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:. Income Tax

Contents

 

Description

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 (Tax Code), as amended, less the deductions and/or personal and additional exemptions, if any, authorized for such types of income, by the Tax Code, as amended, or other special laws.



Who Are Required To File Income Tax Returns

Individuals

  • Resident citizens receiving income from sources within or outside the Philippines
    • employees deriving purely compensation income from 2 or more employers, concurrently or successively at anytime during the taxable year
    • employees deriving purely 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
    • self-employed individuals receiving income from the conduct of trade or business and/or practice of profession
    • individuals deriving mixed income, i.e., compensation income and income from the conduct of trade or business and/or practice of profession
    • 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
    • marginal income earners
  • Non-resident citizens receiving income from sources within the Philippines
  • Aliens, whether resident or not, receiving income from sources within the Philippines
  • Corporation shall include partnerships, no matter how created or organized.
  • 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

 



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

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.  Income Tax Return previously filed and proof of payment, if filing an amended return for the same taxable year

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 "No Payment" Returns including refundable returns, and for tax returns qualified for 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

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



Annual Income Tax For Self-Employed Individuals, Estates And Trusts (Including Those With Mixed Income,i.e., Compensation Income and Income from Business and/or Practice of Profession )

Tax Form

BIR Form 1701 - Annual Income Tax Return (For Self-Employed Individuals, Estates and Trusts Including Those With Both 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.  Income Tax Return previously filed and proof of payment, if filing an amended return for the same year

8.  Account Information Form (AIF) or  the Certificate of the independent CPA with  Audited Financial Statements 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 "No Payment" including refundable/ creditable returns, returns with excess tax credit carry over, and returns qualified for 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

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



Account Information Form For Self-Employed Individuals, Estates And Trusts (Including Those With Mixed Income , I.E., Compensation Income and Income from Business and/or Practice of Profession)

Tax Form

BIR Form 1701 AIF - Account Information Form For Self-Employed Individuals, Estates and Trusts (Including those with Mixed Income, i.e., Compensation Income and Income from Business and/or Practice of Profession) and Estates and Trusts (Engaged in Trade or Business)

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 taxable income for the preceding year



Quarterly Income Tax For Self-Employed Individuals, Estates And Trusts (Including Those With Mixed Income, I.E., Compensation Income and Income from Business and/or Practice of Profession)

Tax Form

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

4. Previously filed return, if an amended return is filed for the same quarter

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 "No Payment" Returns including refundable/ creditable returns with excess tax credit carry over and returns qualified for 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



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.  Income tax return previously filed and proof of payment, if amended return is filed for the same taxable year

6.  Account Information Form (AIF) and/or  the Certificate of the independent CPA with Audited Financial Statements, 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 including refundable/ creditable returns and returns with excess tax credit carry over:

    • 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 or Annual Income Tax Return - On or before the 15th day of the fourth month following the close of the taxpayer’s taxable year



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



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

4. Previously filed return, if an amended return is filed for the same quarter

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 or Quarterly Income Tax Return - On or before the 60th day following the close of each of the quarters of the taxable year



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) with Audited Financial Statements and/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 taxable year



Annual Income Information Form for General Professional Partnerships

Sec. 55. Returns of General Professional Partnership  (Tax Code of 1997, as amended)

Every general professional partnership shall file, in duplicate, a return of its income, except income exempt under Section 32 (B) of this Title, setting forth the items of gross income and of deductions allowed by this Title, and the names, Taxpayer Identification Numbers (TIN), addresses and shares of each of the partners.



