly Authorized City or Municipal Treasurer located within the Revenue District Office where you are required to register and present the duly accomplished BIR Form 1704

· Receive your copy of the duly stamped and validated form from the teller of the AABs/Revenue Collection Officer/duly Authorized City or Municipal Treasurer.

3. If there is no payment

· Proceed to the Revenue District Office where you are required to register and present the duly accomplished BIR Form 1704, together with the required attachments.

· Receive your copy of the duly stamped and validated form from the RDO representative

Deadline

Within fifteen (15) days after the close of the year


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Annual Income Information For Non Resident Citizens/OCWs and Seamen (For Foreign-Sourced Income)

Tax Form

BIR Form 1703 - Annual Income Information Return For Non Resident Citizens/OCWs and Seamen (For Foreign-Sourced Income)

Note: Now optional based on Revenue Regulations No. 5-2001.

TAX RATES

For Individuals Earning Purely Compensation Income and Individuals Engaged in Business and Practice of Profession

Over
But Not Over
Rate
  P 10,000
5%
P 10,000 30,000
P 500 + 10% of the Excess over P 10,000
30,000 70,000
P 2,500 + 15% of the Excess over P 30,000
70,000 140,000
P 8,500 + 20% of the Excess over P 70,000
140,000 250,000
P 22,500 + 25% of the Excess over P 140,000
250,000 500,000 P 50,000 + 30% of the Excess over P 250,000
500,000   P125,000 + 34% of the Excess over P500,000 In 1998.
Note: Effective January 1, 1999, the maximum rate shall be thirty-three percent (33%) and thirty-two percent (32%) on January 1, 2000.

Note: When the tax due exceeds P 2,000.00, the taxpayer may elect to pay in two equal installments, the first installment to be paid at the time the return is filed and the second installment on or before July 15 of the same year at the Authorized Agent Bank (AAB) within the jurisdiction of the Revenue District Office (RDO) where the taxpayer is registered.

 
Tax Rate
Taxable Base
1. Domestic Corporations:    
a. In General
32%
Taxable income from all sources
b. Minimum Corporate Income Tax*
2%
Gross Income
c. Improperly Accumulated Earnings
10%
Improperly Accumulated Taxable Income
2. Proprietary Educational Institution
10%
Taxable income from all sources
3. Non-stock, Non-profit Hospitals
10%
Taxable income from all sources
4. GOCC, Agencies & Instrumentalities    
a. In General
32%
Taxable income from all sources
b. Minimum Corporate Income Tax *
2%
Gross Income
c. Improperly Accumulated Earnings
10%
Improperly Accumulated Taxable Income
5. National Gov’t & LGUs    
a. In General
32%
Taxable income from all sources
b. Minimum Corporate Income Tax*
2%
Gross Income
c. Improperly Accumulated Earnings
10%
Improperly Accumulated
6. Taxable Partnerships    
a. In General
32%
Taxable income from all sources
b. Minimum Corporate Income Tax*
2%
Gross Income
c. Improperly Accumulated Earnings
10%
Improperly Accumulated Taxable Income

7. Exempt Corporation    
a. On Exempt Activities
0%
 
b. On Taxable Activities
32%
Taxable income from all sources

8. General Professional Partnerships
0%
9. Corporation covered by Special Laws
Rate specified under the respective special laws
a. In General
32%
Taxable income from all sources

b. Minimum Corporate Income Tax*
2%
Gross Income
c. Improperly Accumulated Earnings
10%
Improperly Accumulated Taxable Income
*Beginning on the 4th year immediately following the year in which such corporation commenced its business operations, when the minimum corporate income tax is greater than the tax computed using the normal income tax.

