INCOME TAX – MODULE 2 REVIEWER o A non-resident citizen who returns to

the Philippines to reside permanently is

INDIVIDUAL TAX PAYERS are natural persons with considered a non-resident citizen for
income derived from within the territorial jurisdiction of the taxable year with respect to income
taxing authority. They are classified as: from abroad until the date of arrival in
1. Resident Citizens (RC) the Philippines.
2. Nonresident Citizens (NRC)  Definition of OCW/OFW:
3. Resident Aliens (RA) o Filipino citizens employed abroad,
4. Nonresident Aliens (NRA) commonly known as OFWs.
● Engaged in trade/business (NRA-ETB) o Their salaries and wages are paid by
● Non-resident alien not engaged in trade or foreign employers and not by entities in
business (NRA-NETB} the Philippines.
o Classified as non-resident citizens for
Importance of classification: tax purposes.
They differ as to:  Seamen:
 Situs of income o Filipino seamen receiving compensation
 Manner of computing tax for services rendered abroad on vessels
 Treatment of certain passive incomes engaged in international trade are
 Allowable deductions treated as OCWs.
 References in the tax choice  Non-Resident Citizens:
o A Filipino citizen who was previously a
Citizens of the Philippines non-resident citizen and arrives and
 By Birth: resides permanently in the Philippines
o Born to at least one Filipino parent during the taxable year is treated as a
(father or mother). non-resident citizen for income derived
 Historical Exception: from abroad until their arrival in the
o Born before January 17, 1973, to a Philippines.
Filipino mother who elects Philippine  Resident Citizens:
citizenship upon reaching maturity. o Filipino citizens not classified as non-
 Naturalized: resident citizens are considered resident
o Acquired Philippine citizenship after citizens for tax purposes.
birth in accordance with Philippine laws.  Alien Definitions:
Non-Resident Citizens of the Philippines o Alien: A foreign-born individual not
 Physical Presence Abroad: qualified for Philippine citizenship by
o Must prove to the Commissioner of birth or after birth.
Internal Revenue their physical o Resident Alien (Section 22(F) of the Tax
presence abroad with a definite Code): An individual residing within the
intention to reside there. Philippines who is not a citizen.
 Reasons for Leaving: o Non-Resident Alien (Section 22(G) of
o Leaves the Philippines during the the Tax Code): An individual whose
taxable year to: residence is outside the Philippines and
 Reside abroad as an immigrant. who is not a citizen.
 Work on a permanent basis.  Trade or Business Definition (Section 22(S) of
 Work and derive income the Tax Code):
requiring physical presence o Includes performance of public service
abroad for most of the taxable or personal services within the
year. Philippines.
 Duration of Stay Abroad:  Tax Rate for Non-Resident Aliens Not Engaged
o A citizen who stays outside the in Trade or Business:
Philippines for 183 days or more by the o Subject to 25% income tax based on
end of the year is considered a non- gross profit from all sources within the
resident citizen. Philippines.
 Transition to Resident Status:
  Includes:
 Factors Affecting Applicable Taxes: o Capital gains from the sale of shares of
