Chapter A Income Taxes for Individuals Definition Individual Taxpayers are natural persons with income derived from within the territorial jurisdiction of a taxing authority. Under the Tax Code (NIRC), individual taxpayers are classified as: Resident citizens (RC) Importance of Classification: Nonresident citizens (NRC) They differ as to Resident aliens (RA) = Situs of income Nonresident aliens (NRA) = Manner of computing tax Engaged in trade/business = Treatment of certain passive (NRA-ETB) incomes Nonresident aliens notengagedin Allowable deductions trade or business (NRA-NETB) «References in the tax code Citizens of the Philippines Under Section |, Article III of the Philippine Constitution, a Filipino citizen is a natural person who is/has 1. 2. 3. Born (by birth) with father and/or mother as Filipino Citizens; Born before January 17, 1973 of Filipino mother who elects Philippine citizenship upon reaching the age of majority Acquired Philippine citizenship after birth (naturalized) in accordance with Philippine Laws. 59Nonresident Nonreide eR desebes 2M Comis 1 ediideal” Tagpeee a asa citizen who: ‘oner of Internal id with a definite ippines of the Philippine ident otzen ine. satstcton te oe abo Establishes, 10 Revenue, the intention to reside therein: Leaves the Phitpnes during he taxable + As an immigrant; OF For employment on 2 P 1 For work and derives income employment thereat requires ofthe time during t yearto reside abroad ynent basis; OF ema from abroad and whose physically abroad most stayed outside the have Gb ‘or more by the aizen ofthe Philippines who cen a tythree days (189) Philiopines for one hundred eit end ofthe year (aggregate) hho arrives in the Philippines at any time unng the taxable year 10 reside permanently In Whe Philippines sput'bo considered a nonresident citizen for the taxable Yea" sre te arnves inthe Phiippines with respect to income derived teen purces abroad untl the date of his arval inthe Philippines {Section 22(E)(4) NIRC} ‘A nonresident citizen wt TELUSTRATION 1: Peco, an OFW,relumed inthe Phippines for good on May 2019. He shall be classified for 2019 taxable year as follows: apuat to Api 2019 -nonesidentczen From May 2019 onwards resident cizen J ‘The same rule shall apply to a resident citizen who leaves the Philippines anylime during the forthe following reasons: + AS an immigrant abroad; or + For employment abroad on a permanent basis ILLUSTRATION 2: ‘Ana, a resident czen eaves the Phippines on July 1, 2019 to reside permanent in U.S. together with ee ogee wih erfaiy, She shale dase for | January to June 2019 - resident citzen From duly 2019 onwards ~noneset citizen 60 edaidual Tig fevers ‘overseas Contract Workers(Ocwy 0, Filip (OFW) 2 Workers(OCW) Overseas ilipino Workers ( cers (OFW) Revenue Regulation 4. employed in foreign counties, son? physically present ina foreign Employment thereat. Their sa ‘abroad and are not borne by e = ene OCWs as Filipino citizens or oses. To be sidered as an OCW sr ©* OF WY they must be duiy registered as such with the Philippine Overseas Employm Lee porns Ceme Adminaraien (POEA) with a valid Seafarers or seamen complement ofa vessel engaged exctusivl fr inematona eae, To be candere an OCW of OF hey mut bey ostreda sc i, the Philippine Overseas Employment Administration (POEA) with a valid Overseas Employment Certificate (OEC) with Seafarers Identicatio Record Book (SIRB) or Seaman's Book issued by the M a Record Boo (SRE y the Maritime Industry For income taxation purposes, OFWs —, , OF Ws are classified as nonresident Resident citizen of the Philippines A Filipino citizen taxpayer not classified as nonresident citizen is considered a resident citizen for tax purposes. Alien ‘An alien is a foreign-born person who is not qualified to aca} ippine citizenship by birt or after birth. PI 6Ce pubsideal’ Tagen ® Resident alons ier an aien taxCode defines esizont FP eaentorna sectan 2170 7 ece swine sae alien as an inal aha en reco. Alonso Tn Progines an we ppnes and whe is males wo are actly Ps sje ae assed a nary are no re Haran alien who ives in the Oy Phebe intention as to his stay 1S spares wih a deft ys eect, nim on oa oe eee aconpanmen s0M@ ket ten er rly in the Philippines, isa resident, regardless of his intention to return to is residence abroad. ‘Non-resident aliens ‘The term “nonresident alien’ under Section 22(G) of the Tax Code ‘means an indvidval whose residence is notin the Philippines and who is ‘not a citizen thereof. They are aliens who come to the Philippines for a ‘definite purpose, which in ts nature may be promptly accomplished. They are alien who are mere transients or non-residents, hence, classified as nonresident alien, ‘Aliens who stayed in the Philippines for an aggregate period of more ‘than 160 days during the taxable year andlor aliens who have business income in the Philippines are considered as nonresident aliens engaged in trade or business, Under Section 2(S) ofthe Tax Code, “trade or business” include performance of the functions of a public office or performance of yy Indiideal Tagpage ILLUSTRATION 3: — Determine the comectcassiction of cere ee the taxpayer ftom the independent Case 1: ‘Alani @nalurl bom Flpin citizen, His family migrated in US. fen (16) years ago, For personal reasons, he decided to retum and reside permanently inthe Phlppines on March 1.2018, ‘Answer. From Jan to Feb. 2018: Alanis clesiied as NRC. From March 1, 2018 onwards: Alanis classfed as RC Case 2: Gil Joe is an American infomation technology expert. He was signed by NoyPi Telecom (a loca tlecommunicaon company) rom January to March of 2018 to improve its intemet services. Due to the antipated entry of ‘competiors from other countries, NoyPi decided to extend indefitely the services of GI, Joe Answer. Hes a resident alien ‘An alien who comes othe Philippines forthe purpose tat requires extended stay forts accomplishment, so he mates his home {empcrariy nthe Phippines, ia resident regardless ois intention to ‘elu this residence abroad. | Case 3: Greg Popovich, head coach ofthe San Antonio Spurs inthe NBA is in the Prippines fora monthsong NBA promatonal our. He also expressed his intention to reguany vist the Philippines ‘Answer. Greg Popovich is cassie as NRANETB Case 4: Using the same data in Case 3, assume that Greg Popovich invested in shares of stock of various domestic corporations during his recent stay in the Philippines Answer: Greg Popovich is NRA-NETB, Passive come such a8 dvdend income is not considered as income | derived tom trade buses Case 5: Mika "The Iceman” Immonen, @ Finnish cue ast and former world biliard champion isa resident of Finland. He won the word 9-ball championship in 2005 in the Philippines. He i aso the owner of one of the disco pubs in Malate since then. Answer: NRAETB. ‘Hei engaged in acta conduc oftadeor busines inthe Phiippnes but | ___isnomesigen 7 63LEE AE RSE pedovideal’ Tapers i TX RIES on sovera F201 such as but 3a Applicable Taxes ar Ts ‘The applicable taxes to: rotted 1 ication of the taxP@Yer Source of income {Type fincome Cciassification ofthe taxpayer dividual taxpayers because nt to property classi in see et cen Pa Re va ‘Be without the Philipines wile oe taxpayers ae taxable On Of their aitome derived from Pilippine sources Moreover, individual taxpayers wtetied as nonresient aliens TOL ‘engaged in trade or business {NRANETE) ae taxable based on thei" income” while others are (eased on atincome® (Rete 0 Table 21) ‘Source of Income itt important to know the source of income for tax PurpeTE come derived fom win or without the Philippines) Bea ‘as resident Gncome Seracable based on thet workwide income wile ofers, ere Teste only on teiincame derived from sources within the Phiippines- RC Netincome Within & Without NRC,RA,NRAETB NetIncome Within only NRANETB Grossincome _Witin only For income taxation purposes, as previously discussed, OF Ws classified as nonresident citizens. Hence, income eamed en OW oF OFM as deren 211 ai arate cunt exempted fom Pipe nme ix. Hower, he earings of an OFW fom 2 venture or any oer i bine vere ay er propery the Pape a ij! © 64 YY [ILLUSTRATION 4; - Use the following data for Cases A ‘An individual taxpayer