Tax Rate

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

Amount of Net Taxable Income

Rate

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 + 32% of the Excess over P500,000 in 2000 and onward

 

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 15 of the same year at on or before July 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

30% (effective Jan. 1, 2009)

Net 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%

Net taxable income provided that the gross income from unrelated trade, business or other activity does not exceed 50% of the total gross income

3. Non-stock, Non-profit Hospitals

10%

Net taxable income provided that the gross income from unrelated trade, business or other activity does not exceed 50% of the total gross income

4. GOCC, Agencies & Instrumentalities

a. In General

30%

Net 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

30%

Net 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

30%

Net 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

30%

Net taxable income from all sources

8. General Professional Partnerships

0%

9. Corporation covered by Special Laws

Rate specified under the respective special laws

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

30%

On Taxable Income other than Foreign Currency Transaction

13. Foreign Currency Deposit  Units (FCDU)

10%

Gross Taxable Income On Foreign Currency Transaction

30%

On Taxable Income other than Foreign Currency Transaction

 

*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.

 

Passive Income

1. Interest from currency deposits, trust funds and deposit substitutes

20%

2. Royalties (on books as well as literary & musical composition)

10%

    - In general

20%

3. Prizes (P10,000 or less )

5%

    - In excess of P10,000

20%

4. Winnings (except from PCSO and lotto)

20%

5. Interest Income of Foreign Currency Deposit

7.5%

6. Cash and Property Dividends

  - To individuals from Domestic Corporations

10 %

  - To Domestic Corporations from Another Domestic Corporations

0%

7. On capital gains presumed to have been realized from sale, exchange or other disposition of real property (capital asset)

6%

8. 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%

9. Interest Income from long-term deposit or investment in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments evidenced by certificates

Exempt

 

 

 

Upon pretermination before the fifth year , there should be imposed on the entire income from the proceeds of the long-term deposit based on the remaining maturity thereof:

 

 

        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%

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

1. Interest from currency deposits, trust funds and deposit substitutes

20%

2. Interest Income from long-term deposit or investment in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments evidenced by certificates

Exempt

Upon pretermination before the fifth year, there should be imposed on the entire income from the proceeds of the long-term deposit based on the remaining maturity thereof:

 

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%

 

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%

3. 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%

D) On the gross income in the Philippines of Aliens Employed by Regional Headquarters (RHQ) or Area Headquarters and Regional Operating Headquarters (ROH), Offshore Banking Units (OBUs), Petroleum Service Contractor and Subcontractor

15%

E) General Professional Partnerships

0%

F) Domestic Corporations

1) a. In General – on net taxable income

30%

    b. Minimum Corporate Income Tax – on gross income

2%

    c. Improperly Accumulated Earnings – on improperly accumulated taxable income

10%

2) Proprietary Educational Institution and Non-profit Hospitals

10%

   - In general (on net taxable income)

10%

   - If the gross income from unrelated trade, business or other activity exceeds 50% of the total gross income from all sources

30%

4) GOCC, Agencies & Instrumentalities

   a. In General   - on net taxable income

30%

   b. Minimum Corporate Income Tax – on gross income

2%

   c. Improperly Accumulated Earnings – on improperly accumulated taxable income

10%

5) Taxable Partnerships

   a. In General – on net taxable income

30%

   b. Minimum Corporate Income Tax – on gross income

2%

   c. Improperly Accumulated Earnings – on improperly accumulated taxable income

10%

6) Exempt Corporation

   a. On Exempt Activities

0%

   b. On Taxable Activities

30%

8) Corporation covered by Special Laws

Rate specified under the respective special laws

 

G) Resident Foreign Corporation

1)a. In General – on net taxable income

30%

   b. Minimum Corporate Income Tax – on gross income

2%

   c. Improperly Accumulated Earnings – on improperly accumulated taxable income

10%

2) International Carriers – on gross Philippine billings

2.50%

3) Regional Operating Headquarters on gross income

10%

4) Corporation Covered by Special Laws

Rate specified under the respective special laws

5) Offshore Banking Units (OBUs) on gross income

10%

6) Foreign Currency Deposit Units (FCDU)  on gross income

10%

 



