INCOME TAXATION BUSINESS TAXATION

Final Income Tax VAT on Importation

Capital Gains Tax Exempt Sales of Goods, Properties and Services

Gross Income Percentage Tax

Compensation Income VAT

Fringe Benefit Tax

Dealings in Properties TRANSFER TAXATION

Deductions Estate Tax

Regular Income Taxation: Individuals Donor’s Tax

Regular Income Taxation: Special Corporations

Regular Income Taxation: Regular Corporations

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 FINAL INCOME TAXATION 3. Promissory notes
4. Foreign sources, whether bank or non-bank
5. Penalty for legal delay or default
Features:
1. Final tax Interest income on Tax-free Corporate Covenant Bonds
2. Tax withholding at source Interest income of all individuals on bonds or other similar obligations of
3. Territorial imposition Domestic or Resident Foreign Corporations with Tax-free or Tax-reduction
4. Imposed on certain passive income and persons not engaged in provision where the obligor shoulders in whole or in part any tax on the
business in the Philippines interest shall be subject to a 30% final tax.

PASSIVE INCOME SUBJECT TO FINAL TAX DIVIDEND INCOME

1. Interest or yield from bank deposits or deposit substitute As a rule, dividends are income subject to tax. However, the following are
2. Domestic dividends, in general not income for taxation purposes:
3. Royalties, in general 1. Stock dividends
4. Winnings • Transfer of surplus to capital account shall not be subject to tax
5. Informer’s tax reward • Distribution of stocks of another corporation as dividends is a
taxable property dividend and not a stock dividend
INTEREST INCOME 2. Liquidating dividends
● Short term deposits - holding period is less than 5 years • Not viewed as income but as exchange of property
● Long-term deposits or investment certificates - holding period of not • When exceeding the cost of investment, the excess is a taxable
less than 5 years are exempt from final tax capital gain, subject to regular tax
● Savings or time deposits with cooperatives are not subject to final tax • Any loss is deductible only to the extent of capital gain
(Dumaguete Cathedral Credit Cooperative vs. CIR, G.R. 182722)
Taxability of Stock Dividends
Other application of the final tax on interest income Stock dividends are subject to tax at the fair value of the stocks received
1. Deposit substitute under the following conditions:
● Alternative form of obtaining funds from at least 20 persons at 1. Subsequent cancellation and redemption
any one time • Such act is equivalent to declaration of cash dividends
2. Government debts instruments and securities 2. If it leads to substantial alteration in ownership in the corporation
● Shall be considered as deposit substitute irrespective of the • It may occur when stock dividends are given in lieu of cash
number of lenders at origin if such debt instruments and dividends or when the corporation declared an optional stock or
securities are to be traded or exchanged in the secondary market cash dividend
3. Money market placements
4. Trust funds Exempt dividends
5. Other investments evidence by certificate prescribed by the BSP 1. Inter-corporate dividends
● Received by domestic corporation and resident foreign
Interest income subject to regular tax corporation from a domestic corporation
1. Lending activities, whether or not in the course of business 2. Dividends from exempt cooperatives to its members (RA 9520)
2. Investment in bonds
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Entities taxable as corporations are subject to 10% final tax Requisite of exemption:
10% final tax also applies to dividends or share in the net income of entities 1. Recipient was selected without any action on his part to enter the
considered corporation, such as: contest
1. Real Estate Investment Trusts (REIT) 2. Recipient is not required to render substantial future services
• REIT is a publicly listed corporation established principally for the
purpose of owning income-generating real estate assets. WINNINGS
• The following recipient of REIT dividends are exempt from final The tax rules on PCSO or lotto winnings shall be applied on a per ticket basis
tax:
a. Non-resident alien individual or non-resident foreign TAX INFORMER’S REWARD
corporations entitled to claim preferential tax under tax treaty Requisites of Tax Informer’s Reward:
b. Domestic corporations or resident foreign corporations 1. Definite sworn information which is not yet in the possession of the
c. Overseas Filipino investors - exempt until August 12, 2018 BIR
(RR13-2011) 2. The information furnished lead to the discovery of fraud
2. Business Partnership 3. Enforcement results in recovery of revenues, surcharges, and fees
● 10% final tax applies at the point of determination of the income, and/or conviction of the guilty party or imposition of any fine or
not at the point of actual distribution penalty
● If salary, interest and bonus of a partner were not expensed in 4. Informer must not be a:
the book, they are subject to final tax. Otherwise, such are subject a. BIR official or employee
to regular income tax b. Other public official or employee
3. Taxable associations c. Relative within 6th degree of consanguinity of those in the a and
4. Taxable joint ventures, joint accounts or consortia b
5. Taxable co-ownerships
Amount of cash reward is whichever is lower of 10% of revenues,
Improperly Accumulated Earnings Tax (IAET) surcharges, or fees recovered and or fine or penalty imposed and collected
● Corporations which accumulated earnings beyond the reasonable OR P1,000,000
needs of business will be imposed the 10% IAET, a penalty tax
Entities Exempt from Final Income Tax
ROYALTIES 1. Foreign governments and foreign government-owned and controlled
Passive royalty income received from sources within the Philippines is corporations
subject to final tax rates 2. International missions or organizations with tax immunity
3. General professional partnership
PRIZES 4. Qualified employee trust fund
Exempt prizes: Note:
1. Prizes received without any effort in the part of recipient to join a ● The first two are exempt on ground of international comity
contest ● The last two are expressly exempt from any income tax imposed
2. Prizes from sports competitions sanctioned by respective national under the NIRC
sport organization

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 CAPITAL GAINS TAX
Summary of Final Tax Rates
FINAL INCOME TAX RATES Recipient Individual Corporation
Short term deposits 20% FT 20% FT
Source of income Capital gains subject to Capital Gains Tax
Long-term deposits/Investment certificates Exempt 20% FT
Less than 3 years 20% FT 20% FT Gains on dealing in capital assets Tax Rates
Holding period
3 years to less than 4 years 12% FT 20% FT Gains on the sales, exchange, and other 15% capital gains
Interest Income 4 years to less than 5 years 5% FT 20% FT disposition of domestic stocks directly to buyer tax
5 years or more 0% FT 20% FT
On tax-free corporate covenant bonds
Sale, exchange, and other disposition of real 6% capital gains
30% FT Regular tax
Foreign Currency Residents
property in the Philippines tax
15% FT 15% FT
Deposits
Non-residents Exempt Exempt Gains from other capital assets Regular income tax
Dividends Domestic corporation 10% FT Exempt
Source of income
Income Foreign corporation Regular tax Regular tax
Books, literary works, & musical compositions 10% FT 20% FT CAPITAL GAIN ON THE SALE, EXCHANGE AND OTHER DISPOSITION
Royalties Source of income
Other sources 20% FT 20% FT OF DOMESTIC STOCKS DIRECTLY TO BUYER
Exceeding P10,000 20% FT Regular tax
Prizes Amount
Not exceeding P10,000 Regular tax Regular tax
PCSO not exceeding P10,000 Exempt Exempt Domestic stocks are evidence of ownership or rights to ownership in a
Winnings Types of winnings PCSO exceeding P10,000 20% FT 20% FT domestic corporation regardless of its features, such as: Preferred stocks,
Other winnings, in general 20% FT Regular tax Common stocks, Stock rights, Stock options, Stock warrants, and unit of
Tax informer's reward 10% FT N/A
participation in any associations, recreation, or amusement club.
FINAL TAX ON NON-RESIDENT PERSONS NOT ENGAGED IN TRADE OR BUSINESS IN THE PHILIPPINES
Capital gains tax also covers exchange of domestic stocks in kind and other
NRA-NETB RFC
General Final Tax Rate 25% FT 30% FT
dispositions such as:
Capital gain on sale of domestic stocks directly to buyer 15% CGT 15% CGT 1. Foreclosure of property in settlement of debt
Rentals on cinematographic films and similar works 25% FT 25% FT 2. Pacto de retro sales
Rental of vessels 25% FT 4.5% FT 3. Conditional sales
Rental of aircraft, machineries, and other equipments 25% FT 7.5% FT 4. Voluntary buy back of shares by the issuing corporation - must not
Interest income under FCDS Exempt Exempt be intended for cancellation.
Interest on foreign loans N/A 20% FT
Dividend income 25% FT 15% FT*
Tax on corporate bonds 30% FT 30% FT
The term other dispositions do not include:
*if tax sparing rule is applicable 1. Issuance of stocks by a corporation
● Is a financing transaction rather than a sale transaction
2. Exchange of stocks for services
● Cannot be considered as exchange for property
● No gain or loss can be imputed as it involves payment of expense
in kind
3. Redemption of shares in a mutual fund
● Exempted by the NIRC from income taxation
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 4. Worthlessness of stocks Minimum Public Float Requirement of Publicly Listed Corporations under
● Considered a capital loss subject to the rules of regular income PSE
tax The minimum public ownership is the higher of:
5. Redemption of stocks for cancellation by the issuing corporation 1. The 10% of issued and outstanding shares and
● Any gain or loss on the mandatory redemption of stocks by the 2. The minimum public ownership required by the SEC or PSE
issuing corporation and any gain or loss by the investor for the Non-compliance to the minimum public ownership shall result in de-listing of
purpose of stock cancellation shall be subject to the rules of the stocks. The sales of such stocks will be subject to the 5%-10% capital
regular income tax gains tax and not to ½ of 1% stock transaction tax.
6. Gratuitous transfer of stocks
● Subject to transfer tax, not to income tax Persons not liable to the 15% capital gains tax:
1. Dealers in securities
Tax on Sale of Domestic Stocks through the PSE 2. Investors in shares of stocks in mutual fund company in connections
Sale of domestic stocks is subject to a stock transaction tax of 6% of 1% of with gains realized upon redemption of stocks in the mutual company
the selling price. Stock transaction tax applies on the Selling Price regardless 3. All other persons, whether natural or juridical, who are specifically
of the existence of a gain or loss. exempt from national revenue taxes under existing incentives and
other special laws, such as:
Installment Payment of the Capital Gains Tax a. Foreign government and foreign government-owned and controlled
Can be paid in installments if the: corporations
1. Selling price exceeds P1,000; and b. Qualified employee trust funds
2. Initial payment does not exceed 25% of the selling price

Special Tax Rules in Capital Gain or Loss Measurement SALES, EXCHANGE, AND OTHER DISPOSITION OF REAL PROPERTY
1. Wash sales of stocks CLASSIFIED AS CAPITAL ASSET LOCATED IN THE PHILIPPINES
● This deemed to occur when within 30days before and 30days
after the losing sale of securities, the taxpayer acquired or Capital gains tax for lands is 6% of whichever is the highest of the selling
entered to a contract or option to acquire the same or price, zonal value, or fair value
substantially identical securities
● Capital losses on wash sales by non-dealers in securities are not Scope and Applicability of the 6% Capital Gains Tax
deductible
Taxpayers
● Substantially identical means that stocks or bonds of the same Location of the property
class with the same features Individuals Corporations
2. Tax-free exchanges
Within the Philippines All individuals Domestic Corp Only
● Exchange of stocks pursuant to a merger or consolidation
● Transfer of stocks resulting in corporate control Outside the Philippines Not applicable Not applicable

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Exception to the 6% Capital Gains Tax DOCUMENTARY STAMP TAX
1. Alternative taxation rule 1. On the sale of domestic stocks
2. Exemption under the NIRC ● P1.50 for every P200 of the par value of stocks (RA9243)
3. Exemption under Special Laws 2. On the sale of real properties
● P15 for every P1,000 of whichever is highest of selling price, fair
ALTERNATIVE TAXATION RULE value or zonal value
An individual seller of real property capital assets has the option to be taxed ● If the government is a party to the sale, the basis shall be the
as either: consideration paid
1. 6% capital gains tax or
2. The regular income tax Comparison of the CGT on Stocks and Real Property
It should be noted than this is permissible only when: Stocks Land
1. The seller is an individual taxpayer, and Tax rate 15% CGT 6% CGT
2. The buyer is the government, its instrumentalities or agencies
including GOCCs Tax object Gain on sale of stocks Gain on real property
Basis of the tax Actual gain Presumed gain
EXEMPTION TO THE 6% CGT UNDER THE NIRC
Disposition of a principal residence by an individual for the acquisition of a Nature of the tax Self-assessed tax Final tax
new principal residence is exempt from the 6% capital gains tax. Frequency of payment Transactional and annual tax Per transaction

Requisites of exemption:
1. Seller must be a citizen or resident alien
2. The sale involves the principal residence of the seller
3. Proceeds of the sales is utilized in acquiring a new principal
residence. If not in whole, prorate.
4. BIR is duly notice within 30days of the sales by using BIR Form 1706
“Sworn Declaration of Intent”
5. Reacquisition of the new residence must be within 18 months from
the date of sale
6. Capital gain is held in escrow in favor of the government
7. Can only availed once in every 10 years

CAPITAL GAINS TAX EXEMPTION UNDER SPECIAL LAWS

1. Sale of land pursuant to the Comprehensive Agrarian Reform
Program
● Including interest income shall be exempt from income tax
2. Sale of socialized housing units by the National Housing Authority