provided Te Bown Giese buss rene, Pipes Bogle | Gross business icone, Carat Business expenses, Prippnes snare Business expenses, Canada ‘ono Business expenses, Sngaoore 5000 | Determine the taxable income assuming | | case A: The taxpayers 2 resident ctzen s+ Answer: P3,500,000 Soliton ‘Goss busines income, Phipones Gross tusnes income, Canada Gross business income, Singapore Business exzenses, Phipoines Business expenses. Canad Business expenses, Singapore Taxable income A resident citizen is taxable on came win and witout the Philippines. Basis of taxable ncome as descrbedin Table 2-1 net income. Case B: The taxpayer's a nonresident citizen Answer: P2,000,00 Solution ‘Gross business income, Phippines 5000.00 Businass expenses, Pipes Texabl income taxable on ncome derive fom win ‘+. Arnonresident ize is Basis of taxable income as descbed in Phiippine sources nl Table 2-1is"net income” Case C: The taxpayers a resident alien 4 Answer: P2,000,000 65 agJide Tagen | Sains coe Pres PUN) Business expenses, Pilppnes "77,000,000 Tanabe rae Penn salon wh ase, Arsenal stt@D#on care genes tom win Pippi Sours | cae: Tetonayeris reset len engaged in rode or business | 4 Answer: P2,00,000 a -P5,000,000 ‘ross tusies inane, Plones Business expenses, Philippines gon Tenable income — 72,000,000 Same soliton wih Case Aad B. Anonrsidet allen engaged inode ox busness is taxable on income derived from within Phin sources ony. ‘case E; The taxpayers 2 nonresident allo not engaged in trade or business i} 4 Answer: P5;000,000 {C1 NRANETBS ae fxele on thi “grass income ase F: ‘The income and expenses ofa Flipino citizen for 2018 were provided as follows: January to June: Philippines _ Canada ‘Gross income s,000,000 P2,000,000 ‘Aowable deductions 000,000 1,000,000 | lye December | (Gross income 2,000,000 P3,000,000 ‘Mlonable deducions 1000000 1,200,000 ‘Assame the taxpayers resident whol the county in July of the current yearto reside permanent in Canada, how much is hs taxable income? Answer: P5,000,000, 66 Indavideal Tagsauers Soliton 5 Sosa comcntancice Py Alone done coreres Dee) (8.00000) asa tts Canes laine) (tomo) “Pion Case G: Assume the same data ro Curent year. HIs taxable income before personal exemptions is resent ‘Answer: P5,800,000 ‘Solation: Gross income, Pippin (ian -Dee an-Dse) 2000000 Sessinzome, Corde woes) aonono Desist) coy uations, Canada (ly-Dec) 7.200000) —___Tavablencane P5200 000" TYPES OF INCOME For purposes of income taxation, there are three types of incomes subject {o income tax 2s follows: * Ordinary or regular income + Passive income derived from Philippine sources; and «Capital gains subject o capital gains tax Ordinary or regular income refers 1 income such as compensation income (salaries or wages), business income, income from practce of profession, income from sale and/or dealings of property and miscellaneous income and passive income other than those subject to final {axes under Section 24(B) and capital gains tax under Sections 24{C] and [D] ofthe Tax Code. Regular incomes are subject to graduated tax table {also known as basic or normal tax) as provided for under Section 24(A). ‘The revised graduated tax rate is summarized in Table 2-2, page 69. o7 dg .ALT vidal Tagacer jing taxes are Certain ’s enumerated under incomes are not subject to safable 2-2 butto specific final ple 2-3, pages 7810 79 passive incot passive incomes Becton 24(B) of the T3x Cod cracivated ta rate O° thing tax rates 28 S fic passive incomes ones 008 ves wan ete J sw fn P= Pa ga nae derived from Philippine Sources The spec subject final withhold follows: 4) Interest income 2) Dividend Income 3) Royalties 44) Prizes; and 5) Other winnings ital assets subject to capital gains tox (CCT) lames oft OF nae zt Majedinthelocal sunmarzedin Tole 24 Incomes from sale of capi +) Capital gains from sale ‘adomesti corporation not Sama seh Stock exchange (Sec. 24(C) NIRC} and ear ier ae 2) Sept gansromsaleofreaiproperyinthe sei Phippins [Section 24(0) NIRC] summary of NCOME and the Applicable INCOME TA > Graduated Rate Table Reguear income pussveiname,Phis, “Fina Within Tax FT) Table 2-3.) i} cali. C6T) “> Casal Gans Tax(OGT) _Tatle24 ue: 1 ns cent dete, nae ot sujet fal wt ax and wm, lea Inara ccme tom bank deposit sad for itn, sot need instren, natincude ne Ist of noe ‘eel FT nor CGT as sk Tas 23 and 24, Hence, such inc se eT 24 Hens, suchincame is subject 9 68 Sy ery y Mou Lunn POR 201 ig TRAN we NATE Taro im Talo 7 oe SI Eee oerP19000 — PSDD*TORin | OwrPasaemDD anal ean apa e | neeren eed eae ae Panto rsan0 verrang0n FRENDS om ae soeisin —Onennk Patan Pad» exesso1PI2000 ——retowerPENGLD exes EOE) : rao vers 00 ‘orpm000 —PEOD* Zin ver FEO er PEON POON Kin oe ae in HORS + 88 ra cess rotowe ——exesso800000 exes 89000 eoroano on Puncot PZ2500+25Kin Ov F2on0. Panamera Pa + wutrolover exessofPHDOID ——blrtoer cee etal es aces 2000000 00, paconomn Fz erpzsootd PSONCOSOKin — OerPRNOHO FrsTOCDeISK —PaatASHD + tutotone excess P2000 inecesso! vest P8000009 09 coon oecrsonaar Pras000 +76 ccs PON000 {2 Provided hat ata 2020, he tate icone tall inte above cede shale at ee avr Be [ear trogh es ad eglons wed by he Department Farce (Gon reconmendaton le Corson afer canceig arg ber te ee same of he yer crate ton ILLUSTRATION: PURELY COMPENSATION INCOME EARNER: 4) Determine tr nore tax dv assuring te arable compensation income" for 2018 is #240,000 4 Answer. PO, tx exempt |he fvieal”Tageevers a pete ie des for 2018is P3000 Answer: P10.000 TOF et 250000 PO Fist 250. inecess of P250,000 10,000 ganna mat rox Due Fy cetera aig we et compensation income fr 2018s 850,000 _ Anse: Taxon Fist 200.000 130000 tence of 800,000 315,000 050,000 x 30%) an = #45 000, ns ‘SELF-EMPLOYED &/or PROFESSIONALS (SEP) Baggning 2018 or upon the effectivity of RA 10969 [T= Reform for coed Incuson Law (TRAIN Lav}, regular income of Sel Prrpoyed and Professionals (SEP) amounting to more than P260.000 9 ferabi year butwih a gross salesrecepts and other non-operating incorne raexceeding the revised vat threshold of 23,000,000 shall have the option to avail of 8% tax on gfoss salesireceipts and other operating income in fexcoss of P250,000in LIEU ofthe graduated income tax rate and business tax under Section 116 of the Tax Code, DEFINITION OF TERNS: ‘Sof Employed cetned under RAYC963 (TRAIN La) 28a sole ropitor oan independent anracor we repat income ead fon seltemployment. He/She con's who heshe ‘wort fx how te works done and whens dove I ines professionals whose income i ded pat fom te pate cf pofesson and nc under an epee ~ emp oyee loons" Professional - is a “person formally certiied by a professional ‘belong Weenies critenreaccmmaeas ecm Ea Saeed cedar Sa cee ene ae hob. includes but i rt lmted to proessional enletanes,pcofessonal athletes, peal ngendpperalg rycer ba rc a 7 ‘recipients of professional, promotional and talent. 70 ‘ Iadividead Uagpacers self-Employed and/or Professior Sec. 24(A)(2)(B) of the Tax Code zen provides te following ules for SEP: BOs pres Is (SEP) mended by RALO963 (TRAIN Law) coy sales eos ETT pi feoarone a, a, eRaaare Grass ‘ ‘ORS iovon irene Tan Sea en | sce a eel ae eo NLEVt ue er meveget tana macoen | cw SE oa eT von Sect Tax Cote eae ssa rat ec ch OFT we sats NOTE: ot abiness iy tanecone aK opted cfg seen Slice tour se auometn ne? kt ont oat Ta «Ramon we ne & "ale tay noe ron ros a) de racer I8oPe NRC tosah ie htoparesuyoeso'h eek er Feca cee lta NRC cca foe tooban axing esa ‘Uniess the taxpayer sgnifes in the 1 Quatr Retum of th axle year he intention to elect the 8% income tax, the taxpayer shal be considered as having vaied of the graduated rates under Seaton 24(A) ofthe Tax Cede, 2s amended, and such electon stl be mevocable Proved ha, at any me during a given taxable year, a taxpayers goss sakes or recegts exceeded the VAT ‘Treshold(P3,000,000.00) helshe shall auiomatcaly be subjected othe graduated rates under Section 24(4)2)a of the Tax Code, as amended, wt the folowing resgudelnes. +The taxpayer shal be alowed an income tax ce of quart payments rialy made under te eae tx pon. —) + eer ear tater tases tes) moon © | Fy atain Tous tx Aperenage x pursuant Secon 16 of Tax | pyaar Cae as amended shal be posed