11. International Carriers
2.5%
Gross Philippine Billings
12. Regional Operating Headquarters
10%
Taxable Income
13. Offshore Banking Units (OBUs)
10%
Gross Taxable Income On Foreign Currency Transaction
 
32%
On Taxable Income other than Foreign Currency Transaction
14. Foreign Currency Deposit Units (FCDU)
10%
Gross Taxable Income On Foreign Currency Transaction
 
32 %
On Taxable Income other than Foreign Currency Transaction
A) For Citizens and Resident Aliens (including OFWs)
In General
Over But Not Over  
 
P 10,000
5%
P 10,000
30,000
P 500 + 10% of the Excess over P 10,000
30,000
70,000
P 2,500 + 15% of the Excess over P 30,000
70,000
140,000
P 8,500 + 20% of the Excess over P 70,000
140,000
250,000
P 22,500 + 25% of the Excess over P 140,000
250,000
500,000
P 50,000 + 30% of the Excess over P 250,000
500,000
P125,000 + 34%* of the Excess over P 500,000 In 1998.
Note: Effective January 1, 1999, the maximum rate shall be thirty-three percent (33%) and thirty-two percent (32%) on January 1, 2000.
Passive Income
1) Interest on any peso bank deposit
20%
2) Royalties (except on books as well as literary & musical composition-10%)
20%
3) Prizes (except prizes amounting to P 10,000 or less –5 %)
20%
4) Winnings (except from PCSO and lotto)
20%
5) Interest Income on Foreign Currency Deposit
7.5%
6) Interest from long-term deposit
Holding Period  
- Four (4) years to less than five (5) years
5%
- Three (3) years to less than four (4) years
12%
- Less than three (3) years
20%
7) Cash and/or Property Dividends
Beginning January 1, 1998
6%
Beginning January 1, 1999
8%
Beginning January 1, 2000 & thereafter
10%
8) On capital gains presumed to have been realized from sale, exchange or other disposition of real property (capital asset)
6%
9) On capital gains for shares of stock not traded in the stock exchange
- Not over P 100,000
5%
- Any amount in excess of P 100,000
10%
   

B) For Non-Resident Aliens Engaged in Trade or Business

1) On Certain Passive Income
20%
- Cash and/or Property Dividends
- Share in the distributable net income of a partnership
- Interest on any bank deposits
- Royalties(except on books as well as literary works and musical composition)
- Prizes (except prizes amounting to P 10,000 or less)
- Winnings

2) Interest Income from long time deposits
Holding Period
 
- Four (4) years to less than five (5) years
5%
- Three (3) years to less than four (4) years
12%
- Less than three (3) years
20%
3) On capital gains presumed to have been realized from the sale, exchange or other disposition of real property
6%
4) On capital gains for shares of stock not traded in the Stock Exchange
- Not over P 100,000
5%
- Any amount in excess of P 100,000
10%
C) For Non-Resident Aliens Not Engaged in Trade or Business
1) On the gross amount of income derived from all sources within the Philippines
25%
2) On capital gains presumed to have been realized from the exchange or other disposition of real property located in the Phils.
6%
D) Aliens Employed by Regional Headquarters (RHQ), Regional Operating (ROH), Offshore Banking Units (OBU), Petroleum Service Contractors and Subcontractors
15%
E) General Professional Partnerships
0%
F) Domestic Corporations
1) a. In General
32%
b. Minimum Corporate Income Tax
2%
c. Improperly Accumulated Earnings
10%
 
2) Proprietary Educational Institution
10%
 
3) Non-stock, Non-profit Hospitals
10%
 
4) GOCC, Agencies & Instrumentalities
a. In General
32%
b. Minimum Corporate Income Tax
2%
c. Improperly Accumulated Earnings
10%
 
5) National Gov’t & LGUs
a. In General
32%
b. Minimum Corporate Income Tax
2%
c. Improperly Accumulated Earnings
10%
 
6) Taxable Partnerships
a. In General
32%
b. Minimum Corporate Income Tax
2%
c. Improperly Accumulated Earnings
10%
 
7) Exempt Corporation
a. On Exempt Activities
0%
b. On Taxable Activities
32%
 
8) Corporation covered by Special Laws
Rate specified under the respective special laws
 
G) Resident Foreign Corporation
1) a. In General
32%
b. Minimum Corporate Income Tax
2%
c. Improperly Accumulated Earnings
10%
 
2) International Carriers
25%
 
3) Regional Operating Headquarters
10%
 
4) Corporation Covered by Special Laws
Rate specified under the respective special laws
 
5) Offshore Banking Units (OBUs)
10%
   
6) Foreign Currency Deposit Units (FCDU)
10%


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RELATED REVENUE ISSUANCES
RR No. 4-95, RR No. 4-96, RR No. 5-97, RR No. 1-98


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CODAL REFERENCE

Sections 23-59, 67-73 and 74-77 of the National Internal Revenue Code

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FREQUENTLY ASKED QUESTIONS

1) What is income?

