Share Taxpayer and Elements of Gross Income

THE
TAXPAY
ER

DEFINITION:
A t ax p aye r - i s so m e o ne w ho i s
required by the law to file and pay their
tax as imposed and prescribed by the
National Internal Revenue Code.

A taxpayer may be:
1. Natural Person - Individual Taxpayer
with income derived from within the
territorial jurisdiction of a taxing authority
a) Em ploy ee - pu rely com pen s a tion
income earner
b) S e l f - e m p l o y e d I n d i v i d u a l ; S e l f
employed Professional; Income from
Business; Exercise of a Profession
c) Mixed Income Earners – Compensation,
Business, Exercise of Profession

2. Juridical Person - Corporate Taxpayer
(non-human legal entity that is not a single
na t ura l p e r so n b ut a n o r g a niz a t io n
recognized by law as a legal person such
as corporations and partnerships)
a) Corporation
b) Partnership
Exemp t – Barang ay Micro-Business
Enterprise(BMBE), General Professional
Partnership (GPP), Non-Stock, Non-Prof it
Corp.

c) Estates – refers to the total value
of all assets and liabilities left by an
individual upon his/her death.

d) Trusts - an agreement created by
will or otherwise where the property of
a grantor is being transferred to the
trustee or administrator for purposes
of management or conservation of the
property

CLASSIFICATION OF
INDIVIDUAL TAXPAYERS

• T h e t a x p a y e r ’s r e s i d e n c e a n d
citizenship must be identif ie d to
properly account incomes which are
subject to income tax.
• The situs of taxation depends on the
taxpayer’s residence and citizenship.

1. The individual taxpayers are
classified into:
a)
RESIDENT CITIZEN (RC)
 A resident citizen is both a citizen
and a resident of the Philippines.
 To qualify for citizenship, one must
have met any of the following
requirements:
1. Those who are citizens of the Philippines
at the same time of the adoption of the
Philippine Constitution in 1987;
2. Those whose fathers or mothers are
citizens of the Philippines;
3. Those born before January 17, 1973, of
Filipino mothers who elect
4. the Philippine citizenship upon reaching
the age of majority; or
5. Those who are naturalized in accordance
with law.
 A resident citizen resides or stays in the
Philippines permanently or stays outside
the Philippines for less than 183 days
during a particular taxable year.

b. NON-RESIDENT CITIZEN (NRC)

A non-resident citizen is someone:
 Who establishes to the satisfaction of
the CIR the fact of their
 p hysic al p r e se nc e ab r o ad w it h a
definite intention to reside therein;
 Who leaves the Philippines during the
taxable year to reside abroad, either as
an immigrant of for employment on a
permanent basis; or

 Who stays outside of the Philippines for
more than 183 days by the end of the
taxable year
For taxation purposes,
 Overseas Contract Workers (OCW’s) -
are classified as non-resident citizens.

OCW’s - refer to Filipino citizens employed in
foreign countries, commonly referred to as
Overseas Filipino Workers (OFW), who are
physically present in a foreign country as a
consequence of their employment there at.

• Their salaries and wages are paid by an employer abroad and is
not borne by any entity or person in the Phil.
• To be considered as an OCW Or OFW, they must be duly registered
as such with the Philippine Overseas employment Administration
(POEA) with a valid Overseas Employment Certificate.
• A seaman - who is a citizen of the Phil. And who receives
compensation for services rendered abroad as a member of the
complement of a vessel engaged exclusively in international trade
shall be treated as an overseas contract worker.
• In order for seafarers or seamen to be considered as OCW’s or
OFW’s they must be duly registered as such with the Phil.
Overseas employment Administration (POEA) with a valid
Overseas employment Cer tif ic ate , with a valid Seafarer’s
Identification Record Book or Seaman’s Book issued by the Marine
Industry Authority (MARINA).
c) RESIDENT ALIEN (RA)
- An alien is a foreign-born person who is not
qualif ied to acquire Philippine citizenship by birth
or after birth.
• Resident aliens are foreign persons who have
acquired residency in the Philippines; residing
in the Phil, but not a citizen of the Phil.
• As a ge ne ral rule , f o re ign pe rso ns are
considered as residents when the length of stay
or assignments are indef inite or exceeding two
(2) years (BIR Rulings Nos. 051-81 and 052-81)
• Like non-resident citizens, they also taxed for
income derived within the Philippines only.

