IMPORTANCE OF CLASSIFICATION

● They differ as to:

- Situs of income
- Manner of computing tax Requisite to avail the 8% preferential tax rate 1. The gross
- Treatment of certain passive incomes sales/receipt and other non-operating income does not exceed
- Allowable deductions the vat threshold of 3,000,000. 2. The SEP shall be non-vat
- References in the tax choice registered
3. The gross sales/receipts were not derived from vat-exempt
APPLICABLE TAXES AND TAX RATES - The applicable sales and transactions.
taxes for individuals depend on several factors such as but not 4. The SEP is not subject to percentage tax other than under
limited to: section 116 of the tax code as amended; and
● Classification of taxpayer 5. The SEP signifies his/her intention to elect the 8% income
● Source of income tax.
● Type of income Mixed Income Earner: An individual taxpayer is considered a
mixed income earner if s/he is deriving income from both
CLASSIFICATION OF TAXPAYER self-employment and compensation (arising from
Resident citizens - taxable on their income derived from employer-employee relationship). The applicable taxes of a
sources within and without the Philippines while other taxpayers mixed income earner are as follows;
are taxable only on their income derived from the Philippine Passive Income Subject to FWT
sources. Passive income subject to final withholding taxes are certain
Non-resident aliens not engaged in trade and business passive incomes from sources within the Philippines as
(NRA-NETB) - are taxable based on the gross income while enumerated under the Tax Code. The Five passive incomes
others are taxable based on their net income. SOURCES OF derived from Philippine sources subject to final withholding
INCOME taxes are as follows;
● Resident citizens are taxable based on their worldwide 1. Interest income
income while others are taxable only on their income derived 2. Dividend income
from sources within the Philippines. 3. Royalties
4. Prizes
TYPES OF INCOME (APPLICABLE TAX) Ordinary or 5. Other winnings
regular income (GRADUATED RATE) - refers to income Ordinary Asset V.Capital Asset
such as compensation income, business income, and income The following are ordinary assets:
from practice of profession Passive income (FINAL ● Stock in trade of the taxpayer or other property of a kind
WITHHOLDING TAX) ● subject to final withholding taxes which would properly be included in the inventory of the
are certain passive incomes from sources within the Philippines taxpayer if on hand at the close of the taxable year. ● Property
such as: - Interest income used in trade or business subject to depreciation ● Real property
- Dividend Income held by the taxpayer primarily for sale to customers in the
- Royalties ordinary course of trade or business. ● Real property used in
- Prizes trade or business of the taxpayer. Capital assets include all the
- Other winnings property held by the taxpayer (whether or not connected with
Capital gains subject to gains tax (CAPITAL GAIN TAX) - his trade or business) not included in the definition of ordinary
Capital gains from sale of shares of stocks of a domestic assets. Generally, assets not used or held for sale in the ordinary
corporation course of business are classified as capital assets.
- Capital gains from sale of real property in the Philippines
SELF EMPLOYED AND/OR PROFESSIONALS (SEP) Self CAPITAL GAINS TAX CAPITAL GAINS may be: Subject
Employed - is defined as a sole proprietor or an independent to CAPITAL GAINS TAX (CGT) pertaining to sale of:
contractor who reports income earned from self-employment. a. Shares of stock of a domestic corporation sold directly to a
Professional - is a “person formally certified by a professional buyer = 15% of capital gain
body belonging to a specific profession. Beginning 2018 or
b. Sale of real properties located in the Philippines CGT = 6%
upon the effectivity of RA 10963 (Tax Reform for Acceleration
of which is higher between GSP (gross selling price) and FMV
and Inclusion Law (TRAIN LAW), ● regular income of Self-
(fair market value)
Employed and Professionals (SEP) amounting to more than
Shares of stock sold or disposed of through the local stock
P250,000 in a taxable year but with a gross sales/receipts and
exchange are subject to a
other non-operating income not exceeding the revised vat
threshold of P3,000,000 shall have the option to avail of 8% tax
PERCENTAGE TAX also known as “stock transaction tax.”
on gross sales/receipts and other operating income in excess of
= 6/10 of 1% of GSP
P250,000 IN LIEU of the graduated income tax rate and
Subject to Basic Tax – examples:
business tax.
a. Sale of Share of foreign corporations
b. Sale of real properties located abroad
 c. Sale of other personal assets other than share of stock of Prior to 2018 - January to November – 10th day of the month
domestic corporations December – January 15 2018 – not later than the last day of the
month
PRINCIPAL RESIDENCE
the family home of the individual taxpayer which refers to his
dwelling house including his family.