Income means all wealth, which flows into the taxpayer other than as a mere return of capital.

2) What is Taxable Income?

Taxable income means the pertinent items of gross income specified in the Tax Code less the deductions and/or personal and additional exemptions, if any, authorized for such types of income, by the Tax Code or other special laws.

3) What is Gross Income?

Gross income means all income derived from whatever source.

4) What comprises gross income?

Gross income includes, but is not limited to the following:

· Compensation for services, in whatever form paid, including but not limited to fees, salaries, wages, commissions and similar item

· Gross income derived from the conduct of trade or business or the exercise of profession

· Gains derived from dealings in property

· Interest

· Rents

· Royalties

· Dividends

· Annuities

· Prizes and winnings

· Pensions

· Partner's distributive share from the net income of the general professional partnerships

5) What are some of the exclusions from gross income?

· Life insurance

· Amount received by insured as return of premium

· Gifts, bequests and devises

· Compensation for injuries or sickness

· Income exempt under treaty

· Retirement benefits, pensions, gratuities, etc.

· Miscellaneous items

- income derived by foreign government

- income derived by the government or its political subdivision

- prizes and awards in sport competition

- prizes and awards which met the conditions set in the Tax Code

- 13th month pay and other benefits

- GSIS, SSS, Medicare and other contributions

- gain from the sale of bonds, debentures or other certificate of indebtedness

- gain from redemption of shares in mutual fund

6) What are the allowable deductions from gross income?

Except for taxpayers earning compensation income arising from personal services rendered under an employer-employee relationships where the only deduction up to a maximum limit of P 2,400 per year per family is the premium payment on health and/or hospitalization insurance, a taxpayer may opt to avail any of the following allowable deductions from gross income:

· Optional Standard Deduction - an amount not exceeding 10% of the gross income; or

· Itemized Deductions which include the following:

- Expenses

- Interest

- Taxes

- Losses

- Bad Debts

- Depreciation

- Depletion of Oil and Gas Wells and Mines

- Charitable Contributions and Other Contributions

- Research and Development

- Pension Trusts

In addition, individuals who are either earning compensation income, engaged in business or deriving income from the practice of profession are entitled to personal and additional exemptions as follows:

Personal Exemptions:

For single individual or married individual judicially decreed as legally separated with no qualified dependents…………………………………………...P 20,000.00

For head of family………………………………….....P 25,000.00

For each married individual *……………………... .P 32,000.00

Note: In case of married individuals where only one of the spouses is deriving gross income, only such spouse will be allowed to claim the personal exemption.

Additional Exemptions

· For each qualified dependent, an P 8,000 additional exemption can be claimed but only up to 4 qualified dependents

· The additional exemption can be claimed by the following:

- The husband who is deemed the head of the family unless he explicitly waives his right in favor of his wife

- The spouse who has custody of the child or children in case of legally separated spouses. Provided, that the total amount of additional exemptions that may be claimed by both shall not exceed the maximum additional exemptions allowed by the Tax Code.

- The individuals considered as Head of the Family supporting a qualified dependent

The maximum amount of P 2,400 premium payments on health and/or hospitalization insurance can be claimed if:

· Family gross income yearly should not be more than P 250,000

· For married individuals, the spouse claiming the additional exemptions for the qualified dependents shall be entitled to this deduction

7) Who are required to file the Income Tax returns?