Related Revenue Issuances

RR No. 4-95, RR No. 4-96, RR No. 5-97, RR No. 1-98, RA 9337, RR 14-2002, RR 12-2007



Codal Reference

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



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 as amended, 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 provided that the gross family income does not exceed P250,000 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:

a)Optional Standard Deduction - an amount not exceeding 40% of the net sales for individuals and gross income for corporations; or

b) 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 50,000.00

For head of family……………………………P 50,000.00

For each married individual *…………P 50,000.00

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 P25,000 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
    • employees deriving purely compensation income from 2 or more employers, concurrently or successively at anytime during the taxable year
    • employees deriving purely 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
    • self-employed individuals receiving income from the conduct of trade or business and/or practice of profession
    • individuals deriving mixed income, i.e., compensation income and income from the conduct of trade or business and/or practice of profession
    • 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
    • marginal income earners
  • Non-resident citizens 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 partnerships
    • domestic corporations receiving income from sources within and outside the Philippines
    • foreign corporations receiving income from sources within the Philippines
    • taxable partnerships
  • Estates and trusts engaged in trade or business

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

a. An individual who is a minimum wage earner

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

c. 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

d. 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)

e. 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 Filipino Worker, including overseas seaman

An individual citizen of the Philippines who is working and deriving income from abroad as an overseas Filipino 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 Filipino 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, break-even, exempt and no operation/transaction, including returns to be paid on 2nd installment and returns paid through a Tax Debit Memo(TDM)

File the return with the concerned Revenue District Office (RDO) where the taxpayer is registered. However, "no payment" returns filed late shall 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 payable of individuals (resident citizens and non-resident citizens)computed?

 

Gross Income P ___________
Less: Allowable Deductions (Itemized or Optional) ___________
Net Income P ___________
Less: Personal & Additional Exemptions ___________
Net Taxable Income P ___________
Multiply by Tax Rate (5 to 32%) ____________
Income Tax Due: Tax withheld (per BIR From 2316/2304) P ___________
Income tax payable P____________

                                     


12) How is Income Tax paid?

  • Through withholding
    • Generally 10% or 15% if the gross annual business or professional income exceeds P720,000 per year
    • 20% - Fees paid to directors who are not employees and 20% of professional fees paid to non-individuals
    • Other withholding tax rates
  • Pay the balance as you file the tax return, computed as follows:

Income Tax Due P ___________
Less: 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 as of the end of taxable year (whether calendar or fiscal year, depending on the accounting period employed) is  imposed on a corporation taxable under Title II of the Tax Code, as amended, beginning on the 4th taxable year immediately following the taxable year in which such corporation commenced its business operations when the MCIT is greater than the regular income tax.  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 but the amount of the regular income tax.

 

Notwithstanding the above provision, however, the computation and the payment of MCIT, shall likewise appply at the time of filing the quarterly corporate income tax as prescribed under Section 75 and Section 77 of the Tax Code, as amended.  Thus, in the computation of the tax due for the taxable quarter, if the computed quarterly MCIT is higher than that quarterly normal income tax, the tax due to be paid for such taxable quarter at the time of filing the quarterly income tax return shall be the MCIT which is two percent (2%) of the gross income as of the end of the taxable quarter. In the payment of said quarterly MCIT, excess MCIT from the previous taxable year/s shall not be allowed to be credited.  Expanded withholding tax, quarterly corporate income tax payments under the normal income tax, and the MCIT paid in the previous taxable quarter/s are allowed to be applied against the quarterly MCIT due.

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.

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

 

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

 

The MCIT is paid on an annual basis and quarterly basis. The rules are governed by Revenue Regulations No. 12-2007.

 

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. When the taxpayer has been issued a Letter of Authority, 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 25,000 each?

 

No, pursuant to Revenue Regulations 2-94, the benefactor of a senior citizen cannot claim the additional exemption.

22) What is a tax treaty?

