Taxation on Passive Income (Final Tax) - Individual

Passive Income Citizen / RA NRAETB Sec 25 NRA NOT ETB

Sec 24 (B) (A) Sec 25 (B)
1. Interest from currency deposits, 20% 20% 25%
trust funds and deposit substitutes
2. Royalties (on books as well as 10% 10% 25%
literary & musical compositions)
- In general 20% 20% 25%

3. Prizes (P10,000 or less ) Graduated Graduated 25%

Income Tax Income Tax
Rates Rates
- Over P10,000 20% 20% 25%
4. Winnings 20% 20% 25%
- From PCSO and Lotto amounting exempt/20% exempt 25%
to P10,000 or less
5. Interest Income from a Depository 15% (old exempt exempt
Bank under the Expanded Foreign 7.5%)
Currency Deposit System
6. Cash and/or Property Dividends 10% 20% 10%
received by an individual from a
 4. Winnings 20% 20% 25%
- From PCSO and Lotto amounting exempt/20% exempt 25%
to P10,000 or less
5. Interest Income from a Depository 15% (old exempt exempt
Bank under the Expanded Foreign 7.5%)
Currency Deposit System
6. Cash and/or Property Dividends 10% 20% 10%
received by an individual from a
domestic corporation/ joint stock
company/ insurance or mutual fund
companies/ Regional Operating
Headquarter of multinational
companies

7. Share of an individual in the 10% 20% 25%

distributable net income after tax of
a partnership (except GPPs)/
association, a joint account, a joint
venture or consortium taxable as
corporation of which he is a member
or co-venture

January 1, 2018
2018
Basic Personal Exemption = 50,000 Deduction per tax payer
Additional Personal Exemption = 25,000 per dependent children max of 4 children
NO EXEMPTION, UNDER THE TRAIN LAW

x, RC
Sales 1000000
COGS 200000
OPEX 200000
Taxable net Income ₱ 600,000.00
5 Dependent Children

*NECESSARY TO STUDY OLD LAWS RELATED TO TAXATION

OLD NEW - TRAIN LAW - NO EXCEPTION

2017 2018
NET INCOME ₱ 600,000.00 ₱ 600,000.00
BPE 50000 0
APE 100,000 0
Taxable Net Icome 450,000 600,000

THE INCOME TAXES ARE

1. BASIC income tax
Requisites for No 2
1. Income within the philippines
2. Final Tax Passive Income
2. It is the passive income under the tax code
3. It should not be exempted or excluded by law
3. Final Tax on Capital Gains
4. Fringe Benefit Tax
5. Witholding Tax
6. Exepmted or Excluded

*SUBJECT to 2 to 4 or 6 are not subject to BASIC INCOME TAX

 8% Optional Income Tax Rat
Requisites:
1.       Engaged
2.       Sales/ Re
3.       Subject
4.       NON-VA
5.       Not eng
NOTE: The 8% tax is in

*8% WAS EFF

bUSINESS Tax
VAT 12%
1 Vatable Goods/Services
2. Vat Exempt (Section 109)

8. Interest Income from long-term Exempt Exempt 25%

deposit or investment in the form of
savings, common or individual trust
funds, deposit substitutes,
investment management accounts
and other investments evidenced by
certificates in such form prescribed
by the Bangko Sentral ng Pilipinas
(BSP)

Upon pre-termination 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) 5% 5% 25%
years
- Three (3) years to less than four (4) 12% 12% 25%
years
 based on the remaining maturity
thereof:

Holding Period
- Four (4) years to less than five (5) 5% 5% 25%
years
- Three (3) years to less than four (4) 12% 12% 25%
years
- Less than three (3) years 20% 20% 25%
Example: A long term investment Mr. A (RC) Mr. B Mr. Z
intrument with maturity of 30 years Tax Rate: Exempt Tax Rate: 25%
was bought by Mr. A, RC, Later, after 12%
3 years, Mr. A sold the instrument to
Mr. B, NRAETB. After 5 years, Mr B
sold the instrument to Z, NRANETB.