o Classification of Taxpayer: Determines stock in a domestic corporation.
the tax obligations. o Capital gains from the sale of real
o Source of Income: Affects the scope of property in the Philippines.
taxable income.  Tax Options for SEPs:
o Type of Income: Influences the o Income Threshold: For regular
applicable tax rates and rules. income exceeding PHP 250,000 with
 Classification of Taxpayer: gross sales/receipts not exceeding
o Resident Citizens: Taxed on income PHP 3,000,000.
derived from both Philippine and o Tax Options:
foreign sources (worldwide income).  8% Tax: On gross
o Non-Resident Citizens and Aliens: sales/receipts and other
Taxed only on income derived from operating income exceeding
Philippine sources. PHP 250,000, in lieu of the
o Non-Resident Aliens Not Engaged in graduated income tax rate
Trade or Business (NRA-NETB): Taxed and business tax.
based on gross income from Philippine  Regular Income Tax: If
sources. choosing not to avail of the
o Other Non-Resident Aliens: Taxed
8% tax option.
based on net income from Philippine  Definition of Self-Employed:
sources.
o Self-Employed: Includes sole
 Sources of Income:
proprietors or independent
o Resident Citizens: Taxed on worldwide
contractors controlling their work. It
income (income from within and
covers professionals whose income
outside the Philippines).
is derived from their practice rather
o Non-Resident Taxpayers: Taxed only on
than an employer-employee
income derived from sources within the
Philippines.
relationship.
Taxpayer Tax base Source of
 Definition of Professional:
o Professional: A person certified by a
taxable income
RC NET INCOME WITHIN AND professional body, engaged in a
WITHOUT specific profession or art, whose
NRC, RA, NRA- NET INCOME WITHIN competence is measured against
ETB established standards.
NRA -NETB GROSS INCOME WITHIN  Rules for Purely SEP:
o Gross Sales/Receipts ≤ PHP
 Ordinary or Regular Income: 3,000,000:
 Tax Rate: Subject to graduated rates.  Option to choose between
 Includes: regular income tax or 8% tax
o Compensation income on gross sales/receipts and
o Business income other operating income
o Income from the practice of profession exceeding PHP 250,000.
 Passive Income: o Gross Sales/Receipts > PHP
 Tax Rate: Subject to final withholding tax. 3,000,000:
 Includes:  Must use regular income tax
o Interest income rates.
o Dividend income  Rules for Mixed Income Earners:
o Royalties o Compensation Income:
o Prizes  Subject to regular income tax.
o Other winnings o Business/Professional Income:
 Capital Gains:  If gross sales/receipts ≤ PHP
 Tax Rate: Subject to capital gains tax. 3,000,000:
  Can choose between  Applicability: Applied to passive income.
regular income tax  Characteristics:
plus regular tax or 8% o Passive income is taxed once, at the
tax on gross final rate.
sales/receipts and o Once taxed, it is not included in
other operating taxable income subject to normal tax
income exceeding rates.
PHP 250,000. o Deductions and exemptions do not
 If gross sales/receipts > PHP apply to items subject to final tax.
3,000,000:
 Must use regular Passive Income
income tax rates.
 Types:
MEMORIZE: o Interest, Prizes, Royalties, etc.
o Cash or Property Dividends
 Tax Treatment:
o Subject to final withholding tax at
specified rates.

