overseas contract worker.

(Section 23 (C), RA
A. CLASSIFICATION OF INDIVIDUAL 8424)
TAXPAYERS
1. Resident Citizen (RC) ✓ In order for seafarers or seamen to be
2. Nonresident Citizen (NRC) considered as OCW’s or OFW’s they must be
3. Overseas Contract Worker (OCW) duly registered as such with the Philippine
4. Resident Alien (RA) Overseas Employment Administration (POEA)
5. Non-resident Alien (NRA) with a valid Overseas Employment Certificate
a) Engaged in trade or business (ETB) (OEC) with a valid Seafarer’s Identification
b) Not engaged in trade or business (NETB) Record Book (SIRB) or Seaman’s Book issued
6. Special Employees by the Maritime Industry Authority (MARINA).
a) Special Alien Employees (SAE)
b) Special Filipino Employees (SFE) D. RESIDENT ALIEN

B. NONRESIDENT CITIZEN Resident Alien means an individual whose

residence is within the Philippines and who is not
The following are considered nonresident citizens a citizen thereof. (Section 22 (F), RA 8424)
(Section 22 (E), RA 8424):
1. A citizen of the Philippines who establishes to Under RR No. 2, the following are considered as
the satisfaction of the Commissioner of the resident alien:
fact of his physical presence abroad with a 1. An alien actually present in the Philippines
definite intention to reside therein. who is NOT a mere transient or sojourner;

2. A citizen of the Philippines who leaves the A person who comes to the Philippines for a
Philippines during the taxable year to reside definite purpose which in its nature may be
abroad, either as an immigrant or for promptly accomplished is a transient.
employment on a permanent basis;
2. An alien, who comes to the Philippines for a
3. A citizen of the Philippines who works and definite purpose, which, by its nature, would
derives income from abroad and whose require an extended stay making his home
employment thereat requires him to be temporarily in the Philippines;
physically present abroad most of the time
during the taxable year; 3. An alien who shall come to the Philippines
with no definite intention as to his stay
4. A citizen who has been previously considered (floating intention).
as nonresident citizen and who arrives in the
Philippines shall likewise be treated as a
nonresident citizen for the taxable year in An alien who has acquired residence in the
which he arrives in the Philippines with Philippines retains his status as a resident until
respect to his income derived from sources he abandons the same and actually depart from
abroad UNTIL the date of his arrival in the the Philippines.
Philippines.
E. NON-RESIDENT ALIEN
NOTE: All those citizen taxpayers which will
not qualify on the above enumerations will be 1. Engaged in trade or business (Section 25
considered a RC. (A), RA 8424)

C. OVERSEAS CONTRACT WORKER ✓ An alien individual ACTUALLY engaged in

trade or business in the Philippines; and
✓ Overseas Contract Workers (OCW’s) refer to ✓ An alien who comes in the Philippines for
Filipino citizens employed in foreign countries, an aggregate period of more than 180
commonly referred to as Overseas Filipino days during the calendar year during any
Workers (OFW), who are physically present in calendar year shall be DEEMED a non-
a foreign country as a consequence of their resident alien doing business in the
employment thereat. Philippines.

✓ Their salaries and wages are paid by an 2. Not engaged in trade or business – those
employer abroad and is not borne by any NRA not included in no. 1 above.
entity or person in the Philippines.

✓ To be considered as an OCW or OFW, they F. SPECIAL EMPLOYEES

must be duly registered as such with the
Philippine Overseas Employment 1. SPECIAL ALIEN EMPLOYEE - an alien
Administration (POEA) with a valid Overseas individual employed by the following:
Employment Certificate (OEC). (RR No. 1- a) Regional or Area Headquarters and
2011) Regional Operating Headquarters of
✓ A seaman who is a citizen of the Philippines Multinational Companies (Section 25 (C),
and who receives compensation for services RA 8424)
rendered abroad as a member of the b) Offshore banking units (Section 25 (D),
complement of a vessel engaged exclusively RA 8424)
in international trade shall be treated as an
 c) Petroleum service contractors or iii. Similar arrangements
subcontractors (Section 25 (E), RA 8424) as above