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 GROSS INCOME E. Retirement benefits, pensions, gratuities, etc.
1. Retirement benefit under RA.7641 and those received by officials
EXCLUSIONS IN GROSS INCOME and employees of private firms.
Exclusions from gross income which will not be subject to income tax. They Requisites of exemption:
are not included in gross income subject to regular tax, capital gains tax, or a. It is the first time availment of retirement benefit exemption
final tax. b. The retiring official or employee has been in the services of
the same employer for at least 10 years
Under Section 32(B) of the NIRC, the following items shall not be included c. The retiring employee is at least 50 years of age at the time
in gross income and shall be exempt from taxation: of retirement
d. The employer maintains a reasonable private benefit plan
A. Proceeds of line insurance policy 2. Separation or Termination
● If the proceeds are held by the insurer under an agreement to pay Requisites of exemption:
interest, the interest income shall be included in gross income a. Separation or termination must be due to job-threatening
sickness, deaths, or other physical disability
B. Amount received by the insured as a return of premium paid to life b. The same must be due to any cause beyond the control of
insurance the employee or official
● The return of premium is exempt. However, if the insured outlived 3. Social security benefits, retirement gratuities, and other similar
the policy, the amount in excess of premium received shall be benefits from foreign government agencies and other institutions,
included to gross income private or public
● If an employer insures its employee, the amount received if the ● Received by resident or non-resident citizens or aliens who
insured died shall be also exempted. come to settle permanently in the Philippines
4. United States Veterans Administration (USVA)
C. Gift, bequest, devise, or descent ● Received by any person residing in the Philippines
● These should be subjected to transfer tax 5. Social Security Systems (SSS) benefits under RA282
● Income of the property or business donated after the perfection 6. GSIS benefits
of the donation is included as items of gross income of the Donee
F. Income exempt under treaty
D. Compensation for injuries or sickness
● Recovery of lost profit should be included to gross income

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 G. Miscellaneous items: INCLUSION IN GROSS INCOME
a. Income in the Philippines of foreign government or foreign
government owned and controlled corporations ITEMS OF GROSS INCOME SUBJECT TO REGULAR TAX
• Exempt under the exemption doctrine of international comity 1. Compensation for services in whatever form paid
b. Income of the government and its political subdivisions
• Taxation applies when they engage in income-producing 2. Gross income from the conduct of trade, business, or exercise of a
activities which are proprietary or commercial in nature. profession
• Exemption does not extend to GOCCs The following business income shall not be included in gross income
c. Prizes and awards in recognition of religious, charitable, subject to regular income tax:
scientific, educational, artistic, literary, or civic achievements A. Gross income exempt from income tax
Requisites of exemptions: a. Gross income from a BMBE (RA 9178)
1. Recipient was selected without any action on his part to enter b. Gross income from enterprises enjoying tax holiday incentives
the contest or proceedings under EO 226 which have not yet graduated to their income tax
2. Recipient is not required to render substantial future services holiday incentives
as a condition to receiving the prize or reward B. Business income subject to special tax regime
d. Prizes and awards in athletic sports competitions a. PEZA-registered enterprises subject to 5% gross income tax
• In local or international competitions and tournaments b. TIEZA-registered enterprises subject to 5% gross income tax
• Whether held in the Philippines or abroad c. Individuals who opted to be taxed under 8% income tax
• Sanctioned by their national sports associations C. Business income subject to final tax when not subjected to final tax
e. Contributions to GSIS, PhilHealth, Pag-Ibig, and union dues by the payor
• Exclusion pertains only to the mandatory or compulsory a. Subcontractors of petroleum service contractors subject to 8%
monthly contributions (RMC 21-2011) final tax
f. Contributions to Personal Equity Retirement Account (PERA) b. Business income of FCDUs and OBUs from Philippine residents
subject to 10% final tax
• In additions to the exemption of contributions, PERA
contributors are allowed to claim 5% of their PERA
3. Gains derived from dealings in properties
contributions as tax credit against any internal revenue taxes
g. PERA investment income and PERA distributions
4. Interest
h. 13th month pay and other benefits not exceeding P90,000
i. Gains from sale of bonds, debentures, or certificates of • This particularly refers to interest income other than passive
indebtedness with maturity of more than 5 years interest income subject to tax
j. Gains from redemption of shares in mutual fund • Interest income that were earned in the normal course of
business are subject to regular income tax
• Exempt interest income:
OTHER EXEMPT INCOME UNDER THE NIRC AND SPECIAL LAWS a. Interest income earned by landowners in disposing their
1. Minimum wage and certain benefits of minimum wage earners lands to their tenants pursuant to the Comprehensive
2. Income of Barangay Micro-Business Enterprises Act (RA 9178) Agrarian Reform Law
3. Income of cooperatives (RA 9520) b. Imputed interest income
4. Income of non-stock, non-profit entities
5. Income of qualified employee trust funds
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5. Rents 10. Pensions
• This is a passive income but is not subject to final tax under NIRC; • These pertain to pensions and retirement benefits that fail to meet
hence, it is subject to regular income tax the exclusion criteria and hence subject to regular tax
• Special considerations on rent:
a. Obligations of the lessor that are assumed by the lessee are 11. Partner’s distributive share from the net income of general
additional rental income to the lessor professional partnership
b. Advance rentals are
i. Item of gross income if:
1. Unrestricted or
2. Restricted to be applied in future years or upon the
termination of the lease
ii. Not an item of gross income if:
1. It constitutes a loan
2. It is a security deposit to guarantee payment or rent
subject to contingency which may or may not happen

6. Royalties
• Royalties earned from sources within the Philippines are
generally subject to final income tax except when they are active
by nature
• Active royalty income and royalties earned from sources outside
the Philippines are subject to regular income tax

7. Dividends
• These pertain to dividends declared by foreign corporations

8. Annuities
• The excess annuity payments received by the recipient over
premium paid is taxable income in the year of receipt

9. Prizes and winnings

• Prizes and winnings that are not subject to final tax or are not
exempt are subject to regular income tax
• Prizes and winnings or corporations are subject to regular income
tax

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 COMPENSATION b. De minimis benefits
De minimis Benefits Limit
Monetized unused vacation leave credits of private employees not exceeding 10 days
TAX MODEL ON COMPENSATION INCOME Monetized unused vacation and sick leave credits of government
no limit
Gross compensation income PXXX employees
Less: non-taxable compensation XXX Medical cash allowance to dependents of employees not exceeding P375 per month
Taxable compensation income XXX Rice subsidy not exceeding P2,000 per month
Uniform and clothing allowance not exceeding P6,000 per annum
GROSS COMPENSATION INCOME Actual medical assistance not exceeding P10,000 per annum
Gross compensation income generally includes all remunerations received Laundry allowance not exceeding P300 per month
under an employer-employee relationship. Employee achievement award not exceeding P10,000
Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per annum
NON-TAXABLE COMPENSATION Daily meal allowance for overtime work and night or graveyard shift not exceeding 25% of minimum wage
A. Mandatory deductions Benefits received by an employee by virtue of CBA and
These include employees’ mandatory contribution to GSIS, SSS, productivity incentive schemes
not exceeding P10,000
PhilHealth, HDMF, and union dues
B. Exempt benefits Note:
1. Benefits excluded and/or exempted under NIRC and special laws • Christmas gift in the table above refers only for private
2. Benefits exempt under treaty or international agreements employees.
3. Benefits necessary to the trade, business, or conduct of • Employee achievement award must be in the form of tangible
profession of the employer property other than cash and gift certificates, received by the
4. Benefits for the convenience or advantage of the employer employee under an established written plan which does not
discriminate in favor of highly paid employees.
1. Exempt benefits excluded and/or exempted under NIRC and special
• If CBA benefits and productivity incentives exceeds P10,000,
laws
the entire amount is a taxable “other benefits”.
a. Remunerations received as incidents of employment th
c. 13 month pay and other benefits not exceeding P90,000
• Exempt retirement benefits under RA7641 including exempt d. Certain benefits of minimum wage earners
retirement gratuities to government officials and employees
• Exempt termination benefits Treatment of taxable de minimis benefits
• Benefits from the United States Veterans Administration a. Rank and File employees - treated as other compensation income
(USVA) under the category “13th month pay and other benefits”.
• Social security, retirement gratuities, pensions, and similar b. Managerial and supervisory employees - treated as fringe benefit
benefits from foreign government agencies and other subject to final fringe benefit tax (RR5-11 and RMC20-2011)
institutions, private or public
• Benefits from SSS, under the SSS Act of 1954, as amended 2. Exempt benefits exempt under treaty or international agreements
• Benefits from GSIS under the GSIS Act OF 1937, as Employee benefits of non-Filipino nationals and/or non-permanent
amended residents of the Philippines from foreign governments, embassies or
diplomatic missions, and international organizations in the Philippines are
exempt from income tax.
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Filipino employees of foreign governments, international missions and 13TH MONTH PAY AND OTHER BENEFITS
organizations are taxable as a rule except only to employees of the following 1. 13th month pay
organizations: 2. Other benefits
a. United Nations (UN) a. Christmas bonus of private employees
b. Specialized Agencies if the United Nations b. Cash gift other than Christmas or anniversary gifts of private
c. Australian Agency for International Development (AUSAID) employees (RR2-98, as amended by RR5-2011)
d. Food and Agricultural Organization (FAO) c. Additional compensation allowance (ACA) of government
e. World Health Organization personnel (RA 8441)
f. United Nations Development Programme (UNDP) d. 14th month pay, 15th month pay, etc.
g. International Organization for Migration (IOM) e. Other fringe benefit of rank and file employees
h. International Seabed Authority (ISA) Government Employees Private Employees
3. Exempt benefits necessary to the trade, business, or conduct of 13th month pay and other 13th month pay and
Christmas bonus
profession of the employer benefits other benefits
4. Exempt benefits for the convenience or advantage of the employer 13th month pay and other
Christmas gift
benefits De minimis
COMPOSITION OF TAXABLE COMPENSATION INCOME
1. Regular Compensation- fixed remuneration received by the
employee every payroll period OTHER FRINGE BENEFITS
2. Supplemental Compensation - pertains to other performance-based Other fringe benefits include all other taxable fringe benefits not specifically
pays to employees with or without regard to the payroll period included in compensation income as regular, supplementary or 13th month
pay, and other benefits under current tax rules such as:
REGULAR COMPENSATION INCOME 1. Employee personal expenses shouldered by the employer
1. Basic Salary 2. Taxable de minimis benefits such as:
2. Fixed allowances such as cost-of-living allowance, fixed housing a. Excess de minimis
allowance, representation, transportation, and other allowances paid b. Benefits not included in the de minimis list
to an employee every payroll period.
TAX TREATMENT OF 13TH MONTH PAY AND OTHER BENEFITS
SUPPLEMENTARY COMPENSATION RR2-98 provides that 13th month pay and other benefits are exempt from
1. Overtime, holiday, hazard, and night differential pay withholding on compensation provided they do not exceed P90,000. It
2. Commissions, emoluments and honoraria follows, therefore, that the excess above P90,000 is subject to the
3. Fees, including director’s fees (if director is an employee) withholding tax on compensation.
4. Living quarters or meals
5. Taxable retirement and separation pay TAXABILITY OF MINIMUM WAGE EARNERS
6. Gains on exercise of stock options Minimum wage earners are exempt from income tax on the following:
7. Profit sharing and taxable bonuses 1. Basic minimum wage
2. Holiday pay, hazard pay, overtime pay and night shift differential pay

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Receipt of other taxable income by MWEs
Previously under RR10-2018, a minimum wage earner loses the special
privilege of tax exemption if they derive other taxable income. However, this
rule was nullified by the Supreme Court.

Consequently, the minimum wage earner is still exempt from income tax
from the foregoing benefits even if they receive other taxable compensation.
However, they may be subjected to tax if their other taxable income exceeds
the P250,000 for the year.