Note: before TRAIN LAW, PCSO and Lotto winnings

are exempt from tax
Interest Income from savings and time deposits of members of credit
cooperative is exempt from the 20% FT

8%

Taxation on Passive Income (Final Tax) - Individual

w o
56000 $ 2,600,000.00 Passive Income Citizen / RA
Sec 24 (B)
72000 $ 100,000.00
1. Interest from currency deposits, 20%
45000 $ (1,000,000.00)
trust funds and deposit substitutes
200000 $ 80,000.00
2. Royalties (on books as well as 10%
6000 $ (800,000.00)
literary & musical compositions)
379000 $ 90,000.00
- In general 20%

3. Prizes (P10,000 or less ) Graduated

$ 1,070,000.00
Income Tax
Rates
- Over P10,000 20%
4. Winnings 20%
- From PCSO and Lotto amounting exempt/20
to P10,000 or less
5. Interest Income from a Depository 15% (old
Bank under the Expanded Foreign 7.5%)
Currency Deposit System
 Rates
- Over P10,000 20%
4. Winnings 20%
- From PCSO and Lotto amounting exempt/20
to P10,000 or less
5. Interest Income from a Depository 15% (old
Bank under the Expanded Foreign 7.5%)
Currency Deposit System
6. Cash and/or Property Dividends 10%
received by an individual from a
domestic corporation/ joint stock
company/ insurance or mutual fund
companies/ Regional Operating
Headquarter of multinational
companies

7. Share of an individual in the 10%

distributable net income after tax of
a partnership (except GPPs)/
association, a joint account, a joint
venture or consortium taxable as
corporation of which he is a member
or co-venture

Revenue
Cost and Exp.
Net Income

Tax
NI after Tax

A
B

Partnership Commercial
A
Compensation

PROFESSIONAL
A
COMPEN
Optional Income Tax Rate for Citizen or Resident Alien

1.       Engaged in Business or Trade (Self-employed individuals and Professionals)

2.       Sales/ Receipts and Other Non-Operational Income Do Not exceed the VAT Threshold of P3,000,000, the tax shall be
3.       Subject to OPT Sec 116 (3% rate)
4.       NON-VAT Registered Taxpayer
5.       Not engaged in VAT exemption Transactions (Sec 109 A-AA_
NOTE: The 8% tax is in lieu of Graduated tax rates and OPT under sec 116 of Tax Code

*8% WAS EFFECTIVE IN 2018 - 2022

OPT (Other Percentage Tax) SECTION 116

atable Goods/Services SECTION 117
at Exempt (Section 109) Section 118
Section 119
Section 120 -127

Assignment: Taxpayer involve in 117 - 127

VAT EXEMPT under 109 A-AA
Section 125

Sample:
Section 109 A
Section 109 B

X, Sells Vegetables
Sales
Nonvat

Can X avail the 8%? NO

Scenario 1
x, sold vatable product
Sales
Vat registered

Cannot AVAIL the 8%

Scenario 2
X, income from his employer 2M only
Assuming in the year 2018, he wants to avail 8%
NO, income from employer
 Scenario 3
AB partnership is selling Vatable goods 2M
They are non-vat registered
No, Partnership

Scenario 4
X is selling fresh fish in the market
Sales
X is registered non vat
NO, Marine Products

Scenario 5
Assuming X engaged in life insurance business
Receipts is 2M
Non Vat
No, Engaged in Life insurance section 123 OPT

Scenario 6
2017 X engaged selling vatable goods, subject to Section 116
Sales 2m
*Assume if Silent Vatable goods
NO, 2017

axation on Passive Income (Final Tax) - Individual

assive Income Citizen / RA NRAETB Sec 25 NRA NOT ETB

Sec 24 (B) (A) Sec 25 (B)
. Interest from currency deposits, 20% 20% 25%
ust funds and deposit substitutes
. Royalties (on books as well as 10% 10% 25%
terary & musical compositions)
- In general 20% 20% 25%