Ø Individuals

· resident citizens receiving income from sources within or outside the Philippines

- individuals deriving compensation income from 2 or more employers, concurrently or successively at anytime during the taxable year

- employees deriving compensation income regardless of the amount, whether from a single or several employers during the calendar year, the income tax of which has not been withheld correctly (i.e. tax due is not equal to the tax withheld) resulting to collectible or refundable return

- employees whose monthly gross compensation income does not exceed P5,000 or the statutory minimum wage, whichever is higher, and opted for non-withholding of tax on said income

- individuals deriving pother non-business, non-professional related income in addition to compensation income not otherwise subject to a final tax

- individuals receiving purely compensation income from a single employer, although the income of which has been correctly withheld, but whose spouse is not entitled to substituted filing

· non-resident citizens receiving income from sources within the Philippines

· citizens working abroad receiving income from sources within the Philippines

· aliens, whether resident or not, receiving income from sources within the Philippines

Ø Corporations no matter how created or organized including general professional partnerships

· domestic corporations receiving income from sources within and outside the Philippines

· foreign corporations receiving income from sources within the Philippines

Ø Estates and trusts engaged in trade or business

8) Who are not required to file Income Tax returns?

· An individual whose gross income does not exceed his total personal and additional exemptions

· An individual whose compensation income derived from one employer does not exceed P 60,000 and the income tax on which has been correctly withheld

· An individual whose income has been subjected to final withholding tax (alien employee as well as Filipino employee occupying the same position as that of the alien employee of regional headquarters and regional operating headquarters of multinational companies, petroleum service contractors and sub-contractors and offshore-banking units, non-resident aliens not engaged in trade or business)

· Those who are qualified under “substituted filing”. However, substituted filing applies only if all of the following requirements are present

- the employee received purely compensation income (regardless of amount) during the taxable year

- the employee received the income from only one employer in the Philippines during the taxable year

- the amount of tax due from the employee at the end of the year equals the amount of tax withheld by the employer

- the employee’s spouse also complies with all 3 conditions stated above

- the employer files the annual information return (BIR Form No. 1604-CF)

- the employer issues BIR Form No. 2316 (Oct 2002 ENCS version ) to each employee.

9) Who are exempt from Income Tax?

Ø Non-resident citizen who is:

a) 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

b) 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

c) 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

d) A citizen who has been previously considered as a non-resident citizen and who arrives in the Philippines at any time during the year to reside permanently in the Philippines will likewise be treated as a non-resident citizen during 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.

Ø Overseas Contract Worker, including overseas seaman

An individual citizen of the Philippines who is working and deriving income from abroad as an overseas contract worker is taxable only on income 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 will be treated as an overseas contract worker.

NOTE: A Filipino employed as Philippine Embassy/Consulate service personnel of the Philippine Embassy/consulate is not treated as a non-resident citizen, hence his income is taxable.

10) What are the procedures in filing Income Tax returns (ITRs)?

Ø For “with payment” ITRs (BIR Form Nos. 1700 / 1701 / 1701Q / 1702 / 1702Q / 1704)

File the return in triplicate (two copies for the BIR and one copy for the taxpayer) with the Authorized Agent Bank (AAB) of the place where taxpayer is registered or required to be registered. In places where there are no AABs, the return will be filed directly with the Revenue Collection Officer or duly Authorized Treasurer of the city or municipality in which such person has his legal residence or principal place of business in the Philippines, or if there is none, filing of the return will be at the Office of the Commissioner.

Ø For “no payment” ITRs -- refundable, breakeven, exempt and no operation/transaction, including returns to be paid on 2nd installment, withholding tax returns (WTRs) covered by Tax Remittance Advice (TRA) and returns paid through a Tax Debit Memo(TDM)/Credit Memo (CM)

File the return with the concerned Revenue District Office (RDO) where the taxpayer is registered. However, no payment returns filed late shall not be accepted by the RDO but instead shall be filed with an Authorized Agent Bank (AAB) or Collection Officer/Deputized Municipal Treasurer (in places where there are no AABs), for payment of necessary penalties.

11) How is Income Tax computed?

Gross Income
P ___________

Less: Allowable Deductions
___________

Net Income
P ___________

Less: Personal & Additional Exemptions
___________

Taxable Income
P ___________

Multiply by Tax Rate (5 to 32%)


Income Tax Due
P ___________

12) How is Income Tax paid?

Ø Through withholding

· Generally 10%

· 20% - Fees paid to directors who are not employees

Ø Pay the balance as you file the tax return, computed as follows:

Income Tax Due
P ___________

Less: 20% or 10% Withholding Tax
___________

Net Income Tax Due
P ___________



13) Is the Minimum Corporate Income Tax (MCIT) an addition to the regular or normal income tax?