Rules of change in status as a Minimum Wage Earner during a year

1. When an employee becomes a minimum wage earner during the
year, he should be subject to income tax only on compensation
earned before becoming a minimum wage earner.
This rule may also apply in cases of:
a. Transfer to an employer paying salary at the minimum wage
b. Transfer of employment to a region with higher minimum
wage
2. When an employee ceases to be a minimum wage earner during the
year due to increase in salary, only the income for the rest of the year
is taxable.
This rule applies in cases of:
a. Transfer to an employer paying salary above the minimum
wage
b. Transfer of employment to a region which has a lower
statutory minimum wage.
3. When an employee ceases to be minimum wage earner during the
year by disqualification

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 FRINGE BENEFIT TAX Rules on Valuation of Fringe Benefits
1. Benefits paid in cash
• Monetary value is the amount paid in cash
Under labor laws, fringe benefits pertain to all other benefits or incentives of 2. Benefits paid in kind
employees other than basic pay. The basic pay is the fixed regular salary or • Monetary value is the fair value or the book value of the thing
wages of employees every payroll period. given, whichever is higher
• When ownership over the property is transferred to the employee,
Under the NIRC, the term “fringe benefit” was defined to pertain to goods, the monetary value is the value of the entire property even if the
services or other benefits furnished by the employer to the employees. property is partially used in the business of the employer.
3. Benefits that are furnished
Example of Tax treatment of fringe benefits: • When the benefit is given in the form of free use of the employer’s
a. Fringe benefits that are fixed every payroll period are considered property, the monetary value is 50% of the rental value of the
regular compensation property
b. Fringe benefits that are variable and performance-based are • If the property has no available rental value, the depreciation
considered supplemental compensation value is used with the following presumptive useful lives:
c. Fringe benefits in the form of incentives are considered 13th month a. 20 years for real properties
pay and other benefits b. 5 years for movable properties
d. Fringe benefits furnished for the employer’s convenience or
necessity are exempt from income tax SPECIAL GUIDELINES ON MONETARY VALUE DETERMINATION
1. If for the use only of the employee - 50% of the value of the benefit
General categories of fringe benefits subject to final tax 2. If the ownership of the property is transferred to the employee - 100%
1. Managerial perquisite benefits of the value of the benefit
• This are privileged incentives given only to a special group of
employees Note on aircrafts and yachts
• These benefits are non-performance based and are given as • Aircrafts are exempt from fringe benefit tax; they are deemed by the
incentives to management employees regulations as solely for business use
• These benefits are not considered as compensation income, but • Yacht’s depreciation value is subject to fringe benefit tax; it is
as fringe benefits subject to fringe benefit tax because they generally lack any sensible business purpose aside
2. Employee personal expenses shouldered by the employer from being for personal pleasure. Exception: if yacht is use solely for
3. Taxable de minimis benefits the entertainment of guest or prospective clients, it is not subject to
a. Excess de minimis over their limits the fringe benefit tax. In this case, the depreciation qualifies as
b. Benefits not included in the de minimis list “entertainment, amusement, and recreation expense”.

Characteristics of the Fringe Benefit Tax

1. Final tax
2. Tax upon the fringe benefits of managerial or supervisory employees
3. Paid by the employer
4. Grossed-up tax
5. Due quarterly
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Expenses for Foreign Travel DEALINGS IN PROPERTIES
Reasonable business expenses for foreign travel for attending business
meetings and conventions are exempt, such as the following:
1. Inland travel expenses such as food, beverage and local • Dealings in properties involve the sale, exchanges, and other
transportation costs disposition of properties such as ordinary assets or capital assets.
2. Lodging costs in hotel or similar establishment amounting to an • Dealings in ordinary assets are subject to regular income tax.
average of $300 per day or less • Dealings in capital assets, other than domestic stocks and real
3. Economy and business class airplane tickets properties, are also subject to regular income tax.
4. 70% of the cost of first-class ticket • Ordinary gain is taxable in full and ordinary loss is deductible in full
Life or health insurance and other non-life insurance premiums or similar • Capital gain is taxable in full but capital loss is deductible only up to
amounts in excess of what the law allows the extent of capital gains
These are taxable fringe benefits except the following insurance or premium
contributions allowed or required by law: Determination of net capital gain or net capital loss
1. Contributions of the employer for the benefit of the employee
pursuant to the provisions of existing law such as contributions to For Individual taxpayers:
SSS, GSIS, PhilHealth, and HDMF. The holding period rule
2. Cost of premium for group insurance of employees If the capital asset is held by an individual taxpayer for a period of:
1. Not more than 1 year (short-term holding period) - 100% of the capital
Tax treatment of the Total Fringe Benefit Expense gain or loss is recognized
The total fringe benefit expense including the fringe benefit tax expense is a 2. More than 1 year (long-term holding period) - 50% of the capital gain
deductible expense of the employer against his gross income in the or loss is recognized
computation of his taxable income.
For Corporate Taxpayers:
Regardless of the length of the holding period, 100% of the capital gain or
capital loss is recognized. The holding period rule does not apply to
corporations.

NET CAPITAL LOSS CARRY OVER

Individual taxpayers are allowed to carry-over net capital loss as a deduction
against net capital gain of the following year subject to the following limits:
1. Limit 1 - the amount of net income in the year the net capital loss was
sustained, and
2. Limit 2 - the available net capital gain in the following year.

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Note: TRANSACTIONS CONSIDERED EXCHANGES
• Net capital loss carry-over is strictly for 1 year only and is applicable The following are therefore subject to the rules of dealings in properties:
only to individual taxpayers. 1. Retirement of bonds, debentures, notes, or certificates and other
• Corporate taxpayers are not allowed under the NIRC to carry over evidence of indebtedness
net capital loss 2. Short sale of properties
3. Failure to exercise a privilege or option to buy or sell property that is
SPECIAL RULES IN THE DETERMINATION OF TAX BASIS a capital asset
A. For assets acquired by purchase, the tax basis is the: 4. Security becoming worthless
1. Acquisition cost for: 5. Receipt of liquidating dividends
• Capital assets 6. The amount received in liquidation of a partnership is also a deemed
• Non-depreciable ordinary assets such as land in exchange of the partner’s interest on the partnership
• Any asset purchased for an inadequate consideration or 7. Redemption of shares for cancellation or retirement
those acquired at less than the fair value 8. Voluntary buy-back of shares
2. Depreciated cost for depreciable ordinary assets
B. Other assets received by exchange, fair value of asses received
C. For assets received by way of gratuitous title:
1. Donation - whichever is lower of:
a. The tax basis on the hand of the donor or the last preceding
owner by whom it was not acquired by donation; or
b. Fair market value at the date of gift
2. Inheritance - fair value of the property on the date of death of the
decedent
D. For shares received by way of tax-free exchanges
1. For pure share-for-share swap, the tax basis of the shares
exchanged or given is the tax basis of the shares received
2. For share-swap with non-cash consideration, the tax basis shall
be substituted as follows:
Tax basis of shares exchanged PXXX
Add: Gain recognized XXX
Amounts treated as dividends of the shareholder XXX
Less: Cash and fair value of other properties received XXX
Tax basis of new shares received by the transferor PXXX

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 DEDUCTIONS 4. Manufacturing expenses
• Plant or factory expenses are capitalized to the cost of the goods
and are expensed through cost of goods sold when sold
PRINCIPLES OF DEDUCTIONS 5. Effects of accounting methods
• Prepayments and capital expenditures cannot be deducted
Deduction from Gross Income outright
Deductions from income pertains to business expenses incurred by a 6. Effects of value added tax
taxpayer engaged in business or engaged in the practice of profession. • Treatment of Input VAT
a. For VAT taxpayers, the input VAT is claimable as tax credit
Expenses to promote business goodwill against output VAT; hence, it is not claimable as deduction
Expenses incurred to create or maintain some form of goodwill for the b. For Non-VAT taxpayers, the input VAT is part of costs of the
taxpayer’s trade or business or for the industry or profession of which the purchase or expense of the taxpayer; hence, it is claimable
taxpayer is a member are non-deductible. as deduction.

Rental payments on finance lease that transfer ownership

Rental on a finance lease or capital lease that transfers ownership at the end GENERAL PRINCIPLES OF DEDUCTIONS FROM GROSS INCOME
of the lease term, commonly known as “rent-to-own” arrangements are not
considered expenses. 1. Expenses must be legitimate, ordinary, actual and necessary
• An expense is “legitimate” when it is adequately substantiated
SPECIAL CONSIDERATIONS WITH DEDUCTIONS with receipt or other documents and it is not contrary to law, public
1. Property repairs and improvements policy or morals.
• Repairs that significantly increase the value or prolong the useful • An expense is “ordinary” when it is normal in relation to the
life of properties are capital expenditures business of the taxpayer and the surrounding circumstances.
• Repairs that merely restore the value or functionality of the • An expense is “actual” if it is paid or resulted to an incurrence of
property without causing increase in fair value or useful life of the an obligation to the taxpayer.
property shall be deducted as outright expense • An expense is “necessary” if reasonable and essential to the
2. Property acquisition-related costs operation of the taxpayer.
• All costs directly related to the acquisition of an item of property,
plant and equipment are capitalized as part of the cost of the 2. The matching principle
property subject to depreciation • Only business expenses that are incurred for the generation of
• Expenses incurred which are directly related to the acquisition of items of gross income subject to regular tax are deductible.
goods are capitalized to the cost of the goods and are expensed • Business expenses incurred to generate items of gross income
through cost of goods sold when sold that are either exempt or excluded from taxation or tax other than
3. Securities issue cost regular income tax must not be matched or deducted against
• Expenses of issuing equity or debt securities are not deductible gross income subject to regular tax.
expense against gross income. They are deductible against the
proceeds of such securities

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 • Examples of non-deductible expenses under this rule: REGULAR ALLOWABLE ITEMIZED DEDUCTIONS
a. Expenses on exempt income
b. Expenses on income subject to a special tax regime ITEMIZED DEDUCTION FROM GROSS INCOME
c. Business expenses of taxpayers subject to final income tax Expenses that are not directly connected with the selling of goods or
d. Foreign business expenses of taxpayer taxable only on rendering of services are items of expenses classified as “Regular allowable
Philippines itemized deductions”
e. Loss of income not yet recognized in gross income 1. Interest expense
• The deductible amount of interest expense is the gross interest
3. The related party rule expense reduced by 33% of the interest income starting January
• Gains realized between related parties are taxable, but losses are 1, 2009 which is the arbitrage limit
non-deductible • The arbitrage limit is computed as: (Corporate income tax rate -
• Transactions between associated enterprises must be made at Final tax on interest income)/Corporate income tax rate
arm’s length • The rule shall apply to individuals and corporations since the law
• Who are related parties? did not make a distinction
a. Members of a family • However, revenue regulations exempt thrift banks from the
b. Except in cases of distribution in liquidation, the direct or coverage of the arbitrage limit
indirect controlling individual or a corporation • Interest for late payment of tax was held deductible by the
c. Except in cases of distribution in liquidation, corporation Supreme Court but as interest expense rather than as tax
under direct or indirect common control by or for the same expense
individual • Optional treatment of interest expense: interest expense incurred
d. Grantor and fiduciary of any trust in financing the acquisition of property used in trade or business
e. Fiduciary of a trust and the beneficiary of such trust may, at the option of the taxpayer, be claimed as:
a. An outright deduction from gross income or
4. The withholding rule b. A capital expenditure claimable through depreciation
• The rule is “no withholding, no deduction” 2. Taxes
• Timing of withholding RR12-2001: whichever comes first of the • Taxes paid or incurred within the taxable year in connection with
following: the taxpayer’s trade, business, or exercise or profession shall be
a. Payment allowed as deduction except:
b. When the income payment becomes due or payable a. Final income tax
c. Recording of the income payment as expense or asset in the b. Capital gains tax
books c. Regular income tax
d. Foreign income tax, if claimed as tax credit
e. Estate tax and donor’s tax
f. Special assessment
g. VAT

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 • Examples of deductible taxes 5. Depreciation
a. Percentage tax • There shall be allowed as a depreciation deduction a reasonable
b. Excise tax allowance for the exhaustion and wear and tear of property used
c. Documentary stamp tax in the trade or business
d. Occupational tax • Rules on deductibility of depreciation on Passenger Vehicles
e. License tax a. Substantiation of the purchase with sufficient documentary
f. Fringe benefit tax evidence
g. Local taxes except special assessment b. Substantiation of the direct connection or relation of the
h. Community tax vehicle to the operation of the taxpayer
i. Municipal tax c. Only one vehicle for land transport is allowed for an official
j. Foreign income tax if not claimed as tax credit and employee, and the value of which shall not exceed
P2,400,000
3. Losses d. No depreciation shall be allowed for yachts, helicopters,
• Losses actually sustained during the taxable year and not airplanes or aircrafts, and land vehicles which exceeded the
compensated by insurance or other indemnity shall be allowed threshold unless the main line of business is transport
as deductions operation or lease of transportation equipment and the
• Losses from ordinary assets are deductible in full vehicles purchased are used in said operations
• Losses from capital assets are deductible only up to the extent of
capital gains 6. Depletion
• Intangible assets that do not lose value throughout time should
4. Bad debts not be amortized
• Bad debts refer to debts due to the taxpayer which were actually
ascertained to be worthless and were charged off within the 7. Charitable and other contributions
taxable year • Contributions or gifts made to the government or NGOs may be
• The accounting bad debt expense called “estimated bad debt deducted against gross income
expense” is not deductible in taxation because it is a mere • Requisites of claim for deduction on contributions:
estimate rather than an actual loss a. The Donee must be a domestic institution
• Recovery of bad debts previously allowed as a deduction in the b. No income of the Donee must inure to the benefit of any
preceding years shall be included as part of the gross income in private stockholder or individual
the year of recovery to the extent of the income tax benefit of said c. The contribution must be valued at the tax basis of the
deduction property donated
d. The taxpayer must be engaged in trade or business
e. The Donee must issue a Certificate of Donation (BIR Form
2322) which includes a donor’s statement of values
f. If the amount of donation is at least P50,000 the donor shall
file a Notice of Donation to the RDO where he is registered
within 30 days upon receipt of the Certificate of Donation

