Individual income tax.feb.2011

Kinds of Individual Taxpayers Resident citizen (RC) Non-resident citizen (NRC) Resident alien (RA) Non-resident alien engaged in trade or business (NRA-ETB) Non-resident alien not engaged in trade or business (NRA-not ETB) Special Alien Employees Estates and Trust (Courtesy: www.philtaxation.blogspot.com )

Importance of classification Classification greatly affects taxability Tax situs Manner of computing taxes Treatment on certain items Allowable deductions Special treatments on certain instances References in the Tax Code (Courtesy: www.philtaxation.blogspot.com )

Individual vs. Corporate Common to both Passive income Capital gains tax Stock transaction tax (1/2 of 1% on listed shares) Allowable deductions NOLCO applications OSD, except as to base Capital gains & losses, except on holding periods & carry-over (Courtesy: www.philtaxation.blogspot.com )

Individual vs. Corporate Not in Corporate taxpayers Natural persons, except Estate & trusts Personal Exemptions (Basic & Additional) Health & hosp. insurance premium Withholding tax on compensation Holding period in CGT (50%/100%) Senior citizens Minimum wage income earner (Courtesy: www.philtaxation.blogspot.com )

Individual vs. Corporate Not in Individual taxpayers Improperly Accumulated earnings Tax (IAET) Minimum Corporate Income Tax (MCIT) 15% Gross income taxation system (GITS), upon President’s option (Courtesy: www.philtaxation.blogspot.com )

Filipino Citizen (Section I, Art. III Constitution) Born w/ Filipino father and/or mother Born before Jan.17, 1973 of Fil. Mother who elects Philippine citizenship upon age of majority Acquired Philippine citizenship By naturalization; or By repatriation (Courtesy: www.philtaxation.blogspot.com )

Alien Individual Taxpayers Foreign-born person who is not qualified to acquire Philippine Citizenship by birth or after birth; If qualified, have not yet been considered a Filipino taxpayer during the taxable year (Courtesy: www.philtaxation.blogspot.com )

Resident Citizen Domiciled or residing in the Philippines during the taxable year; Have not traveled outside the Philippines for more that 183 days during the taxable year; Taxable on income from within and without the Philippines (Sec. 23(A), NIRC) (Courtesy: www.philtaxation.blogspot.com )

Non-resident Citizen Citizen having physical presence abroad with definite intention to reside therein Citizen who leaves Phils. to reside abroad either as immigrant or for employment on a permanent basis Citizen working and deriving income abroad and whose employment requires physical presence abroad most of the time (183 days or more); NRC who returned to Phils. to reside permanently - for taxable year of arrival in Phils. (Courtesy: www.philtaxation.blogspot.com )

Non-resident Citizen Codal Reference-Sec. 22(E), NIRC Taxable on income from within the Philippines only (Sec. 23(B), NIRC); Examples of NRC: OFWs/OCW Seaman : member of complement of vessel engaged exclusively in int’l trading. (BIR Ruling No. 12-99) TNT’s abroad (Courtesy: www.philtaxation.blogspot.com )

Resident Alien Alien residing or domiciled in the Philippines (Sec. 22(F)) Factors: intention of stay and duration Taxable on income from within the Philippines only (Sec. 23(D), NIRC); (Courtesy: www.philtaxation.blogspot.com )

Non-Resident Alien (NRA) Alien not residing or domiciled in the Philippines (Sec. 22(G), NIRC) Further classifications Engaged in trade or business (NRA-ETB); or Not engaged in trade or business(NRA not ETB) (Courtesy: www.philtaxation.blogspot.com )

NRA Engaged in trade or business (NRA-ETB) Aliens engaged in trade or business in the Philippines, though not a resident in the country; Stayed in the Philippines for more than 180 days on aggregate Length of stay presupposes doing business (Courtesy: www.philtaxation.blogspot.com )

NRA not Engaged in trade or business (NRA-ETB) Aliens not engaged in trade or business in the Philippines; Stayed in the Philippines for not more than 180 days on aggregate; (Courtesy: www.philtaxation.blogspot.com )

Estates and Trusts (Sec. 60-66, NIRC) Estates – taxable during the period when title to properties are not yet finally transferred to the successors Trusts – an obligation imposed on a right to administer over a property given to a person for the benefit of the other; (Courtesy: www.philtaxation.blogspot.com )