No, the MCIT is not an additional tax. An MCIT of 2% of the gross income at the end of taxable year (whether calendar or fiscal year, depending on the accounting period employed) is hereby imposed upon any domestic corporation beginning the 4th taxable year immediately following the taxable year in which such corporation commenced its business operations. The MCIT is compared with the regular income tax, which is due from a corporation. If the regular income is higher than the MCIT, then the corporation does not pay the MCIT.

14) Who are covered by MCIT?

The MCIT covers domestic and resident foreign corporations which are subject to the regular income tax. The term “regular income tax” refers to the regular income tax rates under the Tax Code. Thus, corporations which are subject to a special corporate tax system do not fall within the coverage of the MCIT.

· Schools, hospitals and income of Offshore Banking Units (OBUs), and Foreign Currency Deposit Unit (FCDU) from foreign currency transactions

· Regional Operating Headquarters

The incomes of these corporations are subject to ten percent (10%) preferential tax rate.

· Firms under special income tax regime such as those under the PEZA law and the Bases Conversion Development Act

· International carriers subject to tax at 2 ½% of their gross Philippine billings

For corporations whose operations or activities are partly covered by the regular income tax and partly covered under special income tax system, the MCIT shall apply on operations by the regular income tax system.

Newly established corporations or firms which are on their first 3 years of operations are not covered by the MCIT.

15) When does a corporation start to be covered by the MCIT?

A corporation starts to be covered by the MCIT on the 4th year of its business operations. The period of reckoning which is the start of its business operations is the year when the corporation was registered with the BIR. This rule will apply regardless of whether the corporation is using the calendar year or fiscal year as its taxable year.

· Firms that were registered in 1994 and earlier years are covered by the MCIT beginning January 1, 1998

· Firms which were registered with the BIR in any month in 1998 will be covered by the MCIT after the lapse of 3 calendar years, i.e. 2002

16) When is the MCIT reported and paid? Is it quarterly?

The MCIT is paid on an annual basis. It is not computed nor paid on a quarterly basis. It is reported under BIR Form No. 1702

17) How is MCIT computed?

The MCIT is 2% of the gross income of the corporation at the end of the year.

“Gross income” means gross sales less sales returns, discounts and cost of goods sold. Passive income, which have been subject to a final tax at source do not form part of gross income for purposes of the MCIT.

Cost of goods sold includes all business expenses directly incurred to produce the merchandise to bring them to their present location and use.

For trading or merchandising concern, cost of goods sold means the invoice cost of goods sold, plus import duties, freight in transporting the goods to the place where the goods are actually sold, including insurance while the goods are in transit.

For a manufacturing concern, cost of goods manufactured and sold means all costs of production of finished goods such as raw materials used, direct labor and manufacturing overhead, freight cost, insurance premiums and other costs incurred to bring the raw materials to the factory or warehouse.

For sale of services, gross income means gross receipts less sales returns, allowances, discounts and cost of services which cover all direct costs and expenses necessarily incurred to provide the services required by the customers and clients including:

· Salaries and employees benefits of personnel, consultants and specialists directly rendering the service;

· Cost of facilities directly utilized in providing the service such as depreciation or rental of equipment used;

· Cost of supplies

Interest Expense is not included as part of cost of service, except in the case of banks and other financial institutions.

“Gross Receipts” means amounts actually or constructively received during the taxable year. However, for taxpayers employing the accrual basis of accounting, it means amounts earned as gross income.

18) What is the carry forward provision under the MCIT?

Any excess of the MCIT over the normal income tax may be carried forward on an annual basis and be credited against the normal income tax for 3 immediately succeeding taxable years.

19) How would the MCIT be recorded for accounting purposes?

Any amount paid as excess minimum corporate income tax should be recorded in the corporation’s books as an asset under account title “Deferred charges-MCIT”

20) How long can we amend our income tax return?

There is no prescription period for amending the return. Only when the taxpayer is being audited that he can no longer amend the return.

21) Can a benefactor of a senior citizen claim him/her as additional dependent in addition to his/her 3 qualified dependent children at P 8,000 each?