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 • Classification of contributions 9. Research and development costs
A. Fully deductible contributions • Tax treatment of R&D Costs
a. Donation to the government, political subdivisions, or A. R&D costs related to capital accounts are capitalized as part
GOCCs to be used exclusively in undertaking priority of the cost of the property and deducted through depreciation
activities as determined by NEDA in: Education, Health, expense
Youth and Sports Development, Human settlements, B. R&D costs not related to capital accounts are treated as
Culture and Sports, and Economic developments follows at the option of the taxpayer:
b. Donation to foreign institution or international organization a. Outright expense or
in pursuance of, or in compliance with agreements, b. Deferred expense amortized over a period not less than
treaties or special laws 60 months
c. Donation to accredited domestic NGOs pursuant to EO
671 10. Other ordinary and necessary trade, business, or professional
B. Contributions subject to limit expenses
a. Donation to the government, political subdivisions, or
GOCCs to be used exclusively for public purpose not in Entertainment, Amusement, and Recreation (EAR) Expense
accordance with priority activities Ceiling on deduction:
b. Donation to non-accredited non-government • For taxpayers engaged in the sales of goods or properties - 0.5%
organizations or to domestic corporations organized of net sales
exclusively for the following purposes: Religious, • For taxpayers engaged in the sales of services - 1% of net
Charitable, Scientific, Youth and sports development, revenues
Cultural, Educational, Rehabilitation of veterans, and
Social welfare
• Limit of deduction for contributions: 10% for individual and 5% for
corporation based on the taxable income derived from trade,
business or profession before deduction of any contributions

8. Contributions to pension and trusts

• Types of Employee Pension Plans:
A. Defined Contribution Plan
The deductible expense of the employer is simply the amount
of contributions made by the employer to the fund.
B. Defined Benefit Plan
In defined benefit plan, the employer’s contribution or funding
is either or both:
a. Funding of current service cost - deductible in full
b. Funding of prior year service cost - amortized over 10
years regardless of the actual vesting period

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SPECIAL ALLOWABLE DEDUCTIONS • The amount transferred by the cooperative to the reserve fund
out of the net surplus from unrelated activities is an item of
Special deductions are other items of deductions which may or may not deduction in the computation of the taxable net income of the
partake the nature of an expense, but are allowed by the NIRC or by special cooperative
laws as deductions. Special deductions include deductions incentives to
taxpayers in assisting and in complying with certain legal requirements. 5. Discount to senior citizens under RA 9257
• The discounts of 20% to senior citizens by covered
SPECIAL EXPENSES UNDER THE NIRC AND SPECIAL LAWS establishments and service providers are allowed as special
1. Income distribution from a taxable estate or trust deductions against gross income.
• Such income distribution is a special deduction against the gross • Note that the sales from the senior citizens should be reported at
income of the estate or trust but included by the recipient heir or gross of discount. The discount will be deducted then in the gross
beneficiary in his gross income. income

2. Transfer to reserve fund and payments to policies and annuity 6. Discount to persons with disability under RA 9442
contracts of non-insurance companies • The discounts of 20% to persons with disability by covered
• The net additions, if any, required by law to be made within the establishments and service providers are allowed as special
year to the reserve funds and the sums, other than dividends, deductions against gross income.
paid within the year on policy and annuity contracts may be • Note that the sales from the persons with disability should be
deducted from the gross income of insurance companies reported at gross of discount. The discount will be deducted then
• Under current regulations, the transfer to the reserve funds shall in the gross income
be deductible in the year it was actually paid and not in the year
it was determines
DEDUCTION INCENTIVES UNDER SPECIAL LAWS
3. Dividend distribution of a Real Estate Investment Trust (REIT) under
RA 9856 1. Additional compensation expense for senior citizen employees
• A REIT is a publicly listed corporation established principally for • Under RA 9257, private establishments employing senior citizens
the purpose of owning income-generating real estate assets. shall be entitled to additional deduction from gross income
• It is legally mandated to distribute 90% of its distributable income equivalent to 15% of the total amount paid as salaries and wages
as dividends to shareholders to senior citizens.
• Under RA 9856, the dividend distributions of REITs are treated • Conditions for deductibility of additional compensation:
as special deductions against gross income a. Employment shall have to continue for at least 6 months
b. The annual taxable income of the senior citizen does not
4. Transfer to reserve funds of taxable cooperatives exceed the poverty level as determined by the NEDA
• Under RA 9520, cooperatives are required to maintain reserves
for their protection and stability
• Cooperatives are exempt from income tax, but are subject to tax
on their income from unrelated activities

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2. Additional compensation expense for person with disability under RA 7. Additional free legal assistance expense under RA 9999
7277 • The practicing lawyer or professional partnership shall be entitled
• Private entities employ disabled persons who meet the required to an allowable deduction from gross income equivalent to the
skills or qualifications, either as regular employees, apprentices amount that could have been collected for the actual performance
or learners, shall be entitled to an additional deduction, from their of the actual free services rendered or up to 10% of gross income
gross income, equivalent to 25% of the total paid as salaries and derived from the actual performance of the legal profession
wages to disabled persons. whichever is lower.

3. Cost of facilities improvements for persons with disability 8. Additional productivity incentive bonus expense under RA 6971
• Under RA 7277, as amended by RA 9442, private entities that • A business enterprise which adopts a productivity incentive
improve or modify their physical facilities in order to provide a program is entitled to a special additional deduction equivalent to
reasonable accommodation for disabled persons shall also be 50% of the total productivity bonuses given to employees under
entitles to an additional deduction from their income equivalent to the program.
50% of the direct cost of the improvement.

4. Additional training expense under RA 8502 – Jewelry Industry NET OPERATING LOSS CARRY-OVER
Development Act of 1998
• Under RA 8502 and its implementing rules and regulations, a Who can claim NOLCO?
qualified jewelry enterprise duly registered and accredited with All taxpayers subject to a tax on taxable income whether at the regular
the BOI is entitled to an additional deduction from taxable income income tax or at preferential tax rate can deduct NOLCO. Taxpayers who
of 50% of the expenses incurred in training schemes approved are exempt, enjoying a tax holiday, subject to tax on gross income, or those
by TESDA. subject to final income tax, cannot deduct NOLCO.

5. Additional contribution expense under the Adapt-a-School program How to compute NOLCO?
under RA 8525 Gross income subject to regular tax PXXX
• Aside from the usual regular deductible contribution expense, an Less:
adopting entity shall be allowed an additional deduction from Total deductions excluding NOLCO from prior years (XXX)
gross income to 50% of the contribution of the adopting entity. and deduction incentives under special laws
NOLCO (PXXX)
6. Additional deductions for compliance to rooming-in and breast-
feeding practices under RA 7600, as amended by RA 10028
To emphasize the rules in the measurement of taxable net income or
• The expenses incurred by a private health institution in complying NOLCO:
with the rooming-in and breast-feeding practices shall be 1. Cost of sales or cost of services and regular allowable itemized
deductible expenses for income tax purposes up to twice the deductions are fully deductible against gross income
actual amount incurred. 2. Special incentive deductions are deductible only to the extent of net
income before special incentive deductions
3. NOLCO prior years are deductible only to the extent of net income
after special incentive deductions but before NOLCO
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Treatment of NOLCO c. Those with income subject to regular income tax and
NOLCO is treated as a separate item of deduction in the next 3 consecutive special/preferential income tax
taxable years to the extent of the available net income before NOLCO 3. Non-resident alien not engaged in trade or business
deduction in those periods.
Taxpayers who opted to claim OSD are not required to submit their financial
Requisites for the deductibility of NOLCO statements with their income tax return.
1. The taxpayer must not be exempt from income tax during the taxable
year when the NOLCO was incurred Individual taxpayers opting to deduct OSD shall keep records pertaining to
2. There has been no substantial change in the ownership of the their gross sales or gross receipts.
business
Corporation opting to deduct OSD shall keep such records pertaining to their
Special rule on NOLCO for Mining Companies gross income during the year.
The net operating loss sustained by mining companies without the benefit of
incentives under the Omnibus Investment Code of 1987 in any of their first Percentage of OSD:
10 years of operation is allowed to be carried over a period of 5 years 1. Individual taxpayers – 40% of total sales/revenues/receipts/fees
following the year the net operating loss was sustained. 2. Corporate taxpayers – 40% of gross income

OSD FOR GENERAL PROFESSIONAL PARTNERSHIP

OPTIONAL STANDARD DEDUCTION • A GPP can choose either the itemized deduction or the optional
standard deduction in computing its distributable net income
Who can claim OSD? • The allowable deduction for a GPP electing to deduct OSD shall
OSD is a proxy for itemized deductions. As a rule, all taxpayers who are be 40% of gross income similar to the OSD allowed to
subject to tax on taxable net income can claim deductions except the corporations
following: • Partners in GPP cannot claim OSD against their share in net
1. Non-resident alien engaged in trade or business income but the partners may use OSD against their gross sales
2. Taxpayers mandated to used itemized deductions or receipts from business or profession that are not from the GPP
availing OSD.
Mandatory itemized deductions RR2-2014:
1. Corporations mandated to use the itemized deductions: WHEN TO INDICATE THE OPTION TO USE OSD?
a. Exempt GOCCS and non-stock, non-profit corporations with no • For individual taxpayers, the option to use OSD can be indicated only
taxable income in the annual income tax return since quarterly income tax returns
b. Those with income subject to special/preferential tax rates are mere estimates of gross income.
c. Those with income subject to regular corporate income tax and • For corporate taxpayers, the option to use OSD for the taxable year
special/preferential tax must be indicated in the first quarter return and shall be applied to all
2. Individual taxpayers mandated to use the itemized deductions: subsequent quarters and in the annual return. The option to use
a. Exempt individuals under the NIRC and special laws with no either itemized deduction or OSD is irrevocable only for the current
other taxable income year it is made.
b. Those with income subject to special/preferential tax rates

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 REGULAR INCOME TAXATION: INDIVIDUALS 2. An annual option
• It is valid as long as the taxpayer remained as a non-VAT
taxpayer during the year. It will be invalidated in favor of the
regular income tax once the taxpayer becomes a VAT taxpayer
during the year.
3. Paid quarterly and annually
4. Scope:
• Pure business or professional income earners
• Mixed income earners
5. Tax basis
• The 8% optional income tax shall be based upon the gross sales
or gross receipt of the individual taxpayer of his P250,000. Other
subject to regular tax are added to the basis

Note than in case of mixed income earner, since the use of the income tax
table in computing the tax due from compensation effectively allowed the
taxpayer claim of P250,000 annual income exemption as embedded in the
tax table, there will be no more P250,000 deduction allowable against the
Taxpayers Subject to Progressive Income Tax basis of the 8% income tax. Furthermore, if the amount of compensation
1. Citizens income does not exceed P250,000, the unutilized deduction cannot be
a. Resident citizen deducted against business income since the TRAIN LAW did not
b. Non-resident citizen contemplate a deduction cross-over.
2. Aliens
a. Resident alien
b. Non-resident engaged in business Taxable Estates and Trusts
3. Taxable estate Taxable Estates
4. Taxable trust An estate is an income taxpayer if under judicial settlement or administration.
An estate under extra-judicial settlement is not a taxpayer. The income of
The 8% Income Tax Option the estate under extra-judicial settlement is taxable to the heirs.
The option to be taxed 8% must be indicated in the first quarter income tax
return or in the first quarter percentage tax return. When made, the option Taxable Trusts
shall be irrecoverable for the calendar year. A revocable trust is not a taxpayer and is treated as a pass-through entity
1. A bundle tax- it is in lieu of: whose income is taxable to the grantor-trustor.
a. Regular income tax, determined through the income tax table
b. 3% general percentage tax An irrecoverable trust is a separate and distinct taxable entity. A taxable trust
is treated as an individual taxpayer and is allowed P20,000 personal
exemption.

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Income Taxable to an estate or trust under the NIRC
1. Income accumulated in trust for the benefit of unborn or
unascertained person or persons with contingent interest and income
accumulated or held for future distribution under the terms of the will
or trust.
2. Income which is to be distributed currently by the fiduciary to the
beneficiaries and income collected by a guardian of an infant which
is to be held or distributed as the court may direct
3. Income received by estates of deceased persons during the period
of administration or settlement of the estate
4. Income which, in the discretion of the fiduciary, may be either
distributed to the beneficiaries or accumulated

Installment Payment of the Regular Income Tax

When the tax due is in excess of P2,000, individual taxpayers (except
corporations) may elect to pay the tax in two equal installments:
a. The first installment shall be paid at the time the return is filed
b. The second installment is due on or before October 15 following the
close of the calendar year

Who are not required to file income tax return?