ne ft 300000000. | woASEE The exes of to restad shale sujet VAT tases. + Porceriage fax dr on te P30000000 sat ceed |) pad on to de dle ine without pena, if timely following the month the thresholé was breached nud ideal “Tagpaver is discussed j taxes. The latter IS in differ from business een hurme Io ook ented “Transfer and ea raat erase a oes discussed in 2 separate SUDIE ee OS tos at ena i ion to be taxed at yet ivton pps 8 DEK ers.) compehensve involve on he 8% optional taxis discussed in volume 2 ao 00k, spectealy er Chapter 9 ented "Other Percentage TOK J ISTRATIONS~SalFEmployed andr Professionals GEP) =| N5~ Seif Employed andlor Professionals ( | Case A PURELY ‘SEP whose gross salesreceipts and other non | qperating income does not exceed the VAT threshold of P3,000,000, | 4) Deemin te income tax due assuring he goss salesrecits and other ‘non-peratng come’ for 2018 is P240,000 ‘Answer, BC; exempt ftom income tax | 2) Using te data betow, determine the income tx due for 2018: Gross sales 2,800,000, Cost of sles (1,500,000) Operating expenses _(750,000) _ Net income 550,000 Answer: 267,500 Tr — | | First 400,000 income 30,000 In exoess of 400,000 income 37.500 (150,000 x 25%) Income Tax Due P67 500 In aden othe income tx congue bo, te SEPis sl stort oa busess iat. Busines tes re dscussed in vole 2a this book entitled “Transfer and Busines Texan’. For purposes of istraton assume the "epaerin tis para cate i sujet Pererage Tax under Se. 118 (cing a nora registred tpaer andthe goss bls did net exceed the ‘eid va hres of Pte busines fax computed a oon (OPT = P2800 x 3% = P4000. Consequential tax expense (ecare and busiest) of te SEP i S150. Tis ax shal wise | 0 ne prooing rumba (assunpion ft) eepecte of ts exemption fam name tox. The bass fa busines taxie nt the Sncone” bt goss Saencoes an che enpeatg tene (acte cnpere a Vedivideal Tagpaves 3) Assume the SEP in the precedi _ the TRAIN Law, °°86@ number opted to aval the 8% tax under Answer: (P2,800,000 — 25 a ~ 250,000) x 8% = | The ti comps tmnt oy ge oO peraing income in excess of P25 co. r Usb ole hema a icone sgt pon ne tats ie, Hos te Se rete ny Serb see the busines tax wilresutto@ ower compare the tates using the tao hich wiles oa lower foal axes, CASE B: PURELY SEP whose gross salesireceipts and other non- | operating income EXCEEDS the VAT threshold of P3,000,000. Determine the income tax due assuming the following data for 2018: Gross sales 5.000000 | Cost of sales (2,250,000) Operating expenses (125,00) ‘Net taxable income _ 1,500,000 Answer: P340,000 Solio: Tax on First P800,000 income 130,000 In excess of P800,000 income 210.000 (700,000 x 30%) | Tax Due 340,000 2 Inaddition tothe income tax computed above, the SEP in is paricularcase isstllsubectio a busines tax, Shoe the gross saleseeets and ote nor perting income exceeds the vat trashol, he appicable business taxis 12% va computed as flows: \VAT = P5 00,000 x 12% = 60,000, | rhe cont sping etn on The ht ti retadrOe SEP non | | istered CASE C: Purely SEP+ GR or GS = P3M + the SEPis vat reaisteres | ‘Assume the same data In CASE A(2and tre SEP opted to use the 6% tax, | compute the total tax de ofthe taxpayer. | 73Indie [ Tagpaver ora ato 0 Me ray 67,500 rows of 4oooNDiname ST 400 | \ (P150,000 x 25%) | Business Tax: 336.000 | i vat = PAM x 12% The tar ok appeatle i Oar BENE act a ae act tan 18 Tie Val NRC. | case puny SEP Ror GS POM the EPs subject fe pe of OPT | sedis ten opr. Teflon ata were prove fr trabl yee 2078, \ Goss reves 2,900,000 \ Costofiect series (1,500,000) | | Opering expenses (750,00) Netincome 550 00 Detemine te total tax due of Pedro assuming he opted to use the BY ak: ‘e doswer P6500 | | Income Tax: a ) Fst P400 000 income 230.000 | | Inexcess of 400,000income 37,500 P57, 500 | (150,000 x 25%) | | | Business Tax: 3% CCT under Sec. 177 | 38 CCT= Rak a3% 84,000 TolTxOve BY, 800 | Gh Tessa rns prea ee ~ | Theva elena ei | \ 2) VaTeegsered goers, ) thse able fr Pactge Taxes ote than Sec, 116 under | Tie Vt WRC. 7 hedivideal “iy sager CASE E: PURELY SEP usi - EURELY SEP using 6 tax and other non-operating ine fate but whose gross salesireceipts | | ring the year 2 OM EXCEEDS the VAT teshod of 00000 | Pedro signified his intention to be ta | red at BY income his quarter income tax return, fe fax ral on gross sas in vr ete ea ean awe: Son stg Bae ve 2S provided inhi quarery record ao 3 uma ler hin) sin —_aviay oom se 00000 Fso0C00 P2monco? P3son000 | Costof sales (ato oe0) —_goao00) (+2900) (4.200000) Gross Income 200000 20000 snnaoo 2300000 paring expenses 20000) fanond) aban, 2b, Neltarableincome 80.000 Pa0000 Psen.oqn Pt se0000 ‘Question: How much s Pedr’ annul income tax payabe? Answer, #289,200 Soliton: ‘Sab (torte yeay ascoon Costas tare ya) agonan) Gross Income ott rh yea) 2500000 Operating egeses el rte yea 40,00) Net teal rae or 2018 exon. Income Tax evn patted le aog200" Ls: Quay fx paprens('-09) based an arate (P2505) 00) ‘Annular Tax P06 reo The cmv grass ses el cei forte aire 218 tale ear enceoded fe P3OI0000 vl Bestld. Terebe he 3 nome (x le stl ro loge be agpcabe, The caret Pye tax dv sl be conpued based one grated x ale sc incl p re res ts stale ees | to are atte ince ax payate or ey | 5pedivideal ‘Tigpese mes salesieceipts and other non- oe ee aT ei PN ope \seerr® i ne 000 | Gross aes 200000 \ Costot aes (1,50.00) Operating expenses (750,000) Total taxable net income ‘B4,450,000 | 4) etme he comet income tx | Answer: P925,000 sion Taxon | Fst P8000 income 3,000 Tnevcess of PG00,(00income 195000 | {P 1,450,000-PBOOK x 30%) | Tax Due 325,000 a dss in CASE A) adn ncaa copied bo, tei prir casei cl jetta buses taxon isbusss | see yeaa campenaon ne) angus 35 ws (OPT = PB, 00 [Sane campanleparaton wih Case A}, THs topic I | Seas amerdin Tax? sie ars ad Bees Toxaon, | 2) Assur te SEP pte ava he 8% axundehe TRAN Law ‘etre the tax due. ed ) Stn ‘On his compensation income: . Taxon | Fst P800,000 130,000, In excess of 400,000 30,000 160,000 | (100,000 x 30%) (On his business income = 224,000 (62.8 x86) TOTAL Tax Due 384,000 ¢- Tatham pet vemos § einer cath wets at BE IR rept | 7% ‘ Aidivideal’ “Tagpeves | CASE F: MIXED Income Earner we | in thos pte Ee ae th | Deteine the income x ve assuring he foloning defor 2018 Compson Geessaes Sen Cotta cas Operating expenses (1,250,000) Total taxable net income 2,400,000 Answer: P618.000 Sali Taxon First 2,000,000 income 490000 Inexcess of P2,000000 income 128,000, (P2.4M ~ P2M x 32%) Tax Due 516.000 In ation tothe come tax computed above, he SEP n ths phot case isl subject oa business ax Soe he goss saleseceos ant ter ronopeatng income exoaes te vat tres, he appcable snes tax ¢ 12% val on his business income on) rate of Section 116. The vals computed as flows \VAT = 5 000000 x 124 = Peto 000 VAT and Percentage tres ae sono ofthe lois cover by Tak 2 sub Translr and Busnes Taxa) “The 8 ta in LIEU ofthe graduated lx ate ard Sectan 116 ot pliable 1 he goss slesrecegts and ober notapeing came entoeds the vat esc of POV. 7edie Uist il ray oer MOY ustedes Prato 2018 TH naceBxerot aes ncames cine 8 Sept ct exe 8 corey ost 580 sare suber ti YP oat 2k nRc-Brenet cxenpt Exempt om et 1 rons ear {avons parts nce ret rcame tr gem dept Of vero page fr eens (reno reer exempt Exempt Exergt cero = 2% presente before it or ls ‘alte nposed ted nrararing matty as olons: yeas less han a5 year estan eas + lembandyea o% 2 1% 2% as 2h Bae (ayROVALTIES A poyates.n grr ober bn aes 20% ested iete'B) Royale ntooks, wel aschriiery 10% esd mic campos os 2% 10% 2% apprzes Pras ecpecing P0000 oo 2% 2% NOTE Pr P00 eto te eat en nse by NETS whch sesana bone (OTHER WHNINGS Preto at: Rega of out ecapt CSO andor Lotn wigs ax eset) m% 2% lncuing esol ening 218: (OTHER WNNINGS Regardless of amount me 2% a 78 ‘ Jedivideal Taepauer we peSOlLoto Winnings ‘amounts $P10,000 Amounts > 10,000 Exergt . “ om 7 Eerst 4 (6,0ASH andlor PROPERTY OVDEND i ash andor property sidends ewabyconsrutiely received fom Spmestc corp. oF OM @ jt tock co fpevance oul und comanes &ROHO "mutnatonal Compares begrning Jn 200) share ofan indviuonte dibab et Froome at faxof@PARTNERSHP (OTHER gy SHAN a GPP) eginning Jon. 1,200 ‘share of aninividalin tne netincone ater {Gr ot an Associaton, 2 Jit Account, or a ‘eee o° Contin taabe as 3 o which he is @ member or 2c enter ging Jen. 1, 000. 