No. According to Revenue Regulations 2-94, the benefactor of a senior citizen cannot claim the P 8,000 additional exemption. The P 8,000 additional exemption is for only the dependent child.


22) What are tax treaties?

Tax treaties are defined primarily by their purpose. They are entered into by the Philippines with other foreign governments in order to spur national stability and development mainly by encouraging investors to invest in the Philippines and for the purpose of increasing flow of trade and investment between the Philippines and other countries.

In this regard, among the objectives of tax treaties are the following: 1) to eliminate double taxation caused by multiple jurisdiction asserting tax authority over the same income; 2) to assist tax administrators in the fight against tax evasion and avoidance through Exchange of Information and Mutual Agreement Procedure; and 3) the reciprocal reduction of tax impediments to cross-border investment and trade to promote international trade and investment.

23) What are the effective Philippine tax treaties?

The Philippines has thirty-one (31) effective tax treaties. The following tax treaties are in effect as of January 01, 2002:

EFFECTIVITY

1. Australia 1 January 1980

2. Austria 1 January 1983

3. Belgium 1 January 1981

4. Brazil 1 January 1992

5. Canada 1 January 1977

6. China 1 January 2002

7. Denmark (Re-negotiated) 1 January 1998

8. Finland 1 January 1982

9. France 1 January 1978

10. Germany 1 January 1985

11. Hungary 8 April 1998 (for taxes withheld at source)

1 January 1998 (for other taxes)

12. India 1 January 1995

13. Indonesia 1 January 1983

14. Israel 1 January 1997 (for taxes withheld at source)

25 July 1990 (for other taxes)

15. Italy 1 January 1990

16. Japan 1 January 1981

17. Korea 1 January 1987

18. Malaysia 1 January 1985

19. Netherlands 1 January 1992

20. New Zealand 1 January 1981

21. Norway 1 January 1997

22. Pakistan 1 January 1979

23. Romania 1 January 1998

24. Russia 1 January 1998

25. Singapore 1 January 1977

26. Spain 1 January 1994

27. Sweden 1 January 1990

28. Switzerland 1 January 2002

29. Thailand 1 January 1990

30. United Kingdom of Great 1 January 1978

Britain and Northern Ireland

31.United States of America 1 January 1983

24) What office can we inquire about the said tax treaties?

The International Tax Affairs Division (ITAD).

25) What taxes are covered by the Philippine tax treaties?

Income taxes imposed by the domestic laws of the Contracting States, including substantially similar taxes that may be imposed later, in addition to, or in its place, are covered by the tax treaties. In the Philippines, this is limited to Title II (Tax on Income) and the stock transaction tax of the Tax Code of 1997.

26) How is business income treated under our tax treaties?

The business profits of a resident of a Contracting State shall not be taxable in the Philippines unless that enterprise of a resident of a Contracting State carries on business in the Philippines through a permanent establishment.

27) What is the concept of permanent establishment (PE) as used in tax treaties?

PE is defined as a fixed place of business through which the business of the enterprise is wholly or partly carried on. The concept of permanent establishment is used to determine the rights of a Contracting State to tax the business profits of enterprises of the other Contracting State. Under this concept, profits of an enterprise of a Contracting State are not taxable by the other Contracting State, unless the enterprise carries on business through a permanent establishment situated in the other Contracting State.

A list of places, circumstances, and activities which constitute a permanent establishment is provided under the different tax treaties which the Philippines has with other countries.

28) What is the Most-Favored-Nation clause (MFN)?

The appearance of the MFN clause in the tax treaty means that a Contracting State will grant to a resident of the other Contracting State the same lower rate of tax or exemption the former has granted to a resident of a third State.

29) What is the tax treatment on immovable property?

Income from an immovable property is taxable in the Contracting State where the property is situated. This term is generally defined under the domestic laws of the Contracting States. However, this is further defined in the tax treaties.


30) How are capital gains taxed under our tax treaties?

Gains from the alienation of immovable property or movable property forming part of the business property of a permanent establishment or pertaining to a fixed base are taxed in the Philippines if the immovable property or permanent establishment or fixed base is located here.

31) How are shares of stock taxed under the tax treaties?