1. Minimum wage earners
2. An individual whose gross income does not exceed P250,000
3. An individual whose compensation derived from one employer does
not exceed P60,000 and the income tax on which has been correctly
withheld
4. Individuals whose income has been subjected to final withholding tax
such as in the case of non-resident aliens not engaged in trade or
business
5. Pure compensation earners qualified under the substituted filing
system

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 REGULAR INCOME TAXATION: SPECIAL CORPORATION EXEMPT CORPORATIONS UNDER THE NIRC
1. Labor, agricultural or horticultural organization not organized
principally for profit;
General classification and taxation of corporations 2. Mutual savings bank not having a capital stock represented by
1. Domestic corporations – 30% regular tax on world taxable income shares, and cooperative bank without capital stock organized and
2. Resident foreign corporation – 30% regular tax on Philippine taxable operated for mutual purposes and without profit;
income 3. A beneficiary society, order or association, operating fort the
3. Non-resident foreign corporation – 30% final tax on Philippine gross exclusive benefit of the members such as a fraternal organization
income operating under the lodge system, or mutual aid association or a
nonstock corporation organized by employees providing for the
SUB-CLASSIFICATION OF CORPORATE INCOME TAXPAYERS payment of life, sickness, accident, or other benefits exclusively to
A. Domestic corporations the members of such society, order, or association, or nonstock
1. Exempt domestic corporations corporation or their dependents;
a. Exempt non-profit corporations under the NIRC 4. Cemetery company owned and operated exclusively for the benefit
b. Government agencies and instrumentalities of its members;
c. Certain government-owned and controlled corporations 5. Nonstock corporation or association organized and operated
d. Cooperatives exclusively for religious, charitable, scientific, athletic, or cultural
2. Special domestic corporations purposes, or for the rehabilitation of veterans, no part of its net
a. Proprietary educational institutions and non-profit hospitals income or asset shall belong to or inures to the benefit of any
b. Foreign currency deposit units (FCDUs) and expanded member, organizer, officer or any specific person;
FCDUs 6. Business league chamber of commerce, or board of trade, not
c. PEZA or BOI-registered enterprises organized for profit and no part of the net income of which inures to
3. Regular domestic corporations the benefit of any private stock-holder, or individual;
B. Resident foreign corporations 7. Civic league or organization not organized for profit but operated
1. Special resident foreign corporations exclusively for the promotion of social welfare;
a. Offshore banking units (OBU) and Expanded FCDUs 8. A nonstock and nonprofit educational institution;
b. Regional Area Headquarters and Regional Operating 9. Government educational institution;
Headquarters of Multinational Companies 10. Farmers' or other mutual typhoon or fire insurance company, mutual
c. International carrier ditch or irrigation company, mutual or cooperative telephone
d. PEZA or BOI-registered enterprises company, or like organization of a purely local character, the income
2. Regular resident foreign corporations of which consists solely of assessments, dues, and fees collected
C. Non-resident foreign corporations from members for the sole purpose of meeting its expenses; and
1. Special non-resident foreign corporations 11. Farmers, fruit growers, or like association organized and operated as
a. Non-resident cinematographic film owner, lessor or distributor a sales agent for the purpose of marketing the products of its
b. Non-resident lessor of vessels, chartered by Philippine members and turning back to them the proceeds of sales, less the
nationals necessary selling expenses on the basis of the quantity of produce
c. Non-resident owner or lessor of aircraft, machineries and finished by them.
other equipment
2. Regular non-resident foreign corporations
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Requisites for exemption of non-stock, non-profit corporations GOVERNMENT-OWNED AND CONTROLLED CORPORATIONS
1. It must be a non-stock corporation or association organized and (GOCCs)
operated exclusively for religious, charitable, scientific, athletic, or GOCCs are generally proprietary or commercial in nature and are subject to
cultural or for the rehabilitation of veterans. the regular corporate income tax except the following exempt GOCCs:
2. It should meet the following tests: 1. Government Service Insurance System (GSIS)
a. Organization test – its constitutive documents exclusively limits 2. Social Security System (SSS)
its purposes to one or more of the following: religious, charitable, 3. Philippine Health and Insurance Corporation (PHIC)
scientific, athletic, or cultural or for the rehabilitation of veterans. 4. Local water districts – RA 10026
b. Operational test – the regular activities of the corporation or *PCSO was removed from the NIRC list by the TRAIN law effective January
association must be exclusively devoted to the accomplishment 1, 2018
of the aforementioned purposes. A corporation fails this test if a
substantial part of its operations is considered “activities
conducted for profit” COOPERATIVES
3. All net income or assets of the corporation or association must be Classification of registered cooperatives for taxation purposes;
devoted to its purposes and no part of its net income or asset accrues A. Cooperatives which transact business only with members – these
to the benefits any member or specific person cooperatives are not subject to any taxes and fees under NIRC and
4. It must not be a branch or a foreign non-stock, non-profit corporation other tax laws
B. Cooperatives which transact business with both members and non-
Exception to the classification rule: NON-PROFIT EDUCATIONAL members
INSTITUTIONS 1. Those with not more than P10M accumulated reserve and
Under the constitution, all revenues and assets of non-stock non-profit undivided net savings are exempt from taxes, similar to
educational institutions used actually, directly, and exclusively for cooperatives transacting business only with members.
educational purposes shall be exempt from taxes and duties. Hence, the 2. Those with more than P10M accumulated reserve and undivided
income from unrelated operations of these institutions is still exempt from net savings are subject to the following tax at full rate:
income tax if used for educational purposes. a. Income tax on the full amount allocated for interest on capital
b. VAT on transactions with non-members
c. Percentage tax on all sales of goods or services rendered to
GOVERNMENT AGENCIES AND INSTUMENTALITIES non-members
Government agencies and instrumentalities such as departments and d. All other internal revenue taxes unless otherwise provided by
bureaus are inherently non-profit because of their public service functions; the law
hence, they are exempt from income tax.
However, the income of government agencies and instrumentalities from Taxability of Cooperatives to Internal Revenue Tax
unrelated activities or from their properties is subject to income tax. All cooperatives regardless of classification are subject to the following:
1. The applicable income tax on unrelated income
2. Capital gains tax
3. Documentary stamp tax
4. VAT on purchases except VAT exempt importations
5. Withholding tax on wages except for minimum wage employees

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SPECIAL DOMESTIC CORPORATIONS FROM
NATURE OF INCOME Residents
(E)FCDUs or OBUs Other Residents Non-residents
PRIVATE EDUCATIONAL INSTITUTION AND NON-PROFIT HOSPITAL
Income from forex transactions
Private or proprietary educational institution and non-profit hospitals are Interest income from:
subject to 10% tax on world taxable income subject to the pre-dominance -Forex loans & receivables Exempt 10% FIT Exempt
test. -Forex deposits Exempt - Exempt
Other forex income Exempt RCIT Exempt
The Pre-dominance Test Income from non-forex transacctions RCIT RCIT RCIT
If the gross income from unrelated trade, business or other activity exceeds
50% of the total gross income derived by such educational institutions or
hospitals from all sources, the 30% regular corporate income tax applies. PEZA OR BOI-REGISTERED ENTERPRISES

Summary of Tax Rules on Educational Institutions and Hospitals BOI-registered enterprises

New registered firms under the BOI enjoy income tax holiday for 6 years from
Owner Educational Institutions Hospitals
commercial operations for pioneer firms and 4 years for non-pioneer firms.
Private 10% of taxable income 30% of taxable income The income tax holiday may be further extended not to exceed 10 years
Non-profit Exempt 10% of taxable income upon meeting certain conditions.
Government Exempt Exempt
PEZA-registered enterprises
All business enterprises operating within the PEZA, or simply ECOZONE,
FOREIGN/EXPANDED CURRENCY DEPOSIT UNIT shall pay a tax of 5% of gross income earned in lieu of all taxes, local and
These refer to a unit or department of a local bank or a local branch of a national, except real property tax on land of developers. The 5% gross
foreign bank authorized by the BSP to engage in foreign currency- income tax shall be divided 3% to the national government and 2% to the
denominated transactions pursuant to RA 6426, as amended. city or municipality where the establishment is located.

Distinction of FCDU, EFCDU, and OBU Note:

• FCDUs are limited to short-term foreign currency transactions and is • BOI income tax holiday has a sunset provision which expires in not
a division of a domestic bank more than 10 years
• EFCDUs are allowed both short-term and long-term foreign currency- • ECOZONE enterprises which derive income outside their registered
denominated transactions and may be a division of a domestic bank operations with PEZA are therefore subject to the appropriate taxes
or a resident foreign bank • Items of passive income are subject to the appropriate final tax or
• OBUs are a division of a foreign bank which is authorized to conduct capital gains tax
foreign currency denominated transactions • Items of regular income that are not part of the registered activities
are subject to regular corporate tax
• The sale of scrap materials and income from other activity by a PEZA
entity are subject to the regular tax
• The gain on the sale of factory and office building by a PEZA entity
is subject to 30% regular corporate income tax

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OFFSHORE BANKING UNITS AND EXPANDED FCDUs Taxability of RHQs and ROHQs
Offshore banking shall refer to the conduct of banking transactions in foreign • RHQs are exempt from income tax since they are merely
currencies involving the receipt of funds from external sources and the administrative offices
utilization of such funds (PD 1035) • ROHQs are subject to income tax at 10% taxable income since they
are allowed to derive income on their services to their affiliates
Offshore Banking Unit shall mean a branch, subsidiary or affiliate of a foreign • RHQs and ROHQs are exempt from all kinds of local taxes except
banking corporation which is duly authorized by the Central Bank of the real property tax on land improvements
Philippines to transact offshore banking business in the Philippines (PD
1035)
INTERNATIONAL CARRIERS
The OBU and EFCDU of a resident foreign bank is subject to the same tax The term international carrier, also called international common carrier,
rules applicable to FCDU/EFCDU of domestic banks, except that all their refers to entities that transport passengers, mails and excess cargoes or
offshore income is exempt from income tax because foreign corporations are baggage from the Philippines to any destination abroad and vice versa.
taxable only on income within the Philippines.
In the Philippine setting, international carriers are only of two types:
1. International air carrier
REGIONAL AREA HEADQUARTERS AND REGIONAL OPERATING 2. International sea or shipping carrier
HEADQUARTERS OF MULTINATIONAL COMPANIES
Income tax rates to international carriers
Regional or area headquarters (RAH or RHQ) mean a branch established in • General rule: 2.5% of the Gross Philippine Billings
the Philippines by multinational companies which headquarters do not earn • Exception rule: Preferential rate or exemption on the basis of
or derive income from the Philippines and which acts as a supervisory, reciprocity applicable tax treaty or reciprocity
communication and coordinating center for their affiliates, subsidiaries, or
branches in the Asia Pacific Regional and other foreign markets
BOI OR PEZA REGISTERED FOREIGN CORPORATIONS
Regional operating headquarters (ROH or ROHQ) mean a branch These enterprises are subject to the same incentives as those domestic
established in the Philippines by multinational companies which are engaged corporation counterparts.
in any of the following services: general administration and planning;
business planning and coordination; sourcing and procurement of raw
materials and components; corporate finance advisory services; marketing SPECIAL NON-RESIDENT FOREIGN CORPORATION
control and sales promotion; training and personnel management; logistic
services; research and development services and product development; NON-RESIDENT CINEMATOGRAPHIC FILM OWNER, LESSOR OR
technical support and maintenance; data processing and communications; DISTRIBUTOR
and business development. Cinematographic film includes motion picture films, films, tapes, discs and
such other similar or related products (RR6 2001)

Under the NIRC, owners, lessors, or distributors of cinematographic films

are subject to a 25% final tax on their gross income from all sources within
the Philippines.
/jmm
NON-RESIDENT LESSOR OF VESSELS CHARTERED BY PHILIPPINE REGULAR INCOME TAXATION – REGULAR CORPORATIONS
NATIONALS
These are subject to a 4.5% final tax on gross rentals, lease, or charter fees
from leases or charters to Filipino residents or corporations as approved by The regular corporate income tax
Maritime Industry Authority. The regular corporate income tax applies to all corporation in general. It
covers all taxable income of corporations that are not subject to final tax or
capital gains tax. The regular corporate income tax or RCIT is 30% of taxable
NON-RESIDENT OWNER OR LESSOR OF AIRCRAFT, MACHINERIES, income.
AND OTHER EQUIPMENT
These are subject to a 7.5% final tax on rentals, charters, and other fees. Corporate tax schemes on regular corporations
1. Domestic Corporation – Gross income tax or Regular Corporate tax
Lease of charter of: subject to the Minimum Corporate Income Tax
2. Resident Corporation – Regular Corporate Income Tax subject to the
lessor Cinema films Vessels Aircrafts Other equipments Minimum Corporate Income Tax
Domestic 30% WTI 30% WTI 30% WTI 30% WTI
Optional Tax Scheme for Domestic Corporations
Resident foreign 30% PTI 2.5% GPB 2.5% GPB 30% PTI Under the NIRC, domestic corporations may opt to be taxed at either:
Non-resident foreign 25% PGI 4.5% PGI 7.5% PGI 7.5% PGI 1. The corporate gross income tax; or
2. The regular corporate income tax subject to the minimum corporate
income tax
WTI - World taxable income
PTI - Philippine taxable income THE CORPORATE GROSS INCOME TAX
The President, upon recommendation of the Secretary of Finance, may allow
PGI - Philippine gross income domestic corporations the option to be taxed at 15% of gross income after
GPB - Gross Philippine billings the following conditions have been satisfied:
1. A tax effort ratio of 20% of Gross National Product (GNP)
2. A ratio of 40% of income tax collection to total tax revenues
3. A VAT tax effort of 40% of GNP
4. A 0.9% ratio of the Consolidated Public Sector Financial Position
(CPSFP) to GNP

Cost ratio limit

The option to be taxed based on gross income shall be available only to firms
whose ratio of cost of sales to gross sales or receipts from all sources does
not exceed 55%