2. SPECIAL FILIPINO EMPLOYEE – Filipino Interest from a depositary bank RC & RA 7.5%
employees of letters (a) (b) and (c) above under the expanded foreign
occupying managerial OR technical position. currency deposit system NRC, OCW, 0%
NRA-ETB,
G. GENERAL PRINCIPLES: SOURCES OF INCOME NRA-NETB
SUBJECT TO INCOME TAX
Interest income from long-term RC, NRC, 0%
1. RC/SFE – World deposit or investment (at least 5 OCW, RA,
2. NRC, RA, OCW, NRA-ETB, NRA-NETB, SAE – years maturity) NRA-ETB
Within the Phils. only
In case of pre-termination of the
H. TYPES OF INCOME TAX APPLICABLE TO long-term deposit or investment,
INDIVIDUAL TAXPAYERS depending on the holding period: RC, NRC,
- 5 years or more OCW, RA, 0%
1. Final Withholding Tax - 4 years to less than 5 years NRA-ETB 5%
2. Capital Gains Tax on Sale of Shares of Stock - 3 years to less than 4 years 12%
3. Basic tax - Less than 3 years 20%
I. FINAL WITHHOLDING TAX
❖ ROYALTIES
GENERAL PRINCIPLES:
TP RATE
✓ It is a tax deducted from the
Royalties from: 10%
income/proceeds to be paid to the income
a) Literary works RC, NRC,
earner (payee) or seller;
b) Books OCW, RA,
✓ It is constituted as full and final payment of
c) Musical compositions NRA-ETB
the income tax liability;
✓ The income subjected to this tax is no longer
subject to basic income tax; Other Royalties 20%
✓ It cannot be credited or deducted from the
basic income tax due the BIR; ❖ DIVIDENDS
✓ The liability for the payment of the tax is
primarily on the payor as the withholding TP RATE
agent. a) Dividends actually or
constructively received from: RC, NRC, 10%
KINDS: i. Domestic Corporation OCW, RA
1) Tax on certain passive income ii. Joint Stock Company
2) Capital Gains Tax on Sale of Real Property iii. Insurance or mutual fund
3) Fringe Benefit Tax company; and
iv. Regional operating
J. FINAL WITHHOLDING TAX (FWT) ON headquarters of a
PASSIVE INCOME multinational company.
❖ GENERAL PRINCIPLES b) Share in the distributable net 20%
1. Applicable only to passive income from income after tax of a NRA-ETB
sources within the Philippines. partnership (except GPP)
c) Share in the net income after
2. The payee is not required to file an income tax of:
tax return for the particular income subjected 1. Association
to final withholding tax (FWT). 2. Joint Account
3. Taxable Joint Venture or
❖ FORMULA Consortium
Passive Income PXXX
Rate XX% ❖ PRIZES
Final Withholding Tax PXX TP RATE
Amount is more than P10,000. RC, NRC,
❖ KINDS OF PASSIVE INCOME OCW, RA,
NOTE: If the amount of the prize NRA-ETB 20%
(PIDRO) does not exceed P10,000, the
1. Interest Income same is subject to BASIC TAX.
2. Royalties ❖ WINNINGS
3. Dividends TP RATE
4. Prizes Philippine Charity RC, NRC,
5. Other winnings Sweepstakes OCW, RA, 0%
Lotto NRA-ETB
❖ INTEREST INCOME
Other Winnings 20%
TP RATE
a) Interest from any currency
bank deposit; and K. CAPITAL GAINS TAX (CGT) ON SALE OF
b) Yield or any other monetary RC,NRC, REAL PROPERTY
benefit from: OCW, RA, 20%
i. Deposit substitutes NRA-ETB The rules below are applicable to all individual
ii. Trust funds taxpayers.
 The following fringe benefits are not subject to
REQUISITES: FBT:
1) The real property must be a capital asset; 1) Housing privilege of military officials of the
and Armed Forces of the Philippines (AFP);
2) It must be located in the Philippines. 2) A housing unit which is situated inside or
adjacent (within 50 meters from the
FORMULA: perimeter of the business premises) to the
premises of a business or factory;
Tax Base PXXX 3) Temporary housing for an employee who
Rate 6% stays in a housing unit for three (3) months
CGT PXXX or less;
4) Expenses incurred by the employee which are
TAX BASE: paid by the employer and expenses paid for