0% a FINAL WITHHOLDING TAX (On Geriain” income not subject o basic tax) Incomes under section 24(B) of the Tax Code as summarized in Table 2-2 above are subject to final taxes instead of basic tax or graduated tax rates. Final withholding tax is a kind of tax which is prescribed on “certain income” (interest income, dividends, royalties, przes and winnings) derived from Philippine sources and isnot creditable against the income tax due of the payee on income subject to regular rates of tax forthe taxable year. Under the final withholding tax system, payee received the income net of the applicable tax. The amount of tax withheld by the withholding ‘agent (payor) is “constituted as a full and fnal payment” ofthe income fax due from the payee on the said income. For instance, i @ resident cllz" taxpayer earned P10,000 interest income from his bank deposit, the ‘amount to be credited to his bank account shal only be PB,000. net of the 20% final tax on interest income from ‘bank deposit. The applicable tax is ‘athnold by the payor (bank) and shal emit he coesponding lx i he BIR Consequently, te abit for payment ofthe tax ests primary 99 payor as a withholding agent. Thus, n case ois faure withhold the tax rin case of under withholding, the deficiency tax shall be collected from the payoriwithholding agent. 7” 4wires red a momoreinettatnra a sero payee. The Pa Seas me. Likew ince 1 la ne taxable incom? | tax al winning ymore to fle an abroa x return of 2018 000,000 3,000,000 Gross business #0000 Busnes expenses PrlPBNeS oe pusness expenses. Canaee = Frere noone - BOO IGEN: 4 Mrerstncone 2001 Cael en re ene Fn does COPE 5000 ‘idend incomes corporation seo Dividend nc ineestacome ceive FO FDS, Piipones Prep to wes ripe cary sweepstakes Winnings 500,000 ‘Singapore sweepstakes winnings 200,000 Other winnings Philippines 50,000 oo wing nse Nati 000 Fee onions SMa 20,000 Fae craw SM "Shang, hina” 30,000 cetemin te flowing: (i toe ane arf soner P2015000 compa sO: eras coe PENS rena Sees cme, Cot ae Sheen Pps ates oes eens Com (ca meee 00 Cnt 0 een gr cain mot icine meaner EN ose pe re same tite Rr id ame 000 Sra 80 subject 0 dare Pent clizon taxPAETS anes org corpratoh fomroerytekunser 80000 pearileel ‘Tages rificate to the sic income tax, Advideal’ Tagan oY able came means oe a Tai ne i ce marae td sit He ener cps tensoes se oP Se oe eens Duiterd «+ PCSOVPhipine Loto wenings * par 02016 = Tax Bert Under TRAN Law. Exempt ra AN pli ntexcondng 10000, Subeta 20h FT He aroun «pase not rcedng P00 fam sauces tin I zx tn Pgs ae ibe! © Pease eg ne orate wane em 1B et 20 ral lax as showin abe 22 | (2) The amount of fal taxes on “posi eae «Answer: F154000 computed a fobows Inferest income BDO Phippine (2) pmo ‘vided income fom a domestic cpraon (10%) 12800 Forest income received Kom FCDU epost (15%) 7800 ‘PSO Winnings (P50,00x 20%) 10.00 vinings Phipps (P50 000 x 2%) afl craw- SM Mania (729000 # 20%) —_— al final tax on passive income peposit SUBSTITUTES Fax Treatment of Interest income derived from government debt instruments and securities) aR 14-2012 defines “deposi subsites” a5 an Stein form of baining funds from the public other than depos, through the issuance. chment, of acceptance of debt insiunetts for the borrower's Own are tor the purpose of relending o purchasing of receivables and other Sigatons, of fnancing ther own needs 7% heeds of their agent or dealer sold etre defined as borrowing from twonty (20) 0° individual or corporate Paeeae atany one time. The mere isuance O ‘government debt instruments lenders ies © deemed as fling wihin the coveog ‘of deposit substitutes respective ofthe number of lenders at he re ‘of origination, and therefore irespecome derived therafom shal Be Subed! ‘applicable final tx rate ‘Bureau of Treasury eee eat db inctruments and secures Pot eavetiretruments and secures Such aS 102 bonds (T-bonds), Treasury bill (T-bils) and Treasury notes 37° ns tied as deposit substitutes if Such aie ote or secures are to be waded oF Gxchanged in the secondary marketPn udevidetl, “lag ravers 1 INTEREST INCOME FROM LONG-TERM peroRT No MENT CERTIFICATES (Evidenced PY ima pre {Gased on RR 14-2012, RMC 71-2015) ritcate refers to certificate of time i renngs, common of individual trust funds, dept mest ET gant accouis a te eves epost subetid of rot ess than ve (5) Years Ne form of which shall be wit a matury Pere gio Sonia ng Plipnas (SP) ane sued by banks reseed duals (should not be under te name O° corporation or a bank oa So) in denominations of P10,000 and other ived by BSP (RR 14-2012). Long trm deposit Investment &= Requisites/Conditions for exemption: 1) The depositor or investor isan individual citizen, @ resident alien or a oeesent alien engaged in trade or business in the Philippines 2) Te longtem deposi of investment certificates should be under the tame of he individual and not under the name of the corporation or he bank or the trust departmentiunt of the bank. 4) The long-term deposits or investments must bein the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments evidenced by certficates in such form prescribed by the Bangko Sentral ng Pilipinas (BSP). 44) The long-term deposits or investments must be issued by banks only and not by other financial institutions. 5) The long-term deposits or investments must have a maturity period of not less than five (5) years. 6) The long-term deposits or investments must be in denominations of Ten thousand pesos (P10,000) and other denominations as may be prescribed by the BSP. ‘The long-term deposits or investments should not be terminated by the original investor before the fifth (Sth) year, otherwise they shall be subjected to final tax rates of 5%, 12% or 20% on interest income earnings as shown in Table 2-3. 8) Except those specifically exempted by law or regulations, any other income such as gains from trading, foreign exchange gain shall not be covered by income tax exemption. 7 82 Vidividual laepacers RMC 7-2015 dated March 6, 2015 derived by individuals investing in ger roM028 tha, 19 in co for interest income investment management eccoms oTNeN oF inddual trust funds oF 1 Must ALL be present 1) Tho mvesinen of he vial evs te investment aa in the common or individual \ageme heldimanaged by the bank for the named anny ee, actually near out iterupion Te ee came vial at ast ve (8) ShiyHeensed as such by etwangko ceed eat een ae Banks 19 Piipinas 2) The underlying investments ofthe comm requirements of Section 22(FF) ofthe NIRG of 1997 a5 smonde. ae well as the requirements mentioned above amended. as 3) The common or individual trust account For nonresident alien rot en: (25% For nonresident foreign corporation, interest income received from long-term deposit or investment shall be subject to a Final Withholding Tax (FWT) at the rate of thity percent (30%) pursuant to Section 28 (B) (1) of the NIRC of 1997, as amended. However, interest income from long-term deposit or investment shall be subject fo regular income tax at the rate of thirty percent (30%) if received by 2 domestic corporation and resident foreign corporation (RMC 7-205) PRE-TERMINATION OF LONG-TERM DEPOSIT (RR 14-2012) interest income from long-term deposit or investment that is pre- terminated by the depositor of the investor before the 5” year shall be subject to the following graduated rates of ial withholding tax on the erie income and shall be withheld by the depository bank from the proceeds of the long-term deposit of investment cerficate based on the remainng maturity (holding period) thereof as follows: Four (4) years to less than fve (6) years ‘Three (3) years to less than four(4) years 30% Less than three (3) years 83 eeee ae AR Iedvideal “Tage Pei 14012 and RWC 7-208) | ° ars was held by Juan (resident A: Gas una apes Seah resident an), who, in | adn : so ae te eae = 20% ral tax an | Smith Exemt caer vit 2 matiy pt often (1) Your Ne held by Juan iste tree () ers at tate 10 Sm eOAer oa at feos seu tenseng 2 Fed ti Sun wh ha te ay f mary pig of Year. Teal witoldng tx ar fll ‘ban ‘42% fnal tox Smah 