A tax treaty formally known as convention or agreement for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income (and on capital) could be defined in terms of its purpose.  First, a tax treaty is intended to promote international trade and investment in several ways, the most important of which is by allocating taxing jurisdiction between the Contracting States so as to eliminate or mitigate double taxation of income.  Second, a tax treaty is intended to permit the Contracting States to better enforce their domestic laws so as to reduce tax evasion.  These purposes are in fact incorporated in the title and the preamble.

23) What are the effective Philippine tax treaties?

The Philippines has thirty-seven (37) effective tax treaties.  The following tax treaties and their dates of effectivity as as follows:

Effective Philippine Tax Treaties (as of June 2010)

Country Date of Effectivity Date and Venue of Signature
1. Australia January 1, 1980 May 11, 1979, Manila, Philippines
2. Austria January 1, 1983 April 4, 1981, Vienna, Austria
3. Bahrain January 1, 2004 November 7, 2001, Manila, Philippines
4. Bangladesh January 1, 2004 September 8, 1997, Manila, Philippines
5. Belgium January 1, 1981 October 2, 1976, Manila, Philippines
6. Brazil January 1, 1992 Sept. 29, 1983, Brasilia, Brazil
7. Canada January 1, 1977 March 11, 1976, Manila, Philippines
8. China January 1, 2002 November 18, 1999, Beijing, China
9. Czech January 1, 2004 November 13, 2000, Manila, Philippines
10. Denmark (Renegotiated) January 1, 1998 June 30, 1995, Copenhagen, Denmark
11. Finland January 1, 1982 October 13, 1978, Manila, Philippines
12. France January 1, 1978 January 9, 1976, Kingston, Jamaica
13. Germany January 1, 1985 July 22, 1983, Manila, Philippines
14. Hungary January 1, 1998 June 13, 1997, Budapest, Hungary
15. India January 1, 1995 February 12, 1990, Manila, Philippines
16. Indonesia January 1, 1983 June 18, 1981, Manila, Philippines
17. Israel January 1, 1997 June 9, 1992, Manila, Philippines
18. Italy January 1, 1990 December 5, 1980, Rome, Italy
19. Japan January 1, 1981 February 13, 1980, Tokyo, Japan
20. Korea January 1, 1987 February 21, 1984, Seoul, Korea
21. Malaysia January 1, 1985 April 27, 1982, Manila, Philippines
22. Netherlands January 1, 1992 March 9, 1989, Manila, Philippines
23. New Zealand January 1, 1981 April 29, 1980, Manila, Philippines
24. Norway January 1, 1998 July 9, 1987, Manila, Philippines
25. Pakistan January 1, 1979 February 22, 1980, Manila, Philippines
26. Poland January 1, 1998 September 9, 1992, Manila, Philippines
27. Romania January 1, 1998 May 18, 1994, Bucharest, Romania
28. Russia January 1, 1998 April 26, 1995, Manila, Philippines
29. Singapore January 1, 1977 August 1, 1977, Manila, Philippines
30. Spain January 1, 1994 March 14, 1989, Manila, Philippines
31. Sweden (Renegotiated) January 1, 2004 June 24, 1998, Manila, Philippines
32. Switzerland January 1, 2002 June 24, 1998, Manila, Philippines
33. Thailand January 1, 1983 July 14, 1982, Manila, Philippines
34. United Arab Emirates January 1, 2009 September 21, 2003, Dubai, UAE

35. United Kingdom of Great Britain

 and Northern Ireland

January 1, 1979 June 10, 1976, London, United Kingdom
36. United States of America January 1, 1983 October 1, 1976, Manila, Philippines
37. Vietnam January 1, 2004 November 14, 2001, Manila, Philippines

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

The International Tax Affairs Division (ITAD).

25) What taxes are covered b 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 place, are covered by the tax treaties. In the Philippines, this is generally limited to Title II (Tax on Income) of the National Internal Revenue Code of 1997, as amended.

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.

 




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