. Prizes (P10,000 or less ) Graduated Graduated 25%

Income Tax Income Tax
Rates Rates
- Over P10,000 20% 20% 25%
. Winnings 20% 20% 25%
From PCSO and Lotto amounting exempt/20% exempt 25%
o P10,000 or less
. Interest Income from a Depository 15% (old exempt exempt
ank under the Expanded Foreign 7.5%)
urrency Deposit System
 Rates Rates
- Over P10,000 20% 20% 25%
. Winnings 20% 20% 25%
From PCSO and Lotto amounting exempt/20% exempt 25%
o P10,000 or less
. Interest Income from a Depository 15% (old exempt exempt
ank under the Expanded Foreign 7.5%)
urrency Deposit System
6. Cash and/or Property Dividends 10% 20% 10%
received by an individual from a
domestic corporation/ joint stock
ompany/ insurance or mutual fund
companies/ Regional Operating
Headquarter of multinational
companies

. Share of an individual in the 10% 20% 25%

istributable net income after tax of
partnership (except GPPs)/
ssociation, a joint account, a joint
enture or consortium taxable as
orporation of which he is a member
r co-venture

Partnership
1. General Commercial 2. General Professional Partnership (GPP)
1,000,000 1,000,000
900,000 900,000
100,000 100,000
30%
30,000 Exempted
70,000 100,000

35 50
35 50

nership Commercial
35 Final 10%
1000 BASIC, GRADUATED TAX

OFESSIONAL
50,000 BASIC
1,000,000 BASIC
1,050,000
d the VAT Threshold of P3,000,000, the tax shall be

Seller of Vatable Goods and Services (not included in 117 - 127)

Domestic Carrier (OPERATOR OF BUS, AND JEEPNEY … ALL PUBLIC CARRIER)
INTERNATIONAL CARRIER
Franchise Grantee of Water and Electricity

Amusement Places

Agricural Food and Marine Products

Poultry Feeds and Fertilizers

2000000

3M

s to avail 8%
 2m

s, subject to Section 116

2
2
3
3
4
4
5
5
7
 7

8. Interest Income from long-term Exempt Exempt 25%

deposit or investment in the form of
savings, common or individual trust
funds, deposit substitutes,
investment management accounts
and other investments evidenced by
Corporate Tax = 30% certificates in such form prescribed
by the Bangko Sentral ng Pilipinas
(BSP)

Upon pre-termination 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:
Compensation income 1M
Holding Period
- Four (4) years to less than five (5) 5% 5% 25%
years
Withheld by Partnership - Three (3) years to less than four (4) 12% 12% 25%
years
- Less than three (3) years 20% 20% 25%
Example: A long term investment Mr. A (RC) Mr. B Mr. Z
intrument with maturity of 30 years Tax Rate: Exempt Tax Rate: 25%
was bought by Mr. A, RC, Later, after 12%
3 years, Mr. A sold the instrument to
Mr. B, NRAETB. After 5 years, Mr B
sold the instrument to Z, NRANETB.

Note: before TRAIN LAW, PCSO and Lotto winnings

are exempt from tax
Interest Income from savings and time deposits of members of credit
cooperative is exempt from the 20% FT
Note: before TRAIN LAW, PCSO and Lotto winnings
are exempt from tax
Interest Income from savings and time deposits of members of credit
cooperative is exempt from the 20% FT
ices (not included in 117 - 127)
BUS, AND JEEPNEY … ALL PUBLIC CARRIER)
Scenario 2

1. Deposit 1M in a bank (BDO) with interest rate of 10%/annum. 6 mnths later,

A withdrew the principal and int. A is a Fil and lives in Manila. Interest 50,000 gross
2. Deposit 1m in BDO PHILIPPINES
interest 10,000 gross
3. X AUTHOR OF BOOK, PUBLISHED BY A CORPORATION, (ROYALTY 10,000)
4. X SECRET RECIPE, BENEFITED BY A CORPORATION, (ROYALTY 10,000)
5. x Singing contest, Eatbulaga 9,000 prize given.
6. x Singing contest, Eatbulaga 20,000 prize given.
7. X win to the Lotto, 10,000
8. X win to the Lotto, 100,000
9. X deposit of 10,000 US dollars on BDO, P10,000 interest
9. X FILIPINO IN LIVES AMERICA deposit of 10,000 US dollars on BDO, P10,000 interest
10. X is a stockholder received dividend income of 10,000 in domestic corp
11. X is a stockholder received dividend income of 10,000 in Foreign corp