Kinds of taxable income Passive income subject to final taxes (IRWDD) Capital gains subject to capital gains taxes (CGT: shares/real property) Ordinary income subject to schedular rates (NIRC Tax table) Special income subject to special rates (e.g. PEZA 5% special tax regime) (Courtesy: www.philtaxation.blogspot.com )

Types of individual income tax Ordinary income tax Capital gains tax (CGT)on shares of stocks and real properties Final income tax on passive income Stock transaction tax (though under OPT in the Tax Code) (Courtesy: www.philtaxation.blogspot.com )

Formula: Pure compensation Gross compensation income P xxx Less: Personal exemptions Basic Personal exemption xxx Additional personal exemption xxx Health & hospitalization xxx xxx Taxable net income P xxx Tax table (5-32%) P xxx Less: W/holding tax on compensation xxx Tax due & payable P xxx (Courtesy: www.philtaxation.blogspot.com )

Formula: Trade/bus./profession Gross sales/receipts P xxx Less: Cost of sales xxx Gross profit P xxx Less: Allowable deductions xxx Net income before PE P xxx Less: Personal exemptions Basic Personal exemption P xxx Additional personal exemp. xxx Health & hospitalization xxx P xxx Taxable net income P xxx Tax table (5-32%) P xxx Less: Creditable w/holding taxes xxx Tax due & payable P xxx (Courtesy: www.philtaxation.blogspot.com )

Summary of individual applications (Courtesy: www.philtaxation.blogspot.com ) Income RC RA NRC NRA-ETB NRA-nETB SAE Taxable W/in & W/out Within Within Within Within Within GCI 5-32% 5-32% 5-32% 5-32% 25% 15% GBI/GPI 5-32% 5-32% 5-32% 5-32% n/a 5-32% COS-AD Yes Yes Yes Yes n/a RA/NRA BPE Yes Yes Yes Yes, cond. n/a RA/NRA APE Yes Yes, cond. Yes n/a n/a RA/NRA HHIP Yes Yes Yes Yes n/a Variable Foreign tax credits Yes n/a n/a n/a n/a n/a

Summary of individual applications (Courtesy: www.philxaation.blogspot.com ) Summary continued… Income RC RA NRC NRA-ETB NRA-nETB SAE CGT-share 5/10% 5/10% 5/10% 5/10% 5/10% RA/NRA CGT-RP 6% 6% 6% 6% 6% RA/NRA Cap. Gains 5-32% 5-32% 5-32% 5-32% 25% RA/NRA Cap. losses Yes Yes Yes Yes Yes RA/NRA Interest 20% 20% 20% 20% 25% RA/NRA EFCDS 7.5% 7.5% Exempt Exempt Exempt RA/NRA Term 0%/5%/12%/20% 0%/5%/12%/20% 0%/5%/12%/20% 0%/5%/12%/20% 25% RA/NRA

(Courtesy: www.pihiltaxation.blogspot.com) Summary continued… Income RC RA NRC NRA-ETB NRA-nETB SAE Royalties 20% 20% 20% 20% 25% RA/NRA - books 10% 10% 10% 10% 25% RA/NRA Prizes/Winnings 20% 20% 20% 20% 25% RA/NRA - P10k 5-32% 5-32% 5-32% 5-32% 25% RA/NRA - PCSO/Lotto Exempt Exempt Exempt Exempt Exempt RA/NRA Info. reward 10% 10% 10% 10% 10% RA/NRA Partnership - GPP 5-32% n/a 5-32% n/a n/a RA/NRA - OP 6/8/10% 6/8/10% 6/8/10% 6/8/10% n/a RA/NRA

Summary continued… (Courtesy: www.philtaxaation.blogspot.com.com ) Income RC RA NRC NRA-ETB NRA-nETB SAE Dividend - Dom. Corp 6/8/10% 6/8/10% 6/8/10% 6/8/10% 25% RA/NRA - For. Corp. 5-32% Exempt Exempt Exempt Exempt Exempt - Stock div. Exempt Exempt Exempt Exempt Exempt Exempt FBT /68%*32% /68%*32% /68%*32% /68%*32% /75%*25% /85%*15%

“ Taxes affects lives, care for taxes and save lives” (Courtesy: philtaxation.blogspot.com) End of slides Thank you!

Individual income tax.feb.2011

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Individual income tax.feb.2011