20% nal tax | Pedro Exempt Case C: Gena many prt (0) es ws al St | {torent len engage n rade or business for tree (3) years and ansfered {hs uan, a resent citzen, Juan heli for wo (2) years before subsequently | transfering ito James (esident alien) who pre-termiatd it ater four (4) years. Sorta ees tt ee | ce uta James 5% final tax | case Ae arent) apis oA —TastDeptnent merge his | | money raed ough aust agrepment. Bark A —Trst Deparent then | vests sai money na 5 yar compo bond. | Evi X es rot wien his money fon such ts reement {or at as five (6) years, is iret income fom te trust agreement will NOT be exer fom the final withholding tax as the underiing, | investment is a corporate bond, even if such corporate bond has @ | matury period of fe 5) yar. The undying instument needs to | Siaymihbernseni of San ZF let code Abn pombe ory oer pe of et stument sued by ano | batk_comoton as an unceryinginstunent wil no meet the | _fequremers of scion 2(FF) ast notssued by a bank | 84 Individeal’ Taghevers CaseE anaes | (Refer to Case “D’). if Bank A | ofa nk ae cers a nee abe anette ‘Oni those made special “a mee ea fel tote a | inivdual investors" maybe exempted fom cee oe aes | wih Secten 22(FF) of the tax code provided they comply Case F: (Refer to Case ‘D’). if Bank A ~Trust Deparment inthe nami thefindnstead ina ex ng epost meen conn cosine’ | under Section 22 of he NIRS of 187, as amended MX interest nome | dvd fom te ts! ageemen sal be exempt ton inane ax rors tat Bank A—Trust Department in beat of Mr. X will hold such depost or mvestment in continuous and uninterrupted period for atleast fue (5) years. The nolding | period for both the individual investor inthe trust agreement andthe trust inthe underying instrument must bot be at ees five (5) years INFORMER’S REWARD (Informer’s Reward to Persons instrumental inthe discovery of violation of the NIRC and the discovery and seizure of smuggled goods) Section 282 of the Tax Code provides: (A) For Violations of the National Internal Revenue Code. - Any person, except an internal revenue official or employee, or other public Official or employee, or his relative within the sixth degree of consanguinity, who voluntarily gives definite and sworn information, not yet in the possession of the Bureau of Intemal Revenue, leading to the discovery of frauds upon the internal revenue ws or violations of any of the provisions thereof, thereby resulting in the recovery of revenues, surcharges and fees andior the conviction of the guily party and/or the imposition of any of ne fine of penalty, shal be rewardedin a sum equivalent to ten percent (10%) Of the veveres, surcharges ot fees recovered andlor fine or penalty imposed and collected or One milion pesos (P1,000,000) per case, Whichever is lower, The same anount of reward shall also be awven 1° 20 ye tthe offender has offered to compromise the violation of ay omitted by him and his offer has been accepted by the Commisestet Gnd collected trom the offender: Provided, That should no revende, 85 ieesumnnddividual ldtdavers orcollected, such person shall not actresses, Tat he orton enon Pein shall ot refer toa case already pending or revo ivstgatg tr examined by the Commissioner oF any of his deputies, agents or kamners, o the Secretary of Finance or any of his depulles oF agents Provided, finally, That the reward provided herein shal be paid under rules and requatonsisved by the Secretary of Finance, upon recommendation of the Commissioner. (8) For Discovery and Seizure of Smuggled Goods. - To encourage the public to extend full cooperation in eradicating smuggling, a cash reward equivalent to ten percent (10%) of the fair market value of the smuggled and confiscated goods or One milion pesos (P1,000,000) per case, ‘whichever is lower, shall be given to persons instrumental in the discovery and seizure of such smuggled goods. The cash rewards of informers shall be subject to income tax, collected as a final withholding tax, atthe rate of ten percent (10%). “The provisions of the foregoing Subsections notwithstanding, all public officials, whether incumbent or retired, who acquired the informatiqn in the course of the performance of their duties during their incumbency, ‘are prohibited from claiming informer’s reward CAPITAL GAINS TAX TABLE24: Capital Gains Subject oC mca (1) Copia Gains from sale of shares of Clans & NRANETB lock ofa domes corporation no aded Resins inthe ea stock exchange Porta 2018 fe eM of captal gain % s% H 2 ners of P10 00 ean gan 18% 0% 10% egg Jn, 2018 as Cpt gan 15% 19% 18% (2) Sef al property acted inthe Pipes. TAKBASE: SlngPicecrFarMaatvoue, 6% veteer shger * a wore aes COREA Soar cents 86 x Ndivideal Terenas GAIN ON eae OF ASSETs * Property classification of an ise of the hip ‘gale or exchanges of ordinary. assets PY © ae eso assets are classified either as argc’, FOF income Lo papas code, the following are ordinary oon intr Y OF capital as 4. Stock in trade of the posse Se Under the tax hand at the close of taxab le year. 2. Property used in trade or business up 2 Subject to depreciation Real property held by the taxpayer inthe ordinary couse oftade orsusrna S'cusomers 4. Real property used in trade or business of the taxpayer On the other hand, capital assets ina taxpayer (whether or not connected with men vey tb he his trade or business, inthe definition of ordinary assets above, 27°F Dsness) nt includes Gain on sale oforiary assets are comm monly known a a regular income, Ordinary gains ae subjet oe gaduaes oe a oe provided for under Section 124(A) of the Tax Code (as amended). Gain on sale of Capital Assets are classified as capital CAPITAL GAINS may be: 4s capital gains. 4, Subject to CAPITAL GAINS TAX if it pertains to sale of a. Shares of stock of a domestic corporation sold drecty to a buyer (shares of closely-held or nonisted domestic corporations); and Sale of real properties located in the Philippines. Capital Gains Tax on sale of shares ‘Capital gains tax on sale of shares of a domestic corporation sold directly to a buyer, under Section 124(C) ofthe Tax Code is computed as follows: Troeisno0STVhe Porto 2018: ston PIOLONCn ecto {O'ein excess of P100.000caplalgan Soest Beginning 2018: 15% of capa ga 7 —‘eee padoideel Tagbevr ue of th AR 6-2013, the val le Under RR 6-2008 2s amended kes the fair market ae In ming the vai ofthe snares te A Se adusted are used whee 3 tonsin his book the seling rset oe the make vali Sd once method capital Gains Tax onsale of real properties ets located in the ties classified as capital 285 Pri Reonapen tet to copital gains tax (CGT) unser Section aap) of te Tax Code (basic tax if lcated abroas ) is computed a8 folows: CoGT = 6H xt higher batween Gross Seng Price( GSP) and FMV “The fair market value (FMV) above of real property shall refer to the between: rahe et ve 2s proved by ClyMunpal or Provincia assessors and 1 Tonal valve as provided by the Commissioner of ntemal Revenue (CIR) SALE OF REAL PROPERTY TO THE GOVERNMENT if @ real property classified as capital asset is sold to the ‘government, the individual taxpayer shall have the option to be taxed at 6% CGT or basic income tax using the graduated tax rate. SALE OF PRINCIPAL RESIDENCE It the real property sold is classified as principal residence, it may be exempt from CGT provided the requisites for exemption as provided under the Tax Code are met. Sale of principal residence is discussed in page 93, . Other Perdentage Tax (OPT). OPT isnot an income tax but a business ‘ax (a topic in Tax 2 subject). Sale of shares of stock of a domestic Corporation listed inthe local stock exchange is not subject to income ‘axbut to OPT as provided under Section 127(A) ofthe Tax Code. The applicable business tax fort " fi aes is type of transaction is known as “stock Idividual’ Tagpagers stock transaction tax (STT)is computed as flows Prior to 2018 = Cepening 2018 "601 1% of Gross Seng Price 8/1001 1% of Goss Seng Price Since the tax rate is based on gross sel ling price, stock tra taxis computed regardless of whether the transaction cesuled fo again cor loss (Refer also to Chapter 9 of our “Transfer and Business Taxaton book for additional discussions) 43, Subject to Basic Tax