Contents

• Description
• Who Are Required To File Income Tax Returns
• Annual Income Tax For Individuals Earning Purely Compensation Income (Including Non-Business/Non-Profession 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 Mixed Income , I.E., Business And Compensation Income)
• Quarterly Income Tax For Self-Employed Individuals, Estates And Trusts (Including Those With Mixed Income, I.E., 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 Rate
• Related Revenue Issuances
• Codal Reference
• Frequently Asked Questions

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 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.

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

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.

2.  If there is payment:

• Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office where you are registered 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 registered 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 tax returns with second installment:

• Proceed to the Revenue District Office where you are registered or to any Tax Filing Center 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

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 Agent Bank (AAB) of the Revenue District Office where you are registered 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 registered 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 registered 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

Tax Form

BIR Form 1701 AIF - Account Information Form For Self-Employed Individuals, Estates and Trusts (Including those with Mixed Income, i.e., 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

Tax Form

BIR Form 1701Q - Quarterly Income Tax Return For Self-Employed Individuals, Estates and Trusts (Including those with Mixed Income, i.e., 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.

2. If there is payment:

• Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office where you registered 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 registered 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 registered or to any Tax Filing Center 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

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.

2.  If  there is payment:

• Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office where you are registered 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 registered 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 registered or to any Tax Filing Center 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

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

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.

2. If there is payment:

• Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office where you are registered 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 registered 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 registered 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 day following the close of each of the quarters of the taxable year

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 covered taxable year duly received by the BIR; and

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

Procedures

1. Fill-up BIR Form 1704 in triplicate.

2. If there is payment:

• Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office where you are registered 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 registered 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 registered 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

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.

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

Over	But Not Over	Rate
	P10,000	5%
P10,000	P30,000	P500 + 10% of the Excess over P10,000
P30,000	P70,000	P2,500 + 15% of the Excess over P30,000
P70,000	P140,000	P8,500 + 20% of the Excess over P70,000
P140,000	P250,000	P22,500 + 25% of the Excess over P140,000
P250,000	P500,000	P50,000 + 30% of the Excess over P250,000
P500,000		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 P2,000.00, 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 Taxable Income
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.

	Tax Rate	Taxable Base
10. International Carriers	2.5%	Gross Philippine Billings
11. Regional Operating Head	10%	Taxable Income
12. Offshore Banking Units (OBUs)	10%	Gross Taxable Income On Foreign Currency Transaction
	32%	On Taxable Income other than Foreign Currency Transaction
13. Foreign Currency Deposit  Units (FCDU)	10%	Gross Taxable Income On Foreign Currency Transaction
	32%	On Taxable Income other than Foreign Currency Transaction
In General
Over	But Not Over
	P10,000	5%
P10,000	P30,000	P500 + 10% of the Excess over P10,000
P30,000	P70,000	P2,500 + 15% of the Excess over P30,000
P70,000	P140,000	P8,500 + 20% of the Excess over P70,000
P140,000	P250,000	P22,500 + 25% of the Excess over P140,000
P250,000	P500,000	P50,000 + 30% of the Excess over P250,000
P500,000		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.

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 P10,000 or less -5%)	20%
4. Winnings (except from PCSO and lotto)	20%
5. Interest Income of 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 P100,000	5%
- Any amount in excess of P100,000	10%

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

1. On Certain Passive Income*	20%
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 P100,000	5%
- Any amount in excess of P100,000	10%

*Cash and/or Property Dividends, Share in the distributable net income of the partnership, Interest on any bank deposits, Royalties (except on books as well as literary works and musical composition), Prizes (except prizes amounting to P10,000 or less), Winnings

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%

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

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

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?

• 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

• 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

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?

• 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.

• 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)?

• 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.

• 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?

• Through withholding

• Generally 10%
• 20% - Fees paid to directors who are not employees

• 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