Gains from the alienation of shares of stock in a Philippine corporation are generally exempt from tax in the Philippines. These shall be taxed in the Contracting State where the alienator is a resident. However, in most treaties, if the assets of the Philippine corporation where the shares of stock are being sold consist principally of real property/real property interest, the Philippines shall have the right to tax such income. The rate of tax shall be the rates provided in the Tax Code of 1997.

32) How is income from independent / dependent personal services taxed in our tax treaties?

Income from employment derived by a resident of the other Contracting State is not subject to tax in the Philippines, except: 1) when the recipient is present here for more that the period agreed upon in the treaties, or 2) when the remuneration is paid by or on behalf of an employer who is a resident of the Philippines, or 3) when the employer abroad has a permanent establishment or fixed base here and remuneration is borne by such PE or fixed base.

33) What are the methods of relief from double taxation?

Ø Exemption - where a Contracting State exempts income derived therein by a resident of the other Contracting State and/or exempts income of its residents from foreign sources.

This is the relief generally employed by source countries where the tax laws are difficult to implement and/or unproductive of revenue.

To illustrate, under the Philippine laws, income earned in the Philippines by any person for services rendered here are subjected to tax. Thus, the salary of an employee of a corporation is legally taxable here. The income earner is in the Philippines performing services here and getting paid for it. However, this type of income and other similar types of income are exempted in the treaties under certain conditions.

Some income items, such as inter-corporate dividends, arising from and taxed in the Philippines, are exempted in the other Contracting State.

Ø Deduction - where taxes paid in one Contracting State are deducted from the taxable income of the taxpayer in the other Contracting State. The most common form calls for the residence Contracting State to allow a deduction from income for taxes paid to the source country on income derived therein.

This method is available to Filipino citizens residing abroad and paying taxes thereon. Taxes paid by non-resident Filipino citizens to the foreign government are deducted from the gross income.

Ø Credit

· Ordinary credit - where foreign taxes paid in a Contracting State are credited against domestic taxes.

· Matching credit - where the amount of credit includes not only the taxes actually paid, but also a portion of the amount reduced or exempted by the source country.

· Tax Sparing - where the full amount of the taxes reduced or exempted by the source country is credited.

· Deemed Paid Credit - (or indirect tax credit) - where corporate taxes paid on the income distributed as dividends are allowed as credits in addition to the withholding tax on the said dividends. The credit system is principally used when a Contracting State allows as a credit against the tax the appropriate amount of taxes paid or accrued to the other Contracting State.

For passive income, like dividends, interest and royalties, the modified version of the credit system, is applied to ensure that the benefit from the Philippines reduction of its tax will be fully enjoyed by the investor.

34) How are tax treaty reliefs obtained?

Application for tax treaty relief from double taxation are filed with the International Tax Affairs Division (ITAD). Specific guidelines are provided under RMO No. 10-92 as amended by RMO 1-2000. Applicants should accomplish BIR Form No. 0901 (in duplicate) and the documentary requirements specified in the form.

35) What is a Certificate of Residency?

A Certificate of Residency is a written proof that an individual or a corporation is a resident of the Philippines or of the other Contracting State, as the case may be, within the meaning of tax treaties. Generally, the basis in determining residence is where an individual or a corporation is primarily liable to taxes.

Requests for Certificate of Residency are filed with the ITAD, together with the following documentary requirements:

· As for individuals - Tax Identification Number (TIN) and/or latest tax/information return or passport or Embassy’s Certification as to residency;

· For corporations -Securities and Exchange Commission (SEC) Registration and BIR Registration


36) Are non-resident citizens, overseas contract workers (OCWs) and seamen required to file information returns on income derived from sources outside the Philippines?

Under Revenue Regulations 5-2001, non-resident citizens including OCWs and seamen who are exempt from tax with respect to income derived from sources outside the Philippines, but who are nevertheless mandated to file information returns, are no longer required to file the same on their income derived from sources outside the Philippines beginning taxable year 2001.

37) Does the BIR process applications for travel tax exemption?

The BIR does not have the jurisdiction to process applications for travel tax exemption. Any application or inquiry on the matter should be forwarded to the Department of Tourism being the proper Office having jurisdiction on the same.


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