d) N ON - RES I DEN T ALI EN EN GAGE I N
TRADE OR BUSINESS
• A non-resident alien individual is a foreign
person who have not acquired residency
in the Philippines.
• Any f oreign person who ha ve not
a c q u i re d re s i d e n c y, b u t a re d o i n g
business in the Philippines shall be
considered as engaged in trade.
• Any foreign person who shall come in the
P h i l i p p i n es a n d s t a y h erei n f or a n
aggregate period of more than 180 days
during any calendar year shall be deemed
as doing business in the Philippines

e) Non-resident Alien Not Engaged
in Trade or Business (NRANETB)
• Any foreign person who shall come
in the Philippines and stay herein for
an aggregate period of not more
than 180 days during any calendar
year shall be deemed as not doing
business in the Philippines
• They are taxed on their incomes
derived within the Philippines only
at 25% of the total gross income
Incomes from sources Incomes from sources
within the Phil. within the Phil.
Resident Citizens Taxable Taxable

Non-Resident Citizens Taxable Non-Taxable
Resident Alien Taxable Non-Taxable

Non-resident Alien Taxable Non-Taxable
Engaged in Trade or
Business
Non-resident Alien Not Taxable (25% Final Tax) Non-Taxable
Engaged in Trade or
Business
A Corporation can be:

A. D o m e s t i c C o r p o r a t i o n –
corporation created or organized in
the Philippines or under its laws.
B. Foreign corporation – corporation
created or organized outside the
Phil. or created by foreign laws.

• Resident Foreign Corporation - A foreign corporate
entity is being brought to the Phil and secured a
license to do business in the Phil. with the SEC in the
Phil.; having a permanent establishment/branch in the
Phil. acquiring residency for tax purposes.

• Non-Resident Foreign Corporation - One in which
does not have any presence in the Phil. but derives
income in the Phil. such as extending foreign loans
earning interest income, investing in shares of stocks
of domestic corporation earning dividends, or leasing
out assets in the country for a fee ; no permanent
establishment in the Phil., not regularly engaged in
trade or business in the Phil.

• Special Corporation
• Religious Corporation

The concept of income
In com e - i s rega rded a s t h e bes t
measure of taxpayers’ ability to pay tax.
It is an excellent object of taxation in
the allocation of government costs.
Income - in general is the gain derived
from capital, labor, or both combined,
including prof it gained through a or
conversion of capital assets.

-The tax concept of income is simply
referred to as gross income under the
N I R C .
• A taxable item of income is referred to as
an item of gross income or inclusion in
gross income.
• G r os s i n come s i mpl y mea n s t a xa bl e
income in layman’s term. Under the NIRC,
however, the term taxable income refers to
cer tain items of gross income less
deduct i ons a nd persona l exempt i ons
a l l owa bl e by l a w. Tech ni ca l l y, gross
income is broader to pertain to any income
that can be subjected to income tax.

• Gross income is broadly def ined as any
inf lo w of wealth to the taxpayer from
whatever source, legal or illegal that
increases net worth. It includes income
from employment, trade, business or
exercise of profession, income from
properties, and other sources such as
dealings in properties and other regular
or casual transactions.
• Gross income means all income derived
from whatever source, including but not
limited to the following items: (Sec. 32,
RA 8424)

• Gr os s i n c om e m e a n s t h e t ot a l
income of a taxpayer subject to tax.
It includes gains, prof its and does
include income excluded by law or
which are exempt from
• Taxable income all pertinent items of
gross income specif ied by the Tax
C od e l es s d ed u c t i on s t y p es of
income by the Tax Code or other
special laws.

Elements of Gross Income

1. It is a return on capital that increase net worth
Capital means any wealth or property. Gross
income is a return on wealth or property that
increases the taxpayer’s net worth.
-ABC purchased goods for P300 and sold them for
P500. The P500 consideration can be analyzed as
follows:
• Selling price(total consideration received) P500
Total Return
• Cost (value of inventory foregone) 300
Return of Capital
• Mark-up (gross income) P200
Return on Capital ====
• The return on capital that increases net
worth is income subject to income tax.
• The return of capital merely maintains net
worth, hence, it is not taxable.
• An improvement in net worth indicates an
ability to pay tax.
2. It is a realized benefit
• The term benef it means any form of
advantage derived by the taxpayer. There
is benef it when there is an increase in the
net worth of the taxpayer. An increase in
net worth occurs when one receives
income, donation or inheritance.
3. It is not exempted by law, contract or
treaty.

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THE

Resident Citizens Taxable Taxable

Resident Alien Taxable Non-Taxable

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