REQUISITES OF TAX EXEMPTION CAPITAL GAINS TAX
1. The proceeds are fully utilized in acquiring or constructing a new a. Share of Stock
principal residence within 18 calendar months from the date of Ordinary Return – 30 days after each transaction Final
disposition. Consolidated Return – on or before April 15 of the following
2. The historical cost or adjusted basis of the real property sold year
or disposed shall be carried over to the new principal residence b. Real Property – 30 days following each sale or other
built or acquired. disposition
MANNER OF FILING
3. The BIR shall have been duly notified by the taxpayer within
30 days from the date of sale or disposition through a prescribed a. Manual Filing
return of his intention to avail of the tax exemption. b. Electronic Filing and Payment System (EFPS) c.
eBIR Forms
4. The tax exemption can only be availed once every 10 years.
Creditable Withholding Taxes 1st installment: at the time of filing the annual ITR 2nd
installment: on or before October 15 following the close of the
A method of collecting income tax in advance from the
calendar year
recipient of income through the payor thereof, which is
constituted by law as the withholding agent of government.
Income tax due of Married Taxpayers PLACE OF FILING INCOME TAX RETURN 1.
Husband and wife shall compute separately their individual Authorized Agent Banks
income tax based on their respective total taxable income 2. Revenue District Officer
provided that if any income cannot be definitely attributed to or 3. Collection Agent
identified as income exclusively earned or realized by either of 4. Duly Authorized City or Municipal Treasurer
the spouses, the same shall be divided equally between the
spouses for the purpose of determining their respective taxable PERSONS REQUIRED TO FILE INCOME TAX RETURN
income. 1. Individuals engaged in business and/or practice of profession
Benefits for Senior Citizen and PWDs: 2. Individuals deriving compensation from two or more
● 20% discount and exemption from VAT on their purchase of employers concurrently at any time during the taxable year 3.
specified goods and services Employees deriving compensation income, the income tax of
● P500 monthly social pension, for indigent senior citizens ● which has not been withheld correctly 4. Individuals deriving
Death benefit assistance other non-business, non-professional-related income in addition
● 5% discount on utilities to compensation income not otherwise subject to final tax
● Income tax exemption for minimum wage earners of for 5. Individuals receiving purely compensation income from a
SC/PWDs whose annual taxable income is not more than single employer
250,000 6. Non-resident aliens engaged in trade or business in the
Philippines deriving purely compensation income
MINIMUM WAGE EARNER
a worker in the private sector paid the statutory minimum wage. PERSONS NOT REQUIRED TO FILE INCOME TAX
RETURN
The rate is fixed by the Regional Tripartite Wage and
Productivity Board as defined by the Bureau of Labor and 1. An individual earning purely compensation income whose
taxable income does not exceed 250,000. 2. An individual
Employment Statistics.
whose income tax has been correctly withheld by his employer
MWE are exempt from income tax on:
3. An individual whose sole income has been subjected to final
1. Minimum wage
withholding tax
2. Holiday pay
4. Minimum wage earners, the Certificate of Withholding filed
3. Overtime pay
by the respective employers, duly stamped “Received” by the
4. Night shift differential
Bureau of Internal Revenue
5. Hazard pay
SUBSTITUTED FILING OF INCOME TAX RETURNS
FILING OF INCOME TAX RETURNS
(ITR)
BASIC TAX
Under RA 9504 and RR 10-2008, individual taxpayers may no
➔ For Purely Compensation Income Earners
longer file income tax return provided he has (all the
On or before April 15 of the succeeding year
requirements must be satisfied):
➔ For Business Income Earners
1. Receiving purely compensation income, regardless of
The individual taxpayer is required to file a quarterly tax return
amount
( May 15, Aug 15, Nov 15, and April 15)
2. The amount of income tax withheld by the employer is
FINAL WITHHOLDING TAX ON PASSIVE INCOME
correct (Tax due = Tax withheld)
3. Only one employer during taxable year
4. If married, the employee’s spouse also complies with all the
three aforementioned conditions, or otherwise receives no
income.