PAYOR BDO (WITHHOLD)

PAID TO BIR

8. Interest Income from long-term Exempt Exempt 25%

deposit or investment in the form of
savings, common or individual trust
funds, deposit substitutes,
investment management accounts
and other investments evidenced by
certificates in such form prescribed
by the Bangko Sentral ng Pilipinas
(BSP)

Upon pre-termination 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) 5% 5% 25%
years
- Three (3) years to less than four (4) 12% 12% 25%
years
- Less than three (3) years 20% 20% 25%
Example: A long term investment Mr. A (RC) Mr. B Mr. Z
intrument with maturity of 30 years Tax Rate: Exempt Tax Rate: 25%
was bought by Mr. A, RC, Later, after 12%
3 years, Mr. A sold the instrument to
Mr. B, NRAETB. After 5 years, Mr B
sold the instrument to Z, NRANETB.

Note: before TRAIN LAW, PCSO and Lotto winnings

are exempt from tax
Interest Income from savings and time deposits of members of credit
cooperative is exempt from the 20% FT
Note: before TRAIN LAW, PCSO and Lotto winnings
are exempt from tax
Interest Income from savings and time deposits of members of credit
cooperative is exempt from the 20% FT
 8%
*Business
Sales + OI less 250K x 8%
Mixed = Bus Income + Com
Sales + OI
Tax due from GTR Compensation
(amount)
 Passive Income (Final Tax)
Witholding Tax Agent Cash Received Income, Gross RC NRA-ETB NRA-NETB

BDO 40000 50000 10000 10000 12500

BDO 0 0
8000 10000 2000 2000 2500
CORPORATION 9,000 10,000 1000 1000 2500
CORPORATION 8,000 10,000 2000 2000 2500
NONE 0 0 0 0 0
EAT BULAGA 18,000 20,000 2000 2000 2500
NONE 0 10000 Exempt Exempt 2500
LOTTO 80,000 100,000 20,000 20,000 25000
BDO 8,500 10,000 1500 Exempt Exempt
10,000 10,000 Exempt Exempt Exempt
Domestic Corp 9,000 10,000 1000 2000 2500
 BASIC Basic

US BANK
NRC, EXEMPT on no 1
RC - Basic
*IF 2 to 6 not subject include to 1

5 and above EXEMPT

NEXT TOPIC CGT

WELCOME PO!

RENTAL INCOME>BASIC
 8% Optional Income Tax Rate
SELF EMPLOYED
Can Avail the Yes (Must meet all the requirements; if Yes
*Silent Graduated 8%? NOT (>3M or VRP, then, Income Tax req
* IT SHOULD BE SIGNIFY
Graduated Rate, Business Tax; VAT)
When to Avail? Opted at the First Quarter of filing the tax Opt
return the
Source of Business Income (includes Professionals) Bus
Income Inco
Rela
Tax Base Gross sales/receipts and other non- Gro
operating income (Net Sales + OI) ope
8% Formula Income Tax = (Tax base – 250,000) x 8% Inco
due
+ OI less 250K x 8%
Mixed = Bus Income + Compensation (No
multiply to 8% sub
subject to or = GTR Table
Business Tax? If Availed, NONE If A
Should be availed at beginning of first quarter, otherwise, sub

GRADUATED TAX RATE TABE = BASIC INCOME TAX / PI

FROM TO INCOME LESS
0 250000 0 0
250000 400000 0 250000
400000 800000 600000 400000
800000 2000000 1500000 800000
2000000 8000000 800000 2000000
8000000 0 9000000 8000000