Highest
1. Selling Price by the employee but reimbursed by his
2. Fair Market Value employer, provided:
3. Zonal Value a. The expenditures are duly receipted for
and in the name of the employer; and
OPTIONS OF THE SELLER IN CASE OF SALE b. It does not partake the nature of a
TO GOVERNMENT: personal expense attributable to the
1. Pay 6% CGT employee;
2. Pay Basic Tax 5) Representation and transportation allowances
which are fix in amounts and are regularly
REQUISITES FOR EXEMPTION: received by the employees as part of their
1. The property sold must be the principal monthly compensation (subject to basic tax);
residence of the seller; 6) Inland travel expenses (such as expenses for
2. Proceeds is fully utilized in acquiring or food, beverages and local transportation)
constructing a new principal residence; during foreign travel;
3. Utilization must be made within 18 calendar 7) Lodging cost in a hotel (or similar
months from the date of sale or disposition; establishments) amounting to an average of
4. Notify the BIR Commissioner within 30 days US$300.00 or less per day during foreign
from the date of sale or disposition of the travel;
intention to avail the exemption; 8) Cost of economy and business class airplane
5. The said exemption can only be availed once ticket for foreign travel;
every 10 years. 9) 70% of the cost of first class airplane ticket
for foreign travel;
L. FRINGE BENEFITS TAX 10) Educational assistance to the employee,
provided:
Fringe Benefits Tax (FBT) - is a final withholding a. The education or study is directly
tax imposed on the grossed-up monetary value of connected with the employer’s trade,
the fringe benefit furnished, granted or paid by business or profession; and
the employer to managerial or supervisory b. There is a written contract between them
employees, whether such employer is an that the employee is under obligation to
individual, professional partnership or corporation, remain in the employ of the employer for
regardless of whether the corporation is taxable a period of time they have mutually
or not, or the government and its agreed upon;
instrumentalities. (Section 33, RA 8424, RR No. 11) Educational assistance to the dependents of
3-98) the employee, provided that the assistance
was provided through a competitive scheme
The term “FRINGE BENEFIT” means any good, under the scholarship program of the
service, or other benefit furnished or granted by Company;
an employer in cash or in kind, in addition to 12) Contributions of the employer for the benefit
basic salaries, to an individual employee (except of the employee:
rank and file employee) such as but not limited to a. Pursuant to the provisions of existing law,
the following: such as under SSS and GSIS; or
HEV – HIM - HELF b. Similar contributions arising from
1) Housing; provisions of any other existing law;
2) Expense Account; 13) The cost of premiums borne by the employer
3) Vehicle of any kind; for the group insurance of his employees;
4) Household personnel, such as maid, driver 14) Fringe benefits which are authorized and
and others; exempted from income tax under the Tax
5) Interest on loan at less than market rate to Code or under any special law;
the extent of the difference between the 15) Contributions of the employer for the benefit
market rate and the actual rate granted; of the employee to retirement, insurance and
6) Membership fees, dues and other expenses hospitalization benefit plans;
borne by the employer for the employee in 16) Benefits given to the rank and file;
social and athletic clubs or other similar 17) The fringe benefit is required by the nature of
organizations; or necessary to the trade, business or
7) Holiday and vacation expenses; profession of the employer; or
8) Educational assistance to the employee or his 18) When the fringe benefit is for the
dependents; convenience or advantage of the employer;
9) Life or health insurance and other non-life 19) The following de minimis benefits:
insurance premiums or similar amounts in a. Monetized unused vacation leave credits
excess of what the law allows; and of PRIVATE employees not exceeding ten
10) Expenses for foreign travel; (10) days during the year AND THE
MONETIZED VALUE OF LEAVE CREDITS
 PAID TO GOVERNMENT OFFICIALS AND
EMPLOYEES; Employer purchases a
b. Medical cash allowance to dependents of residential property on MV = AC x 2.5%
employees not exceeding P750.00 per installment basis and
employee per semester or P125 per allows the employee to use AC should be net
month; the same of interest
c. Rice subsidy of P1,500.00 or one (1) sack
of 50-kg. Rice per month amounting to Employer purchases a
not more than P1,500.00; residential property and MV = AC vs. ZV,
d. Uniform and clothing allowance not transfers ownership in the whichever is
exceeding P5,000 per annum; name of the employee higher
e. Actual yearly medical benefits not
exceeding P10,000 per annum; Employer purchases a
f. Laundry allowance not exceeding P300 residential property and MV = (FMV vs. ZV,
per month; transfers ownership to his whichever is
g. Employees achievement awards, e.g., for employee, at a price less higher) – Cost to
length of service or safety achievement, than the acquisition cost the Employee
which must be in the form of a tangible
personal property other than cash or gift MOTOR VEHICLE
certificate, with an annual monetary Employer purchases motor
value not exceeding P10,000 received by vehicle in the name of the MV = AC
the employee under an established employee
written plan which does not discriminate
in favor of highly paid employees; Employer provides cash for
h. Gifts given during Christmas and major the purchase of a motor MV = Cash given
anniversary celebrations not exceeding vehicle
P5,000 per employee per annum;
i. Daily meal allowance for overtime work Employer purchases the
and night/graveyard shift not exceeding car on installment basis, MV = AC/5 years
twenty five percent (25%) of the basic the ownership of which is
minimum wage. placed in the name of the
employee
FORMULA:
Grossed-up Monetary Value PXXX Employer shoulders a
Rate XX%
portion of the amount of
FBT PXXX
the purchase price of a MV = Amount
motor vehicle the shouldered by the
GROSSED-UP MONETARY VALUE (GMV) ownership of which is employer
placed in the name of the
FORMULA: employee
1) GMV = Monetary Value (MV)/GMV Factor
GMV Factor = 100% - FBT Rate
Employer owns and
maintains a fleet of motor MV = AC of all
2) GMV = MV + FBT
vehicles for the use of the motor vehicles for
business and the personal use/5
MONETARY VALUE
employees years
In GENERAL, the valuation of fringe benefits shall
Employer leases and MV = Rental
be as follows:
maintains a fleet of motor payments of all
KIND OF FRINGE BENEFIT VALUATION
vehicles for the use of the motor vehicles for
business and the personal use x
1) Money Amount of money employees 50%
INTEREST
2) Non-cash property and Fair Market Value vs.
Employer lends money to
ownership is Zonal Value
his employee free of MV = Principal x
transferred (whichever is higher),
interest 12%
if applicable
Employer lends money to MV = Principal x
3) Non-cash property and Depreciation value of
his employee at a rate (12% - Actual
ownership is not the property
lower than 12% Rate)
transferred