Capital gains not subject fo capital gains tax and stock transaction tax are subject to basic tax or the graduated tax rate under Section 424(A) of the Tax Code (as anended). Examples of capital gains subject to basic income tax are gains derived from: ‘© Sale of shares of foreign corporations = Sale of real properties located abroad + Sale of other personal assets other than shares of stock of domestic corporations such as cars, jewelries, and the lke. Capital gains subject to basic tax are subject to additional tax rules such as holding period and net capita loss carry-over (Refer to Chapter 9 of this book for additional discussions), ‘Summary of Applicable Income Tax on Sale/Barter/Exchange of Assets — Stas cto 7m a ee Shing seo!" Neybevont"ebyted aus 37 frou, Goreicor: otha aeeeeele; —— aaciprima! © GAO Tvsex pecan Sanaa et aloe toumionm MaDe SReserutie + ouoTe —— usresia) aan wor eaarn " tmetat —Sesety ove ose tobe ‘seeder format coon oa REE + tctstos on aha 0 ‘2018 in the following: e capt gains tax (CGT) fr TION 8: Determine the amount }OCK) CCASE A- (SHARES OF ST ee Senge sot 2.00 shares ofa domeste OPT : eee topo “te shares were purchased 3 years 290 sree cnc Dot 1 sok taser tax, not CGT. a domestic corporation crety toa buyer 2.000 shares of ° fay a 8 per shar, The sates were arqured i (6) months ago at 105 pr share. ‘Answer: P1000 computed a fobows: tng pen (20003 xP180) R960 000 Gost (2.000. xP108) (0.000) Capit gin 150,000 (CGT rae (TRAIN Lew) 15%, CAPITAL GAINS TAX P2500 000 shares sold of domestic corporation directly to a 3) George sod 2 ” er The shares were acquired two (2) years buyer (Eat) at P100 pe share. ‘ago at P10 per share. ‘Answer: PO. The transaction resulted to loss. (CASE B (REAL PROPERTIES SITUATED IN THE PHILIPPINES) “The folowing ae the tansactons ofan individual taxpayer pertaining to sale real properties forthe curent year. 4). Sale of apace of and used in is trading business, Seling price is 2,000,000. The property was acquired five (5) yeas ago at 1,500 000, 2) Sale ofthe taxpayer’ residential lot for P5,000,000. Te fair ‘market valu ofthe property was P6,000,000. The property was acquired thee (3) years ago at P,000,000, Question 1: Whats thea | gos out al income ox ese realestate Answer: P360,000 (Put 64) | Capital gains taxis 6 whichoveris highs 78S 8g ic ora nae vate, ‘Transaction “1” pertains oan capital gains tx. The ditferen the determinaton of gross in rina ec sce eto eof PS POL wees cine hehe ase at (Question 2: Assume tha te resin fal lotn arsaton 3,000,000. What shout be the corer ancunt of capa gota transaction? gains tax on the ‘Answer: P360,000 (P64 x 6%) Cepia gains tars 6% of he nighest noun an : mattelvave ozrl ave worm slg ree for Unie capa asin case ol are oS rat buy te copa pars cone a oa oper csse os capt ases sen Presale 9h dete tome trate. Ther of bon Pe fonscton' ejecta ot psi CASE C [REAL PROPERTIES SITUATED ABROAD) Assume a corporation sol a parcel of land sed in its operators “abroad. Seling price is P3,000,000. The property was acaued fe (5) years apo at 1,500,000. ‘Question: Whats the amount of fnalincome tx on the ransacton described above? ‘Answer: PO “The 6% capital gis taxon el properties sl are appcate oon Te scp eo suede Pies. The property sls ated road encase an tia | hence, subject to basta |pefvideal Tigperer “ p reece aaa | ‘option ofthe taxpayer | | (CASE Shares: of Stock and Real Property! eto, resident cite, reaized te floating 98S from sale of assets in Soa tion sod inthe 25000 | Site ehanonds ce ra | Garr aoe yes 9072700000) uesion : How much opal gains x? 4 Answer: F196 500 | | Solon: | ‘Sab of sharps a does copoain Sd dec toa buyer | (CGT =P110000x 15% 16,500 (CGT on slo el ropety inthe Ps. 100,000 = FM : | Tota capital gains ox 96 500 NOTE, 1 Noa of ts of cme capo ie eal sek aS “eeng fonicove ax. Hone isi 0 of sack transacion is asin Nt Ta Code + Galton stone prone cfd as 7 in Sn te ae oe mae | Hoe ape epee nea, ow subject | 9 Indiideel Taper gave OF PRINGIPAL RESIDENCE »principal Residence’ is the fa "5 individual including his fay esdes as a soresont oelrg, na absent, wherein the sai individual intends ore neh Ie a oul be cet by he Barogay Camano si po, > iding Administrator if the residence is a enema ing fal tpaye”'s adds as indica in his est x cheers or whe! ‘The residential address shown inthe latest incom’ pyine vendrtransferor immediately preceding the dat ea eel by fery sal be tated 2 2 conse presumplon aout ne mri adress the cristo ofthe Barangay Charman, o Buln sdorator (incase of condominium uni tothe contary misfanding, in accordance with the doctine of admission against notwit the principle of estoppel interest 0 ‘The sellerransferor’s compliance withthe preliminary conditions for exemption from the 6% capital gains tax under Se. 3(1) ang (2) of the ft ejtions wil be sufficient basis for he RDO to aporove and issue the Reatteate Authorizing Registration (CAR) or Tax Clearance. Cerificate FCC) of the principal residence sok. exchanged disposed by the Gipezad taxpayer. Said CAR or TCC shall sate al fe said sale, aforesge or csposition ofthe taxpayers principal residences ‘exempt fom Septal gains tax pursuant to Sec. 24 (0)2) of he Tox Code, but subject 0 calance with the post-eportng requrements imposed under Sec. 3(3) of the Regulations, REQUISITES FOR TAX EXEMPTION ‘As a rule, sale of principal residence is subject 10 6% capital gain tax tased on the seling price or fir markt value, whichever higher, except, Minen the proceeds are fully utized in acquinnd & ‘constructing a new Jrincipal residence subject 0th flioing conaivons tructing a new prncipal 1. The proceeds is fly utilized in aequring oF om ths from the date of residence within eighteen (18) calendar mon disposition, ‘Fuly uiized" shall_ mean, thal, the ore has actually comfenced wih the construction of his Ne principal residence oF has actually entered into for the purchased his new eg 93pa ee 8 Indira” Tagbaer sresidence or has act within eight@e. (18) calendar months principal resi 4 with ‘of disposition thereot the fam te date it ee a ¥ sale for the acquisition o, intention of us proceeds of Scion of his new principal residents ‘Any expense paid for by te ‘seller in effecting the sale (ie. documentary stamp tay, oy er fees, broker's commission) shall De considered as part of the amount uilized ceeds of sale or disposition, the iris ul uizatn lhe ee te inthe sale the gain presumé Cepeion Si be subject to capital gains tax 28 follows: § Seling price orf = Unuiized Prion _ x market value atthe time of jo GossSaling Pico sal, whichever is higher 2, The historical cost or adjusted basis of the reat property sold or disposed shall be caried over to the new principal residence built or acquired 3, The BIR shall have been duly notified by the taxpayer within 30 days from the date of sale ar disposition through a prescribed return of his intention to avail ofthe tax exemption. 4. The tax exemption can only be availed of once every 10 years. ‘tis thewserequted under RR 298 tha he amount representing the 6% CGT mist be ceposied under an Esxow Agreement between the concrred Revene Osi fice, he Seer andthe Transfer, andthe ‘bored agent bank cash cr manager’ chek nan intrest bearing accu wth he Authored Agen Band Release occurs the proceeds of the sl asin fat been tied in he acusifon or constuction ofthe Selerranstea’s new pincigal residence witin 18 calendar months from at ofthe sa sale or dspstion, ‘The dal of sae or spston ofa property refers othe date of notaization ofthe document endencing the ane of said property 94 dividual Tapers ILLUSTRATION 8: SALE of PRINCIPAL RESIDENCE Peso, a resident izen od his resident ho inte Pines wih he owing aon aaa OPH Seling pice 4, Fatma ake soto Zonal value 5,000,000 Expenses on the sale If applicable, assume that the tag requirements for exemption 125,000 payer was able to comply all he Question 1: Assuming Pedro bought anew principal esdenc er how much s the applicable CGT? Seteseans EAs Answer: PO Question 2: Assuming Pedro bought @ new principal residence for P00. how much isthe appicable CGT? Answer PO Question 3: Assuming Pedro bought a new principal residence for 2,000,000, how much isthe appicable CGT? > Answer. £180,000; OST = 24 PM x6 FORMAT IN COMPUTING TAXABLE INCOME ‘A. PURE COMPENSATION INCOME EARNER: (Gross taxable income (net of exclusions; Chapter 9 and &)) Tex Due (Graduated tax rate; Table 22) Prox Less: Creitable wthltng tax on compensation income a Income Tax payable re compensation came Under Rk 10963 (TRAIN Law), NO DEDUCTION s lowed fo pure compensa ceamers begining Jan. 1, 2018. 