Lock-in period
The election of gross income tax shall be irrevocable for 3 consecutive
taxable years during which the corporation is qualified under the scheme.
/jmm
THE MINIMUM CORPORATE INCOME TAX (MCIT) The IAET covers the improperly accumulated earnings or profits of domestic
The most peculiar feature of corporate income taxation is the MCIT. corporations only, whether special or regular domestic corporations.
Corporations are subject to a minimum corporate income tax of 2% of gross
income. IAET partakes of the nature of a penalty tax and not in lieu of dividend tax.
Hence, the declaration of profits already subjected to the IAET will still be
Scope of the minimum corporate income tax subject to dividend tax.
The MCIT is applicable to every corporation taxable to the 30% regular
corporate income tax including non-profit, exempt, and special corporations Prima facie instances of improper accumulation of earnings:
with respect to their taxable income subject to regular corporate income tax, 1. Investment of substantial profit in unrelated business or stocks or
but not to their income subject to special tax rates. securities of unrelated business
2. Investment in bonds and other long-term securities
MCIT exempt entities: 3. Accumulation of earnings in excess of 100% of the paid-up capital
1. Real Estate Investment Trust (REIT) under RA 9856
2. Domestic corporations which opted to be taxed under the 15% gross Entities presumed improperly accumulating earnings
income tax 1. Holding companies
3. Domestic or resident corporations subject to special tax rates 2. Investment companies
4. All non-resident foreign corporations 3. Closely held corporations

Note: IAET Exempt Entities under NIRC

• MCIT is imposed beginning on the fourth taxable year immediately 1. Publicly-held corporations
following the year in which such corporation commenced its 2. Finance companies
operations. 3. Banks
• The excess of the MCIT over the RCIT in any year is a tax credit that 4. Insurance companies
is deductible against any RCIT tax due in the immediately succeeding
3 years. Other entities exempt from IAET
1. Taxable partnerships
Relief from the MCIT 2. General professional partnerships
Upon recommendation of the Commissioner of Internal Revenue, the 3. Taxable and non-taxable joint ventures
Secretary of Finance may suspend the imposition of MCIT upon submission 4. ECOZONE-registered entities
of proof that the corporation sustained substantial losses on account of:
1. Prolonged labor dispute
2. Force majeure
3. Legitimate business reverses

THE IMPROPER ACCUMULATED EARNINGS TAX (IAET)

IAET is a 10% penalty tax imposed on the improper accumulation of
corporation earnings beyond the needs of business.

/jmm
BRANCH PROFIT REMITTANCE TAX
Any profit remitter by a branch to its head office abroad shall be subject to a
tax of 15% based on the total profits applied or earmarked for remittance
without any deduction for the tax component thereof.

The 15% branch profit remittance is a final tax which is required to be

withheld at source by the branch of a foreign corporation.

Scope of the Branch Profit Remittance Tax

The tax covers the remittance of all resident foreign corporations including
ROHQs of multinational companies, FCDUs or OBUs of foreign banks, and
international carriers, except PEZA-registered activities.

/jmm
 VAT ON IMPORTATION 2. Livestock and poultry of a kind generally used as, or yielding or
producing foods for human consumption
• Pets are vatable
TYPES: • Feeds and feed ingredients for this kind are also exempt from
1. Import of Goods VAT
• Imposed upon importers or buyers 3. Breeding stock and genetic materials therefore
• BOC is the collecting agency
• VAT should be paid prior to withdrawal of goods B. Books, newspapers and magazines (Sec17 Article II, Philippine
2. Purchase of Services Constitution)
• Imposed upon foreign service providers Condition for exemption:
• BIR is the collecting agency 1. They must appear at regular intervals with fixed prices for
• Final withholding tax is remitted after the month of payment subscription
2. The sale must not be devoted principally to the publication of
IMPORT OF GOODS paid advertisements

The importation of goods is either C. Passengers or cargo vessels and aircrafts, including engine,
1. Vatable importation equipment and spare parts
• Importation is generally subject to VAT unless it can be proven
as exempt
2. Exempt importation (see discussion below) PART 2 OF EXEMPT IMPORT GOODS: IMPORTATION BY VAT-EXEMPT
PERSONS
EXEMPT IMPORTATION When an exempt importer subsequently sells his exempt importation to a
A. Importation of exempt goods non-exempt person, the non-exempt buyer shall be subject to VAT on
B. Importation by VAT-exempt persons importation
C. Quasi-importation
D. Importation which are exempt under special laws and international VAT-exempt Persons under the NIRC
agreement 1. International shipping or air transport operators
• Exemption is limited to the importation of fuel, goods and supplies
PART 1 OF EXEMPT IMPORT GOODS: IMPORTATION OF EXEMPT 2. Agricultural cooperatives
GOODS • Limited only to importation of direct farm inputs, machineries and
equipment, including their spare parts (RA 9337)
A. Basic human food and related goods • The cooperative should be registered with CDA
1. Agricultural or marine food products in original state • Goods should be used only directly and exclusively in the
• Still exempt even undergone simple processing production or processing of their produce

/jmm
 3. Ecozone-locators PART 4 OF EXEMPT IMPORT GOODS: IMPORTATION EXEMPT UNDER
• Purchased by consumers in a customs territory from Ecozone- SPECIAL LAWS OR TREATIES
locators are subject to the rules of VAT on importation Import that are exempted by special laws, treaties or international
• Similarly, sales to Ecozones are subject to zero-rates VAT for agreements to which the Philippine government is a signatory is not subject
VAT taxpayers to the VAT on importation

TAX BASIS OF THE VAT ON IMPORTATION OF GOODS

PART 3 OF EXEMPT IMPORT GOODS: QUASI-IMPORTATION
The VAT on importation is computed as 12% of the total landed cost of the
1. Import of personal and household effects belong to residents
importation
(resident citizen and resident alien but not non-resident alien) of the
Composition of landed cost:
Philippines returning from abroad or non-resident citizens coming to
1. Dutiable value
resettle in the Philippines
2. Other in-land cost
2. Professional instruments and implements, wearing apparel, domestic
a. Custom duty
animals, and personal household effects belonging to persons
b. Excise tax, if any
coming to settle in the Philippines, for their own use and not for sale,
c. Other in-land costs
barter or exchange (not commercial in nature)
Note:
• Goods donated to the Philippines is subject to VAT, except VAT- IMPORT OF SERVICES
exempt goods
• Goods donated to the Philippines is not subject to VAT if made in The purchase of services from non-residents may be:
favor of accredited non-profit organization 1. Services subject to final withholding VAT
2. Vat-exempt services
3. Services subject to specific percentage tax

FINAL WITHHOLDING VAT

The obligation to withhold the VAT technically exist only if:
1. The service is rendered within the Philippines
2. The payor-purchaser is an individual engaged in business or a
corporation

Note that VAT should be withheld even if:

• The service provider is not engaged in business in abroad
• The payor-purchaser is a non-profit corporation

/jmm
VAT-EXEMPT SERVICES EXEMPT SALES OF GOODS AND SERVICES
1. When the service is rendered abroad
2. When the individual purchaser is not engaged in business
3. Purchase of service by VAT-exempt persons such as ecozone Exempt sales are exempt consumption of goods or service from domestic
locators sellers. Hence, they are not subjected to VAT and percentage tax.

SPECIFICALLY SUBJECT TO PERCENTAGE TAX EXEMPT SALES OF GOODS, OR PROPERTIES

Direct acquisition of insurance cover from abroad
• The premium payment is subject to 5% percentage tax 1. Sales of goods to senior citizens and persons with disability
• The policy holder shall pay the same to the BIR This covers sale of essential goods only

2. Sales of exempt goods

Treatment of the VAT on Importation
a. Agricultural and marine food products in their original state
Purchaser is a VAT can be b. Fertilizer, seeds seedlings and fingerlings, fish, prawn, livestock
VAT-registered business Claimed as input tax against output tax and poultry feeds, including ingredients used in the manufacture
of finished feeds
Non-VAT business Part of cost of goods or services
c. Books, newspaper, or magazines
Not engaged in business Part of cost of goods d. Medicines prescribed for diabetes and hypertension
e. Passenger or cargo vessels and aircrafts
Note: the list of sales of exempt goods is the same of exempt goods in
importation except good mentioned in letter d because they have no legal
exemption on importation

3. Sales of goods by cooperatives

• With exception of electric cooperatives, cooperatives of any kind
are exempt from business tax if they transact business only with
members
• Transactions with non-members are subject to business tax if
their accumulated reserves exceed P10M
• Their transaction from unrelated activities are subject to business
taxes

/jmm
 4. Sales of residential properties 7. Tax-free exchange of property
Categories of exempt transactions on real properties A. Exchange of properties by a corporation in pursuant to a plan
A. By a person not engaged in the realty business (not habitual) of merger or consolidation
a. Real property classified as capital asset of VAT B. Exchange of properties by a person, alone or together with
taxpayers others not exceeding four, which resulted to the acquisition of
b. Any real properties of non-VAT taxpayers control
c. Any real properties of persons not engaged in
business 8. Sales of gold to the BSP
B. By a person engaged in the realty business which complies • TRAIN Law reclassified the sale of gold to the BSP from zero-
with statutory price ceiling (habitual) rated to exempt
a. Sale of real properties utilized for socialized housing • The tax applies both to registered small scale miners and
units registered gold traders
1. House and lot package - P450,000
2. Residential lots only - P180,000
b. Sale of real properties utilized for low-cost housing EXEMPT SALES OF SERVICES
wherein the price ceiling per unit is P750,000
c. Sale of residential lot valued at P1,919,500/unit and 1. Schools
below Rendered by:
d. Sale of residential dwelling valued at P3,199,200/unit A. Private educational institutions duly accredited by Dep-Ed,
and below CHED and TESDA
Note that the thresholds on letter c and d are based on RR13-2018, the B. Government educational institution
thresholds stated in train law were interpreted by the said regulation.
Note: seminars, in-service trainings, review classes and other similar
Note also that the sale of adjacent lots within a 12-month period in favor of services are not covered by the exemption.
one buyer shall be treated as one (RR 13-2012).
2. Employees
5. Export sales by non-VAT persons The provision of services to an employer under an employer-
However, export sale of VAT taxpayers is taxable to VAT but 0% rate. employee relationship is not a business. Hence, it is exempt from business
tax.
6. Treaty-exempt sales of goods
● Sales to exempt entities are exempt from VAT (Sec. 109 (K), NIRC) 3. Agricultural contract growers and milling for others of palay into rice,
and 3% percentage tax (Section 109 (V), NIRC) corn into grits, and sugar cane into raw sugar

/jmm
 4. Residential leasing with monthly rental not exceeding P15,000 per
Flights Consumption Service rendered Business Tax
unit
Outgoing Foreign consumption Within the Philippines 0% VAT
5. Cooperative services Incoming Foreign consumption Without the Philippines Exempt
Similar discussion with sales by cooperatives of goods
Domestic Domestic consumption Within the Philippines 12% VAT
6. Hospitals
Medical, dental, hospital and veterinary services except those International carriers are air carriers or shipping carriers owned by resident
rendered by professionals and sales of drugs by hospital drugstores foreign corporations doing business in the Philippines.

7. Homeowners association or condominium corporations 12. Printers or publishers

However, if it is being operated as if it sells its services to its members Similar discussion in the Importation of books and any newspaper,
from which it derives profit, then it is taxable business magazine, review, or bulletin.

8. Lease passenger or cargo vessels and aircrafts, including engine, 13. Senior citizens and persons with disability
equipment and spare parts thereof for domestic or international
transport operations OTHER EXEMPT SALES OF GOODS OR SERVICES
Similar discussion with sales of these goods 1. Sales of goods or services taxed by special laws
a. Sales of goods or services by Ecozone locators
9. Treaty-exempt services Subject to a special 5%GIT in lieu of all taxes national or local
b. Sales of amusement service by theaters and cinemas
10. Regional area headquarters of a multinational company • Not subject to VAT or percentage tax
Acts as supervisory, communications and coordinating centers for • Local government has the exclusive power to impose business
their affiliates, subsidiaries or branches in the Asia Pacific Region and do not tax to these
or derive income from the Philippines. 2. Sales by person not engaged in business
• They are not a separate business or a branch, but an 3. Sales of assets held for use
administrative office which does not derive income on its own;
hence, not subject to business tax
• Regional operating headquarters (ROHQ) is taxable

11. International carriers

Transport of passengers by international carriers

/jmm
 PERCENTAGE TAX Source
1. Interest of Income
income, or Receipts
commissions and discounts from lending % Tax Rate
activities, and income from financial leasing, on the basis of
remaining maturities of instruments from which the receipts
SERVICES SPECIFICALLY SUBJECT TO PERCENTAGE TAX were derived:
1. Banks and non-bank financial intermediaries performing quasi- a. Maturity period of 5 years or less 5%
banking functions b. Maturity period of more than 5 years 1%
• Banks – refers to entities engaged in the lending of funds Bank and Quasi- 0%
obtained in the form of deposits (RA 8791). Banks includes banks 2. Dividend and equity shares in the net income of subsidiaries
commercial, savings, mortgage, development, rural banks, 3. On royalties, rentals of real or personal property, profits from
stocks and savings associations, branches and agencies of exchange and all other items treated as Gross Income under 7%
foreign banks (RA 337) Section 32 of the NIRC
4. On net trading gains within the taxable year on foreign
• Non-bank financial intermediaries – refers to persons or entities
currency, debt securities, derivatives, and other similar financial 7%
whose principal function include lending, investing or placement instruments (RA 9337)
of funds or evidences of indebtedness or equity deposited with 1. Interest income, commissions and discounts from lending
them, acquired by them or otherwise coursed through them, Other Financial
activities, and income from financial leasing, on the basis of
either for their own account or for the account of others. Intermediaries
remaining maturities of instruments from which the receipts
without Quasi-
• What is quasi-banking function? It refers to the borrowing of funds a. Maturity period of 5 years or less 5%
Banking
from 20 or more personal or corporate lenders at any one time, b. Maturity period of more than 5 years 1%
Functions
through the issuance, endorsement or acceptance of debt 2. From all other items treated as gross income under the NIRC 5%
instruments of any kind, other than deposits, for the borrower’s
own account or through issuance of certificates of assignment or
similar instruments, with recourse, or of repurchase agreements
for purposes of relending or purchasing receivable or other
similar obligations.