EXCEPTIONS:
RATE
KIND OF FRINGE BENEFIT VALUATION
RC, NRC, OCW, RA and 32%
NRA-ETB
HOUSING
Employer leases a MV = Rental Paid
NRA-NETB 25%
residential property for the x 50%
use of his employee
SFE 15%
SAE 15%
Employer owns a
residential property and MV = (FMV vs. ZV,
M. CAPITAL GAINS TAX ON SHARES
the same is assigned for whichever is
the use of his employee higher) x 2.5%
 The rules below are applicable to all individual 1. Personal exemption allowed in the Phils.; or
taxpayers. 2. Personal exemption allowed to Filipinos in
their country.
REQUISITES:
1. The shares of stock sold, bartered, 3. Premium payments on health and/or
exchanged or disposed must be in a domestic hospitalization insurance
corporation; and
2. The transaction must be not through the Requisites:
stock exchange. 1. Gross income of the family is not more
than P250,000;
FORMULA: 2. Not to exceed P2,400 per annum;
3. For married taxpayers, only the spouse
Selling Price PXXX claiming the APE is entitled.
Cost (XXX)
Selling Expense (XXX) CHANGE IN STATUS:
Net Gain PXXX 1. If the taxpayer marries or should have
Rate XX% additional dependent(s) during the taxable
CGT PXXX year, the taxpayer may claim the
corresponding additional exemption in full for
RATE: such year.
1. First 100T of the gain = 5% 2. If the taxpayer dies during the taxable year,
2. In excess of 100T = 10% his estate may still claim the personal and
additional exemptions for himself and his
N. BASIC TAX dependent(s) as if he died at the close of the
year.
GENERAL PRINCIPLES: 3. If the spouse or any of the dependents dies
✓ Income subject to basic tax is reflected in the or if any of such dependents marries,
income tax return of the taxpayer. becomes twenty-one (21) years old or
✓ It is the payee (income earner) who has the becomes gainfully employed during the
responsibility to file the return and pay the taxable year, the taxpayer may still claim the
applicable tax. same exemptions as if the spouse or any of
the dependents died, married, became
FORMULA: twenty-one (21) years old or became
Gross Income PXXX gainfully employed at the close of such year.
Allowable Deductions XXX
Taxable Income PXXX O. DETERMINATION OF BASIC TAX OF
Rate XX% MARRIED INDIVIDUALS
Basic Income Tax PXXX
REQUIREMENTS IN THE FILING OF INCOME TAX
GROSS INCOME – includes all income not subject RETURN OF MARRIED INDIVIDUALS:
to final withholding tax and not considered
exempt under the law. ✓ Married individuals (i.e., husband and wife)
are required by law to file a consolidated
ALLOWABLE DEDUCTIONS: income tax return, but they shall compute
separately their individual income tax.
1. Business Expenses & Losses/Optional
Standard Deduction ✓ Income which cannot be definitely attributed
to or identified as income exclusively earned
NOTE: It cannot be claimed by pure or realized by either of the spouses, the same
compensation income earner) shall be equally divided between the spouses
for purposes of determining their taxable
2. Personal Exemptions income.