95 lgpadre Teaver NER BUSINESS INCOME EAR’ . ° (Under UN avr using graduated tax rate) Oa] Gross salesireoeipts PRK Less: Cost of Sales! Cost of direct services me Gross businessiprofessional nome ae Less: Allowable business expenses Prox ‘Taxable net income” —— ‘Income Tax Due (Gradvate tx ate; Table 24)" Proc Less: Creditable Withholding Taxes Prox Prior years excess credit ‘Tax payments forthe previous quarters) ox ‘Tax withheld at source: Foreign income tax credit (Chapter 12) 3 —e| Lincome Tax Payable | C. MIXED INCOME EARNER (Business and compensation income) (Under TRAIN Law; using graduated tax rate on business income): ‘Gross compensation income Prox Gross salestrecepts 0% ‘Less: Cost of Sales! Cost of rec services Prox Gross businessiprofessional income ak Less: Alowable business expenses Taxable net income Pr Income Tax Due (Graduate tax ate)" Prox Less: Cretabe Withholding Taxes editable wictng axon compensatonincome Pack Prior year’s excess credit vox Tax payments forthe previous quarters) 10K Tax wield a souce aK Foreign income tax credit (Chapter 12) Income Tax Payable cnet ae Q For Purely S.E.P. and/or Mixed Income Eamer. i “if qualified, as discussed in Page 71, the individual taxpayer ‘may choose to be taxed at a preferential tax rate of 8%. 9% Taspavers 7 CREDITABLE Vs. FINAL Tax FINAL WITHHOLDING Tax Certain incomes under Section 24 summarized in Table 2-3 are sur Pot the 7 section ax Code as toes nmr i St istration #6) CREDITABLE WITHHOLDING Tay. Certain regular incomes no t He oe valnodee ean table” withholding taxes method of collecting income tax ‘in 'S Not an internal revenue t civ fax but a through the payor thereof, when’, Nate” om the recipient of income agent of government. Taxes wittheld on ane eee equal of at least approximate the tax due of the payee ce oe computed using the graduated tax rate under Section 2a) ‘ofthe Tx Code ‘ras shown in Table 2-1. The recipient of income is stl envoy income tax return, as preseris tired to fle an ed in Sec. 51 and Sec. 52 of the NIRC, as amended, to report the income andior pay the difference between the tax withheld and the tax due on the income. The term “creditable” means the taxes withheld are deductible from tax due as shown below: [ Gross Compensation income Pox | Gros businesiprfesinal income vox Less: Allowable business/ocfesional expanses (a Taxable net income ~ Pat | come Tax Due (Graduated tax) Pox | LESS: (CREDITABLE WITHHOLDING TAXES (GWT on compensation name | cWewithned at source | OTHER TAX cREDITS: | Prior years excess crt Tox payments forthe evs quarts) Foreign income tax et = Income Tax Payable a Pow BRE tnholding tax for an The most common example of creditable wit individual taxpayer is. the tax withheld by an employer, fom, he compensation income of an amployee. The amount of tax wihhe emitted by the employer to the BIR. ”edvideal Tega 4 source are amounts ithhotding taxes © hh Conte other hand the wie such a crab thong tel y the paver (tne 2 nd rentals. The m ‘only of goods taxes for the eae srovided under RR 41-2018 as follows: f known CWT | proessoal es ea income forthe current year S PIM ° ie rome forthe curent year | PSM | Noni 1% » mosis peaenestin eectbarchaesm x [se a Seniors % | 15% income payments t0 beneficiaries of estates/irusis sonempeno non nes ih | gross income othe cent year» P720K | certain income payments made by cre card companies —_ % The ds oe ial wing taxa above tase on RR 1-207; AR 14-2018 ‘The duty to withhold and remit income taxes arises only on instances required by law or regulation. Withholding tax return shall be filed and tax, paid in withholding agent's legal residence or principal place of business, or where the withholding agent is a corporation, where the principal office is located, except on sales of real property subject to income tax, where the withholding tax shall be paid in the RDO where the property islocated. Creditable withholding taxes shal be filed and the applicable tax aloo ti, i tat ot et Loe cae] ok the Quarter. The obligation to withhold is imposed upon the buyer-payor of income athough the burden of tx Is realy Upon the. sellorncome eamer/payee; hence, unjustifiable refusal of the latter to be subjected to withholding shall be ground for the mandatory audit of al internal revenue ‘ax lables, the Tax Cece Nel #8 imposition of penalties pursuant to Section 275 of 98 Mebvideal Tagpagers Every payor required to deg, uct cach payee, @wihholing ax sats within taxes shall uish the close of the quarter. The prescrineg for sate thin 20 days from ILLUSTRATION 10: Case A: ‘resident citizen employee provided the follow ing data for Campensaton came gassct deduions n) Peshaog Deductions made by the employer S88 peu cottons Philhealth contributions re Paq:bigconrbions ato Union dues 1,200 Income tax withheld 35,000 ‘Quostion: How much isthe income tax payable ofthe employee? ‘= Answer, P3,000 computed asiolons Compensation income (gross of deduations below) 450,000 ‘Less: Income exempt rom tax (Refer to Cheater 8) 885 premiums contutons (som Phiheathcontiutions (8400) Pagrbigcortrtutons (2400) | Union dues (1.200) Taxable income Pasio00 Tax Due: | Taxon 18 P400,000 0,000 | Excass: P32,000 x 25% 4000 | Total tax due 38.000 Less: Tax weld bythe employer (25,000) Income tax payable 3,000 4 SOSIGSIS, Pap, Pieath conttuios ofthe employee aswel a Union dues are excluded by aw inthe cmgutabn of taxable income, Excusons from gross income are discussed Chap 8 As arul, taxable income shall ee to comes subject Io basic tax ‘tis usual that the taxpayers 2 purely compensation income camer, the income tax paybls eat 20 9Judivideal ‘lay sever Case B: jing information for 2018: A resident citizen taxpayer (Sg) provided the flowing 1,000,000 ation income 2,000,000 Cerert art zi Gross business income, Canada 4'400,000 2,050,000 Bruen epee, POE ‘expenses, Canada Busines el byte india xP" 160,000 employer on his compensation come Income tax withheld by “certain” payors On business 100,000 income inthe Philippines income tax payments to the BIR for the first three (3) 125,000 quarters ofthe year Required: Determine income tax payable of the taxpayer. ‘Answer: 780,000 ‘computed as follows: ‘Compensation income 1,000,000 Gross business income, Pipines 2,000,000 Coss business income, Canada 3,000,000 Business expenses, Phipines (1,400,000) Business expenses, Canada (2,050,000) Taxable income ‘P2,550,000_ . Tax Due: “Tax on 1# 2,000,000 490,000 (On excess over P2M (550,000 x 32%) 176,000 666,000 Less: IT Taxwiteiby he employer 150.000 Cc ‘Taxes by certain payors 400,000 Income tax paid 425,000 _(378,000) Income tax payable 291,000 QUARTERLY TAX RETURNS Income tax retums for income derived from business and/or practice of profession are required to be filed on a quarterly basis {regardless of the results of operations) as follows: 1 Quarter May 15 24 Quarter ‘Aug. 15 (45 days after 7 ys after end of Quarter) 3 Quarter Noy. 15 (45 days after end of Quarter Final adjusted/annual return April 15 of the succeeding year 100 FORMULA: Gross income (cumulative amount Business expenses (cumulalve any Taxable net income wun) (ex) x) x) mx Pox Prox Basic Income Tax Due Pea Pit Less: Creditable withholding taxe Pre Pax Prior year’s excess credit a Pro Pass Quarterly withholding taxes er) Quarterly tax payments (00x) (9a) (rn) trax) Foreign tax credit (Chapter 12) ten 22) a) pox) YK) (9000) 0K) Income Tax payable Prox Prox Pune __ Pra ILLUSTRATION 11: ‘The folowing cumulative balances on income and ex given to you 1 expenses in 2018 of Juan Dela Cruz were 1#Q @ 38 Sales Pt 3100) 8 og eet Grose Sees 200,000 P2,100000 PEc00.000 P3.700.000 Cost of Sal 700,000 1200000 1,800,000 2.200.000 Business expenses 200000 325.000 's50.000 700.000 Income taxes paid on Interest income 1.580 3040 4520 5.960 Sale of and 24000 ——-24000«=«2.000« 24.000 Dividend received from 10000 10000-20000» 20,000 domestic corp. Interest income from Pl 2000 4000» 6000, 8.000 ucrB 800 1200 ©1600. 