Deposit Substitutes

 Definition: Alternative forms of obtaining

funds from the public other than traditional
deposits.

Capital Gains Tax (CGT)

 Capital Gains Tax on Sale of Assets:

o Shares of Stock of a Domestic
Corporation:
 Prior to 2018: 5% on gains
up to PHP 100,000; 10% on
excess.
 2018 Onwards: 15% of
capital gain.
o Sale of Real Properties in the
Philippines:
 Taxed at 6% of the higher of
the gross selling price (GSP)
or fair market value (FMV).

Other Percentage Tax

 Definition: A business tax, not an income

tax.
 Stock Transaction Tax:
o Prior to 2018: 0.5% of GSP.
Final Withholding Tax o 2018 Onwards: 0.6% of GSP.
 Basic Tax Examples:
 Definition: Tax prescribed on certain o Sale of shares in foreign
income derived from Philippine sources. corporations.
 o Sale of real properties located o PHP 500 monthly for indigent senior
abroad. citizens.
o Sale of other personal assets not  Death Benefit Assistance:
including shares of stock in domestic o Provided to senior citizens.
corporations.  Income Tax Exemption:
o For minimum wage earners and
Principal Residence senior citizens/PWDs with annual
taxable income not exceeding PHP
 Definition: The family home of the 250,000.
individual taxpayer.
Minimum Wage Earners (MWE)
Requisites for Tax Exemption on Sale of
Principal Residence  Definition: Workers paid the statutory
minimum wage as set by the Regional
1. Utilization of Proceeds: Must be used to Tripartite Wage and Productivity Board.
acquire or construct a new principal  Tax Exemptions:
residence within 8 calendar months from the o Minimum wage
date of sale. o Holiday pay
2. Carryover of Cost Basis: Historical cost or o Overtime pay
adjusted basis of the sold property must be o Night shift differential
carried over to the new principal residence. o Hazard pay
3. Notification to BIR: Must notify the BIR
within 30 days from the date of sale or Filing of Income Tax Returns
disposition using a prescribed return.
4. Frequency of Exemption: Can be availed  Purely Compensation Income Earners:
of only once every 10 years. o Filing Frequency: Once a year
(unless qualified for substituted
Format in Computing Taxable Income filing).
o Deadline: On or before April 15 of
 For Pure Compensation Income Earners: the succeeding year.
o Specific computation rules may  Business Income Earners (including
apply for those earning only professionals):
compensation income. o Quarterly Filings:
 1st Quarter: May 15
Pure Business Income Earner:  2nd Quarter: August 15
 3rd Quarter: November 15
o Income derived exclusively from o Final Adjusted/Annual Return:
business operations. April 15 of the following year.
 Mixed Income Earner:
o Income derived from both Final Withholding Tax on Passive Income
compensation and
business/professional activities.  Prior to 2018:
o Tax payments due on the 10th day of
Benefits for Senior Citizens and PWDs the month following the month of
withholding.
 Discounts and Exemptions:  Beginning 2018:
o 20% discount and VAT exemption o Payments due by the last day of the
on specified goods and services. month following the close of the
o 5% discount on utilities. taxable quarter during which the
 Social Pension: withholding was made.
 o Those involved in business or
professional activities.
Summary of Key Dates 2. Individuals with Multiple Employers:
o Those deriving compensation from
 Quarterly Tax Returns for Business two or more employers
Income Earners: concurrently during the taxable
o 1st Quarter: May 15 year.
o 2nd Quarter: August 15 3. Employees with Incorrectly Withheld
o 3rd Quarter: November 15 Tax:
o Final/Annual Return: April 15 of o Employees whose compensation
the following year income tax has not been withheld
correctly.
Capital Gains Tax 4. Individuals with Additional Non-Business
Income:
 Shares of Stock: o Those with other non-business,
o Ordinary Return: Due 30 days non-professional-related income in
after each transaction. addition to compensation income
o Final Consolidated Return: Due on not subject to final tax.
or before April 15 of the following 5. Individuals Receiving Purely
year. Compensation Income from a Single
 Real Property: Employer:
o Return: Due within 30 days o Not typically required unless other
following each sale or other conditions apply.
disposition. 6. Non-Resident Aliens Engaged in Trade or
Business:
Manner of Filing o Non-resident aliens deriving
purely compensation income in the
 Manual Filing Philippines.
 Electronic Filing and Payment System
(EFPS) Persons Not Required to File Income Tax
 eBIR Forms: Return
o 1st Installment: At the time of
filing the annual income tax return 1. Pure Compensation Income:
(ITR). o Individuals earning purely
o 2nd Installment: On or before compensation income with taxable
October 15 following the close of income not exceeding PHP
the calendar year. 250,000.
2. Correctly Withheld Tax:
Place of Filing Income Tax Return o Individuals whose income tax has
been correctly withheld by their
 Authorized Agent Banks employer.
 Revenue District Officer 3. Final Withholding Tax:
 Collection Agent o Individuals whose sole income has
 Duly Authorized City or Municipal been subjected to final withholding
Treasurer tax.
4. Minimum Wage Earners:
Persons Required to File Income Tax o Certificate of Withholding filed by
Return employers, duly stamped
“Received” by the Bureau.
1. Individuals Engaged in Business/Practice:
 Substituted Filing of Income Tax Returns
(ITR)

Under RA 9504 and RR 10-2008,

individuals may not be required to file an
ITR if:

1. Purely Compensation Income:

o Receiving purely compensation
income, regardless of amount.
2. Correct Tax Withheld:
o The amount of income tax
withheld by the employer is
correct (Tax due = Tax withheld).
3. Single Employer:
o Only one employer during the
taxable year.
4. Spouse Compliance:
o If married, the spouse must also
meet all the above conditions or
receive no income.