a) Basic Personal Exemption (BAPE) – ✓ If the spouses are only physically separated
P50,000 and there is no legal separation, they are still
required by law to file consolidated or joint
b) Additional Personal Exemption (APE) – returns for which they are considered as
P25,000 for each qualified dependent jointly and severally liable to the tax.
child, maximum of 4.
P. TAXATION OF NRA-NETB
Requisites of a Qualified Dependent:
1. Legitimate, illegitimate or legally All income in the Philippines (except interest
adopted child; income from FCDU) received by a NRA-NETB is
2. Dependent upon chief support from subject to 25% FWT.
the taxpayer;
3. Living with the taxpayer; Q. TAXATION OF SPECIAL EMPLOYEES
4. Unmarried;
5. Not gainfully employed; SPECIAL ALIEN EMPLOYEE
6. Not more than 21 years of age
(regardless of age if incapable of self- Compensation 15% FWT
support because of mental or physical Income
defect) Other Income Apply the rule on NRA-
NETB
NOTE: Personal exemption allowed to NRA-ETB is
the LOWER of:
 SPECIAL FILIPINO EMPLOYEE the withholding was
made
Compensation 15% FWT or Basic Tax December January 15 of the
Income at the option of the succeeding year
employee
Other Income Apply the rule on RC 2. Capital Gains Tax
a) Shares of stock
i. Ordinary Return - 30 days after each
BASIC TAX RATE: transaction
ii. Final Consolidated Return - on or before
Over But not Tax Plus Of April 15 of the following year
over excess b) Real Property – 30 days following each
over sale or other disposition
10,000 - + 5% -
10,000 30,000 500 + 10% 10,000 3. Fringe Benefits Tax – 10th day of the month
30,000 70,000 2,500 + 15% 30,000 following the end of the calendar quarter in
70,000 140,000 8,500 + 20% 70,000 which the fringe benefits were granted to the
140,000 250,000 22,500 + 25% 140,000 recipient.
250,000 500,000 50,000 + 30% 250,000
500,000 - 125,000 + 32% 500,000 4. Basic Income Tax (RCIT vs. MCIT)
a) Quarterly
i. 1st Quarter – April 15 of the current
R. DEADLINE FOR FILING OF RETURNS year (CY)
ii. 2nd Quarter – August 1f of the CY
1. Final Withholding Tax on passive income iii. 3rd Quarter – November 15 of the CY

MANUAL FILING b) Annual (Final Quarter) – April 15 of the

January to November 10th day of the month succeeding year.
following the month
Taxation Review
Individual Income Tax
By: Prof. Davey C. Medidas, CPA, MBA Page 1