/jmm
 2. International carriers on their transport of cargoes, excess baggage 4. Certain amusement places
and mails only Proprietor, lessee or operator of the following amusement places
• International carriers doing business in the Philippines shall pay shall pay the following respective tax rates:
a tax equivalent of their quarterly gross receipts derived from the Amusement OPT Rate
transport of cargoes, baggage, or mails from the Philippines to
another country
Places of boxing exhibitions 10%
3. Common carriers on their transport of passengers by land and Places of professional basketball games 15%
keepers of garage Cockpits, cabarets, night or day clubs 18%
• A common carrier is any person, corporation, firm, or association
engaged in the business of carrying or transporting passengers Jai-Alia and race tracks 30%
or goods or both, by land, water, or air, for compensation, and
offering their services to the public (Art. 1732, Civil Code) Receipts on professional boxing are exempt under the following
conditions:
Domestic International Operation
Types of Carrier A. World or Oriental championship
Operation Outgoing Incoming
B. At least one of the contenders is a Filipino citizen
Domestic Passengers Vatable* 0% VAT Exempt
C. The promoter is a Filipino citizen or a corporation 60% of
carriers Goods, mails or cargoes Vatable 0% VAT Exempt which owned by Filipino citizen
International Passengers N/A Exempt Exempt
carriers Goods, mails or cargoes N/A 3% OPT Exempt 5. Brokers in effecting sales of stocks through the PSE and corporations
*Domestic carriers of passengers by Land are subject to 3% OPT. or shareholders on initial public offerings
A. Tax on sale, barter or exchange of stocks listed and traded
Note: stocks through the PSE
• Common carriers are exempt from local taxes (Government Code • 60% of 1% stock transaction tax based on gross selling
of 1991 and RA 7160). price or gross value in money of the shares
• Owners of bancas and animal-drawn two-wheeled vehicles are • Shall be paid by the seller and to be collected by the
exempt from percentage tax. broker
• The broker shall remit the tax to the BIR within 5 banking
days

/jmm
 B. Tax on shares of stock sold or exchanged through an IPO 7. Life-insurance companies and agents of foreign insurance
IPO tax applies only to the initial public offering of a closely • A person, company or corporation (except purely cooperative
held corporation as follows: companies or associations) doing life insurance business of any
Proportion of shares sold, sort in the Philippines is subject to a tax of 2% on the premiums
IPO Tax Rate collected, whether such premiums is paid in money, notes,
bartered or exchanged credits or any substitute for money.
• Premiums on health and accident insurance underwritten by life
Up to 25% 4% insurance companies are subject to the premiums tax.
Over 25% but not over 33 1/3% 2% • Premiums on health and accident insurance underwritten by non-
life insurance policies are vatable
Over 33 1/3% 1%
Insurers Tax rate
Domestic life insurers 2% premiums tax
Summary rules on Sales of Stocks Resident life insurers 2% premiums tax
Sales made by Before IPO During IPO After IPO Reinsurers of Domestic life insurers 0% re-insurance premium
Corporate issuer No tax IPO tax as primary offer No tax Reinsurers of Resident life insurers 0% re-insurance premium
Foreign insurers (direct insurance from abroad) 5% premiums tax
Shareholder investor Capital Gains Tax IPO tax as secondary offering Stock Transaction Tax Foreign insurers (with insurance agent within) 4% premiums tax

6. Certain franchise grantees Life insurance Non-life insurance

• Generally, franchises are vatable. Exceptionally however, there Direct premiums 2% premiums tax Vatable
are only two types of franchises that are specifically subject to Re-insurance premiums Exempt Exempt
percentage tax under the NIRC: Insurance commissions* Vatable Vatable
*covers insurance and reinsurance commissions (RR16-2005)
Franchise grantees % Tax Rate
Radio or television broadcasting companies whose annual
3%
gross receipts do not exceed P10M
Gas and water utilities 2%

Note that franchise grantees of radio or television broadcasting companies

should be registered as VAT taxpayers if they exceed P10M gross receipts.

/jmm
 8. Telephone companies on overseas communication 10. Withholding of percentage tax at source
• The overseas dispatch, message or conversation transmitted • The sale to government agencies, and instrumentalities including
from the Philippines by telephone, telegraph, telewriter GOCCs is subject to a withholding tax of 3% at source
exchange, wireless and other communication equipment
services is subject to a 10% overseas communication tax EXEMPTION FROM PERCENTAGE TAX
• Exemptions: the overseas communication tax shall not apply to 1. VAT taxpayers
the outgoing calls of Government, Diplomatic services, 2. Self-employed and or professionals who opted to the 8% income tax
International organizations, and News services 3. Cooperatives

Call Origin Call Destination Business Tax

Philippines Philippines 12% VAT
Abroad Philippines 0% VAT
Philippines Abroad 10% OCT
9. Jai-alai and cockpit operators on winnings
• The pay-out on combination bets is subject to 4% on the net
winnings. The pay-out on straight wagers (non-combination bets)
is taxable at 10%
• Winnings from race tracks and jai-alai are subject to the following
amusement taxes:
Winnings Amusement Tax
Winnings in horse race or jai-alai, in general 10%
Winnings from double, forecast/quinella and trifecta bets 4%
Owners of winnings race horses 10%

/jmm
 Business or Activity Percentage tax Taxpayers Description % Tax Rate
1. Interest income, commissions and discounts
from lending activities, and income from financial
leasing, on the basis of remaining maturities of
a. Maturity period of 5 years or less 5%
b. Maturity period of more than 5 years 1%
Bank and Quasi-
2. Dividend and equity shares in the net income of
banks 0%
subsidiaries
3. On royalties, rentals of real or personal property,
Banks and financial Banks and financial 7%
Gross receipt tax profits from exchange and all other items treated as
intermediaries intermediaries
4. On net trading gains within the taxable year on
7%
foreign currency, debt securities, derivatives, and
1. Interest income, commissions and discounts
Other Financial
from lending activities, and income from financial
Intermediaries
leasing, on the basis of remaining maturities of
without Quasi-
a. Maturity period of 5 years or less 5%
Banking
b. Maturity period of more than 5 years 1%
Functions
2. From all other items treated as gross income under the NIRC
5%
International carriers doing business in the Philippines from transport
International carriers International carrier's tax International carriers 3%
of cargoes, baggage, or mals from the Philippines to another country
Common carriers on their transport of passengers by land and
Common carriers Common carrier's tax Common carriers 3%
keepers of garage
Places of boxing exhibitions 10%
Proprietor, lessee or Places of professional basketball games 15%
Amusement places Amusement tax
operator Cockpits, cabarets, night or day clubs 18%
Jai-Alia and race tracks 30%
Tax on sale, barter or exchange of stocks listed and traded stocks
Sales of stocks by an investor Stock transaction tax Brokers/Investors 60% of 1%
through the PSE
Up to 25% 4%
Sales of stocks during an initial Corporations/ Proportion of shares sold,
IPO tax Over 25% but not over 33 1/3% 2%
public offering (IPO) Shareholders bartered or exchanged
Over 33 1/3% 1%
Radio or television broadcasting companies whose
Franchise 3%
Franchise Franchise tax Franchise grantees annual gross receipts do not exceed P10M
grantees
Gas and water utilities 2%
Domestic life insurers 2%
Resident life insurers 2%
Life insurance Premiums tax Insurers Insurers
Foreign insurers (direct insurance from abroad) 5%
Foreign insurers (with insurance agent within) 4%
Overseas communication Overseas dispatch, message or conversation transmitted from the
Overseas calls Telephone companies 10%
tax Philippines to another country
Winnings in horse race or jai-alai, in general 10%
Amusement betting Winnings tax Winners Winnings Winnings from double, forecast/quinella and trifecta bets 4%
Owners of winnings race horses 10% /jmm
Sale to government Percentage tax at source Seller Sale to government agencies, instrumentalities, and GOCCs 3%
 INTRODUCTION TO VAT
• The excess of actual input VAT is a loss which is added to cost
of sales
The Value Added Tax 12% Output VAT PXXX
The VAT covers all vatable sales of goods, properties, services, or lease of Less: 7% Standard Input VAT XXX
properties by VAT taxpayers Vat due XXX
Less: 5% withholding VAT XXX
Vatable sales or receipts are from sources other than: VAT due and payable PXXX
1. Exempt sales
2. Receipts from services specifically subject to percentage tax 2. Zero-rated sales
• Foreign consumptions like export sales are non-vatable but they
Who are VAT taxpayers: are subject to a 0% VAT to VAT taxpayers. The law allows the
1. VAT-registered persons taxpayer the privilege to claim the input VAT as a tax refund or a
2. VAT-registrable persons tax credit
• If the input VAT on zero-rated sales is not applied with refund or
The VAT Threshold tax credit, the claimable input VAT would be added to creditable
VAT Threshold Amount Covered taxpayers input VAT deductible against output VAT on other vatable sales.
Appclicable to all taxpayers other than • Not only export sales are subject to 0% VAT. Sales to economic
General Threshold P3,000,000
franchise grantees of radio or television zones and persons engaged international transport operations
Applicable only to franchise grantees of are also subject to 0% VAT.
Speccial Threshold P10,000,000
radio or television
3. Exempt sales
Optional VAT Registration • For purposes of the VAT, exempt sales are non-vatable sales
Taxpayers below the threshold can voluntarily register as VAT taxpayers. such as:
Such taxpayers are precluded to have his VAT registration revoked until the a. Exempt sales of goods or services
lapse of 3 years. b. Services specifically subject to percentage tax
• The seller of exempt sales is not allowed to credit input VAT. The
Sales subject to special VAT rules input VAT traceable to exempt sales is part of expenses of the
There are sales or receipts that are subject to special or unique tax rules, seller, deductible against gross income.
such as the following:
1. Sales to the government including GOCCs Other sales subject to VAT
• The sales to the government and GOCCs are vatable at 12% 1. Sales of registrable persons
normal rate but the law requires them to withhold a 5% final VAT 2. Sales of non-VAT taxpayers who issues VAT invoice or receipt
on their purchases. The invoice sales or billing to the government 3. Exempt sales billed by VAT taxpayers as regular sales
or GOCCs will be deducted 5% final VAT based on sales or
receipts. The taxpayer will only collect the balance.
/jmm
 REGULAR OUTPUT VAT 3. Consignment of goods if actual sale is not made within 60 days
following the date such goods were consigned
4. Retirement from or cessation of business with respect to all goods on
Sources of Regular Output VAT hand whether capital goods, stock in trade, supplies or materials as
1. Sales of vatable goods – basis is the gross selling price, unless of the date of cessation, whether or not the business is continued by
unreasonably lower (if selling price is lower by more than 30% of the the new owner or successor
market value) • In merger, consolidation or initial acquisition of control, there is
2. Sales of vatable services – basis is the gross receipts business dissolution but not a deemed sale under the law. Hence,
3. Sales of vatable properties – basis is the gross selling price as exempt from VAT.
defined by the BIR 5. Cessation of status as a VAT-registered person
4. Transactions deemed sales – basis is the fair value of the property • In this case, there is no business dissolution but is treated as
deemed sold deemed sale.
Note:
• The output VAT on the sales on the real properties may be Note:
reported in installment if the initial payment from such sales does • The subsequent sale of goods or properties deemed sold shall
not exceed 25% of the selling price. not be subject to VAT.
• The sale of property by a realty dealer on a deferred payment • Deemed sales rules apply to VAT taxpayers only.
basis, not on installment plan, shall be treated as cash sale. Such
sale is subject to VAT in the month of sale and shall no longer be
subjected to VAT for the subsequent collections. ZERO-RATED SALES OF GOODS
• Interest and penalties actually or constructively received by the
seller are likewise subject to VAT.
• Sale of Ordinary assets although not actually inventory is subject Zero-rated sales of goods:
to VAT 1. Direct export
• Sale of Capital assets is exempt from VAT 2. Sale to economic zones and tourism enterprise zones
3. Sale of goods or properties, supplies, equipment and fuel to persons
engaged in international shipping or international air transport
Transaction deemed sales operations
1. Transfer, use, or consumption not in the course of business of goods 4. Effectively zero-rated sales or international agreements to which the
or properties originally intended for sale or for use in the course of Philippines is a signatory
business
2. Distribution or transfer to: The benefit of zero-rated sales is that it has a zero output VAT but with
a. Shareholders or investors share in the profits of VAT-registered a deductible input VAT, unlike in case of VAT exempt sales that input VAT
persons is non-creditable and nonrefundable.
b. Creditors in payment of debt or obligation