800 Metro Bank 500 10000 15000 «20.000 Capital gain sale of Land sooo so.000 «80.000 «80000 Seling price: 400,000 Cost: 320,000 Required: Using above information, compute the folowing for 2098: 1. Income tax payable, fist quarter 2. Income tax payable, second quarter 3. Income tax payable, third quarter 4. Income tax payable, fourth quarter 5. Final tax on passive income 6. Capital gains tax 101 amare marteni i(avidual laghavers gprs, (pesTitand)=P24,000 fpr; (perso (rI6 75 san PT tarde ‘uvear (#1-4; Quart a 3Q Sout (4: Que 0 cmon 000, 3,700,000 | ano 210 sect “ae es stow ra | Business expenses (20.00) (3256 The individual taxpayer is rx return (regardless of the res uired to file a quarterly tax Fults of operations) as follows ‘ss Quarter May 15 2 Quarter ‘Aug. 15 (45 days ater end of Quarter) 3 Quarter Nov. 15 (45 cays ater end of Quarter Final adjustediannualretum Apri 1S of he succeeding year 4 FINAL WITHHOLDING TAX ON PASSIVE INCOME January to November 10 day ofthe mont following the ‘month the withholding was made “January 15 of the succeeding year PRIOR to 2018 December Beginning 2018 For Final and Crectable Wihhollng taxes, ne return shall be filed and paid not later than the last day of the month following the close ofthe taxable quater during wich the withholding was made. The power of the Secretary of Finance to requir withholding agents to pay or deposit taxes deducted or withheld at more frequent intervals is repealed Under RA10963. & CAPITAL GAINS TAX a) Shares of stock * Ordinary Return - 30 days after each transaction + Final Consolidated Retum - on or before April 15 of the following year b)_ Real Property — 30 days following each sale or other disposition Manner of Filing Filing of ITR may be made through: a) Manual Filing b) Electronic Filing and Payment System (EFPS) ©) eBIR Forms 109 ‘Nne Jedireal Teun A x fetus 3F@ dISCUSseq she aformentoned manners ting income 1 ‘extensively in Chaplet income TAX or Corporations) sively it Payment id at the time tax payable shall be Pat he cen ey 0889 gs TRAIN Cae rou ed (ne receding Pa52. HOWE. 000, the ind = fing ee tnat when the tax due is txoess of 2,000, the individu provides, that taxpayer may elec to pay he tax in two equal installments 2S follows: ITR. i at the time of fling ‘the annual Perit atin Fefore ctobet 15 following the close of he calendar year ILLUSTRATION 13: sun Dla Gz racing CPA, wi ou dependent cen, provide towne aa aa ests year Goss els, 1000000, det cast and expenses, PS f°0 00 sre nahlng tes, Pt 260000. Fis income tax payables compuled 2 olows ‘Gross receits 10,000,000, Direct cost and expenses (000.000) Taxable ntincome 500,000, Income Tax 1PM 40,000 Inercess of P2M @ 32% (POM x 32%) 60,000 Total income Tax Due 4,450,000 Less: Cretable wild taxes _ (1250.00 Income Tax Payable 200,000 NOTE: Juan Dela Grzis required tole quartet and annual income tax returns The ceabe wooly sis ols fom heone eax He's allowed to pay the income tax payable in two (2) equal annual instalments In ad on cae a, prac presale ao equa PY ‘As discussed in page 70, he may choose fo rale 0 8% grass sales steoshte. be taxed based on graduated tax 10 Mndividual Tagpanees place of Filing Income Tax Return The Income tax Tetum sh al be fea following: (1)authorized agent banks and paid with any of the Ieygolecton agent (4)Duy authorized ey. ene De Ofer tm poines ori there be no legal re Phippines, with the Office ofthe cane For ‘With Payment” Returns File the return in with the Authorized rized Agent Bani ior the taxayeregstered or equredobe egstres pares une there are no AABS, the retum shall be fled drecty with tr coven tnection Ofcer or duly Authorized Treasurer of the ty or municipality Caypow etn nas nse ate the Philippines, oF if there is none, fling ofthe return 20 Be Ena 19 ‘elurn will be at the Office of For‘No Payment” Retums (refundable, break-even, exempt an: Far no cempt and no File the return with the concerned Revenue District Office (RDO) where the taxpayer is registered. However, “no payment’ retuns fled late hall be accepted by the RDO but shall be fied with an AB of Collection Officer/Deputized Municipal Treasurer (in places where there are no AABs, for payment of necessary penalties. Persons Required to file Income Tax Return 4) Individuals engaged in business andlor practice of profession, regardless of the results of operations. 2) Individuals deriving compensation from two or more employers concurrently or successively at any time during the taxable year. 3) Employees deriving compensation income, regarless ofthe amount whether from a single or several employers during the calendar Yea", The income tax of which has not been withheld correctly (Le. tax ve S not equal tothe tax withheld) resulting to collectible of refundable return. 4). Individuals deriving other non-business, non-profession-related income in addition to compensation income not otherwise ‘subject to final tax. mET Individuc lager gation income from. single tax of which Led correctly retum, et, uh ere ee ‘he Phil senna, DAWHOSE POU age or DUSIMESS in the Philippines 4 engaged in NOT, "ox compensation INeOME ang sion-etated income ied to file income T2X Return (RR 8-2018) a fhose vee ra Ming purely compensation income whose taxable income does naterceed ing fled by the respective employers, wy cota es iy the Breas, shal be tantamount fo the rare fiing (Page 111) of ineome tax retums by said i income tax has been corecty withheld by his 5 ae euch individual has only one employer for the err the Cerca of Witiolding fled y The respective Beipyers, dy. stamped “Reoewed by the Breas, shall be Hora to we substuled fing of income tax returns PY sald employees. 4) An tndviual whose sole income has been subjected to final withhoidng tax. 4) Minimum wage eamers, the Certificate of Withholding fled by the respective empoyers, duly stamped "Recelved” by the Bureau, shall be tantamount to the substituted fling of income tax retums by said employees. CERTIFICATE OF WITHHOLDING BY THE EMPLOYER (BIB FORM 2316) Under Section 2.83 of RR2-98, a5 amended, every employer is ‘required to furish its employees (including minimum age camer) Form 2316 on or before January 31 of the succeeding calendar year, or if rojas einated boo the dose of such calendar year of Ne ay on which last payment of compensation is made, Faure to furnish BIR Form 2816 shall be grounds forthe mandatory aut of payor's income tax 'abiltes (including withnolding tax) upon verfed complaint ofthe payee. m2 Individeal Taypagers a In addition to the requin joyous he BIR now careaerert to furnish BIR Form 2316 to Ose yeaiR Form 2316 tothe BIR beef ila submit the duplicate Gee othe calendar. Falta submiie IR ro tbonor tere Spruary 28 following the close ofthe calendar year wil merits pnalty of £5,000 for each failure, or a maximum amount ef P25.000 fora a fatures during a calendar year. n case the employer fl to comph Pith Ming of submission of BIR Form 2316 for two consecutive year, the ‘anployer shall be liable to a fine in the amount of 10.000 2rd suf imprisonment of not less than one year but not more than 10 years upon conviction, in accordance with Section 255 of the Tax Code. This is in ‘acition to other penalties provided bylaw. In setlement, a compromise fee ‘of P1,000 for each BIR Form 2316 not fled without any maximum threshold shall be collected by the BIR, (Revenue Regulations No. 11-2013, June 6, 2013). ‘gubstituted fling of income tax returns (ITR) ‘Under RA 9504 and RR 10-2008, individual taxpayers may no longer file income tax return on of before Api 15 ofthe folowing taxable yar provided the texpayeristas (athe requirements must be satisie) (P Receiving purely compensation income, regardless of amount. ‘The amount of income tax withheld by the employer is correct (Tax due = Tax withheld) 3 Only one employer during the taxable year ‘4, Ifmartied, the employee's spouse also complies with al thee ‘aforementioned conditions, or otherwise receives no income, 2 13