1,010,000 800000
1,510,000 800000
1300000 800000
*ASSUME GROSS

RC
Y4,10,000 Div Without Taxable BASIC
NRC Without EXEMPTED
100% within NRA-ETB
Not Silent Y1 Y2 Y3
Gross Income - Philippines 10,000 10,000 10,000
Gross income Abroad 20,000 20,000 30,000

RC Within Withoud
Y4,10,000 Div 6000 4000
NRC 6000 4000

100% within NRA-ETB

Not Silent Y1 Y2 Y3
Gross Income - Philippines 20,000 20,000 20,000
Gross income Abroad 10,000 10,000 20,000
me Tax Rate
EMPLOYED MIXED INCOME Scenario 1
the requirements; if Yes (must meet all the
then, Income Tax requirements)
usiness Tax; VAT)
Quarter of filing the tax Opted at the First Quarter of filing
the tax return
Scenario 1
ncludes Professionals) Business Income AND Compensation
Income (Employee-Employer
Relationship)
ts and other non- Gross sales/receipts and other non-
Net Sales + OI) operating income (Net Sales +OI)
base – 250,000) x 8% Income Tax = (Tax Base x 8%) + tax
due from Graduated Tax Rate
(Note: The compensation income is
subject to Graduated tax rate table). Scenario 2 - MIXED

If Availed, NONE
of first quarter, otherwise, subject to Graduated Tax rate

TABE = BASIC INCOME TAX / PIT

COMPENSATION
PERCENT ADD TAX
0% 0 0 0
20% 0 -250000 -50000 NOTE:
25% 30000 200000 80000
30% 130000 700000 340000 MIXED INCOME
32% 490000 -1200000 106000 SALES+OI*.08
35% 2410000 1000000 2760000 COMP

30% 130000 193000

30% 130000 343,000
30% 130000 280000

CALENDAR YEAR
 8%

Graduated is used.
sales exceeded 3M

FOREIGN CORP

50% and up, Proportionate

50% below, without
Total Ratio
30,000 0.3 100/30
70,000 0.7 100/70
100,000

FOREIGN CORP
Taxble Subject to Tax?
10,000 Basic
6000 Basic

50% and up, Proportionate

50% below, without

Total Ratio
60,000 0.6 100/60
40,000 0.4 100/40
100,000
Subjected to 116
Assuming the Criteria are met
X sales 2000000
COGS 1000000
OPEX 500000
Gross Income 500000

Graduated 8%
Basic Income Tax 80000 140000
Business Tax 60000 EXEMPTED
Total 140000 140000

Scenario 2 - MIXED
Graduated 8%
Basic Income Tax 343,000 353,000
Business Tax 60000 EXEMPTED
Total 403000 353000

Subjected to 116
Assuming the Criteria are met
X sales 2000000
COGS 1000000
OPEX 500000
Compensation Income 1000000
Received 13th month pay 100000 10000
Taxable Net Income 1,510,000
13th month and other benefits old law EXCEMPT OF UPTO 82,000, new law 90,000

160000
193,000 353,000

Sales 2,000,000
COGS 1,000,000
OPEX 500,000
BUSINESS NET INCOME 500,000
Compensation Income 1,000,000
Taxable Benefits 10,000 (100,000-90,000)
Total 1,510,000

ASSUME IF
January - July
Sales 3000000
Cost and expenses 2500000
Income Tax Due (Jan-July) 220000 SALES + OCI - 250000 *.08

August - December
Additional Sales 1000000 NOTE:NOT EXCEED 3M
COGS and EXPENSES 200000 Immediately Graduated

Total Sales 4000000 4000000

COGS and EXPENSES 2700000 2700000
Taxable Net income 1300000 1300000
Income Tax Due(Jan-Dec) 280,000 280000
Less: Tax Paid under 8% (Jan-July) 220,000 220000
Income Tax Payable or Still Due (Aug-Dec) 60,000 60000

Business Tax 90000

Excess 120000
Total Business Tax 210000