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1. Direct export • Examples of entities are granted indirect tax exemption under
• Direct export is the sale and actual shipment of goods from the special laws or international agreements:
Philippines to a foreign country, irrespective of any shipping a. Asian Development Bank (ADB)
arrangement that influences or determines the transfer of b. International Rice Research Institute (IRRI)
ownership of the goods so exported. c. United Nation (UN) and its various organizations such as
• For purposes of zero-rating, the export sales of registered export WHO and UNICEF
traders shall include commission income. However, the d. United States Agency for International Development (USAID)
exportation of goods on consignment shall not be considered and its personnel and contractors (RMC 40-07)
export until the export products consigned abroad are in fact sold e. Embassies, qualified employees and dependents -subject to
the consignee. reciprocity rule
f. Philippine National Red Cross (PNRC) – section 5(c),
2. Sale to economic zones and tourism enterprise zones RA 10072
• By legal fiction, economic zones including tourism zones are g. PAGCOR
considered foreign territories. Hence, the sales to locators or
registered enterprises in these zones are considered technical
exportation Previously Zero-rated Sales
1. Foreign currency denominated sale
3. Sale of goods or properties, supplies, equipment and fuel to persons 2. Sales under the internal export program
engaged in international shipping or international air transport 3. Sales to Boy Scout of the Philippines
operations 4. Sale of gold to BSP – now exempt effective 1/1/2018
• Goods, supplies, equipment and fuel sold to persons engage in
international shipping or air transport operation are generally
used or consumed outside the Philippines. The sale to these ZERO-RATED SALES OF SERVICES
entities is a foreign consumption rather than a domestic
consumption; hence, these are subject to zero-rated VAT.
1. Sales of services to non-residents
4. Effectively zero-rated sales or international agreements to which the 2. Effective zero-rated sales of services
Philippines is a signatory 3. Services rendered to persons engaged in international shipping or
• This refers to sales to persons or entities whose exemption under international air transport operations including leases of properties
special laws or international agreements to which the Philippines thereof
is a signatory effectively such sales to zero-rate. 4. Transport of passengers and cargoes by domestic air or sea carriers
from the Philippines to a foreign country
5. Sale of power or fuel generated from renewable sources of energy
6. Services rendered to ecozones or tourism enterprise zones

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1. Sales of services to non-residents • The zero-rating treatment is limited to sale of power and does not
• Requirement for zero-rating of services to non-residents extend to sale of services related to the maintenance or operation
a. The services must be performed in the Philippines of plants generating said fuel.
b. The services must be paid for in acceptable foreign currency
or its equivalent in goods or services 6. Services rendered to ecozones or tourism enterprise zones
c. The payment must be accounted for under the rules and • The sales of services to registered enterprises of economic zone
regulations of the BSP or tourism enterprise zones are also subject to 0% VAT

Considered Export Sales Under EO226 and Other Special Laws

2. Effective zero-rated sales of services
1. The Philippines FOB value of export products exported directly by an
• The local sale of services to a person or entity who was granted export producer
indirect tax exemption under special laws or international 2. The net selling price of export products sold by a registered export
agreements shall likewise be subjected to 0% VAT producer to another export producer
• Refer to the list of entities with indirect tax exemption as 3. The net selling price of export products sold by a registered export
discussed under effective zero-rated sales of goods. producer to an export trader that subsequently exports the same
4. Even without actual exportation, the following shall be considered
constructively exported:
3. Services rendered to persons engaged in international shipping or a. Sales to bonded manufacturing warehouses of export-oriented
international air transport operations including leases of properties enterprises
thereof b. Sales to export processing zones pursuant to RA 7916, 7903,
7922 and other similar export processing zones
4. Transport of passengers and cargoes by domestic air or sea carriers c. Sales to enterprises duly registered and accredited with the Subic
from the Philippines to a foreign country Bay Metropolitan Authority RA 7227
• The outgoing transport services of domestic air carrier or sea d. Sales to registered export traders operating bonded
carrier constitute services rendered in the Philippines to non- manufacturing warehouses supplying raw materials in the
residents. It is therefore subject to zero-rated VAT. manufacture of export products
• The incoming transport services of domestic air carrier or sea e. Sales to diplomatic missions and other agencies and or
carrier constitute services rendered abroad to non-residents. This instrumentalities granted tax immunities, of locally manufactured
is a foreign consumption exempt from VAT. assembled or repacked products whether or not paid for in
foreign currencies
5. Sale of power or fuel generated from renewable sources of energy f. Sales of goods, properties or services to a BOI-registered
• The sale of power or fuel renewable sources of energy is zero- manufacturer or producer
rated. Renewable sources of energy include, but are not limited
to, biomass, solar, wind, hydropower, geothermal and steam,
ocean energy, and other emerging sources using technologies
such as fuel cells and hydrogen fuels. (RA 9513 & RA 9337)
/jmm
 INPUT TAX excluded in the computation of the transitional input VAT (RMC
62-2005)
• The transitional input VAT is based on vatable beginning
Input tax or input VAT refers to the VAT due or paid by a VAT-registered inventories in the month of registration as a VAT taxpayer
person on importation or local purchases of goods, properties, or services, • The transitional input tax credit operates to benefit newly VAT-
including lease or use of properties in the course of his trade or business. registered persons, whether or not they previously paid taxes in
the acquisition of their beginning inventory of goods, materials,
Creditable Input VAT and supplies (Fort Bonifacio Development Corporation v. CIR)
Not all input VAT paid on purchases is creditable or deductible against output • The transitional input VAT applies only to beginning inventory of
VAT. Requisites of a creditable input VAT: goods, materials or supplies, excluding equipment and other
1. The input VAT must have been paid or incurred in the course of trade capital goods
or business • Note that VAT-exempt goods are not subject to output VAT when
2. The input VAT is evidenced by a VAT invoice or official receipt sold. Hence, there would be no basis to claim transitional input
3. The VAT invoice or receipt must be issued by a VAT-registered VAT on them. Thus, RMC 62-2005 clarified that exempt
person beginning inventory shall be excluded in the basis of the 2%
4. Input VAT is incurred in relation to vatable sales not from exempt transitional input VAT.
sales
2. Regular Input VAT and Amortization of Deferred Input VAT
TYPES OF INPUT VAT • The regular input VAT is the 12% VAT paid on:
1. Transitional Input VAT a. Domestic purchase of goods, services, or properties, or
2. Regular Input VAT b. Importation of goods or service
3. Amortization of Deferred Input VAT
Sources of Regular Input VAT Timing of Credit
4. Presumptive Input VAT
5. Standard Input VAT Purchase of goods or properties In the month of purchase
6. Input VAT Carry-over Purchase of services In the month paid
Imporation of goods In the month VAT is paid
1. Transitional Input VAT
Purchase of depreciable capital goods or properties
• A person who becomes liable to VAT or any person who elects
to be a VAT-registered person shall be given an initial input tax -general treatment In the month of purchase
credit equivalent to 2% of the beginning inventory of goods, -when the monthly aggregate Amortized over useful life in months
materials, or supplies or the actual VAT paid thereon whichever acquisition cost exceeds P1M or 60months, whichever is shorter
is higher (See section 111 NIRC as amended by RA 9337)
Purchase of non-depreciable
• The value allowed for income tax purposes on inventory shall be
the basis of the computation of the 2% transitional input VAT (See vehicles and on maintenance Not creditable (RR12-2012)
section 111.1(a), RR16-2005). Goods exempt from VAT shall be incurred thereon

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• “Monthly aggregate acquisition cost” of depreciable capital goods ➢ The input VAT on the purchase of a non-depreciable
refers to the total price, excluding VAT, agreed upon one or more vehicles and all input VAT on maintenance expenses
assets acquired and not the payments or installments actually incurred thereon are likewise disallowed for taxation
made during the calendar month (RR16-2005 as amended by purposes (RR12-2012)
RR4-2007) b. Construction in progress
• “Depreciable capital goods” refers to goods or properties with ➢ RR4-2007 does not consider construction in progress
estimated useful life of more than one year which are treated as as purchase of capital goods, but as purchase of
depreciable assets for income tax purposes, used directly or service. Hence, the input tax is creditable upon
indirectly in the production or sale of taxable goods or services payment of each progress billings of the contractor
• Under the TRAIN Law, the amortization treatment of deferred and is neither credited upon completion of the
input VAT will be phased out effective January 1, 2022. construction activity nor amortized over a period not
Previously recognized deferred input VAT will continue to be more exceeding 60 months.
amortized even after that date but deferral treatment will be c. Purchase of real property on installment
stopped. Input VAT on capital goods will be claimed outright in ➢ If the seller of real property is subject to VAT on the
the month of purchase effective January 1, 2022. sale on a deferred payment basis not on the
• Special Rules on Input Tax Credit installment plan, the input VAT shall be claimable by
a. Non-depreciable vehicles. Rules in the deductibility of the buyer at the time of the execution of the instrument
depreciation expense on vehicles: of sale, subject to the amortization rule on depreciable
➢ Only one vehicle for land transport is allowed for the properties.
use of an official or employee, the value of which ➢ However, if the purchase is by installment and the
should not exceed P2,400,000. seller is allowed to bill the output VAT in installment,
➢ No depreciation shall be allowed to yachts, the buyer can also claim input VAT in the same period
helicopters, airplanes and/or aircrafts, and land as the seller recognizes the output VAT (Sec. 3
vehicles which exceed the P2,400,000 threshold, RR4-2007).
unless the taxpayer’s main line of business is d. Purchase of goods or properties deemed sold
transport operations or lease of transport equipment • The claimable input VAT on goods or properties
and the vehicles are used in said operations. previously deemed sold shall be the portion of the
➢ The purchase must be substantiated with sufficient output VAT imposed upon the goods deemed sold
evidence such as official receipts or other adequate which corresponds to the goods purchased by the
records. buyer.
➢ The direct connection or relation of the vehicles to the
development, operation and or conduct of the trade or
business or profession of the taxpayer must be
substantiated.

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3. Presumptive Input VAT c. The input VAT carry-over in the second month of a quarter
• Persons or firms engaged in the processing of sardines, is not deductible to the third month of the quarter.
mackerel and milk and in the manufacturing of refined sugar, d. The input VAT carry-over of the prior quarter is deductible
cooking oil and packed noodle based instant meals, shall be in the third month quarterly balance of the present quarter.
allowed a presumptive input tax equivalent to 4% of the gross
value in money of their purchases of primary agricultural Excluded from Input VAT Carry-over
products which are used in their productions. 1. Advanced VAT which have been applied for a tax credit certificate
• The presumptive input VAT is a tax to these processors of VAT- 2. Input VAT attributable to zero-rated claim which have been applied
exempt raw materials into processed food products. The for a tax refund or tax credit certificate
apparent reason behind the tax incentive is the absence of 3. Input VAT attributable to zero-rated sales that expired after the two-
adequate claimable input VAT for these entities. year prescriptive period

4. Standard Input VAT

• The sale of goods and services to the government or any of its VAT STILL DUE
political subdivisions, instrumentalities or agencies, including
GOCCs is subject to a 5% final withholding VAT based on the Determination of VAT payable
gross payment Output VAT PXXX
• The 5% withheld final VAT shall be deemed the actual VAT Less: Creditable Input VAT XXX
Net VAT payable PXXX
payable of the seller. Due to the final withholding VAT, the sellers
Less: Tax credits/Payments XXX
to the government, instrumentalities or agencies including
Tax still due PXXX
GOCCs can effectively claim only 7% of sales as input VAT.
• If the seller is a non-VAT registered, the government or GOCCs
Tax credits/Payments
shall withhold a 3% final percentage tax on the sale before
1. VAT paid in the previous two months – for quarterly VAT returns
payment.
2. VAT paid in return previously filed, in case of amended return
3. Advance payment made to the BIR
5. Input VAT Carry-over
4. Final withholding VAT on sales to the government
• The input VAT carry-over is the excess of the input VAT over the
5. Advanced VAT on certain goods
output VAT in a particular month or quarter. It is the VAT
overpayment that appears after tax credit and payments are
ADVANCED VAT
deducted against net VAT payable.
The owner or sellers of the following goods are required to pay advanced
• Rules on Input VAT carry-over:
VAT before their withdrawal at the point of production:
a. The input VAT carry-over of the prior quarter is deductible 1. Refine sugar
in the first month of the current quarter.
2. Flour
b. The input VAT carry-over in the first month of the quarter 3. Naturally grown and planted timber products
is deductible in the second month of the quarter.

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Technically, advanced VAT is not an input VAT and not included as part of Purchase of wheat by flour millers from traders
the allowable input VAT. It is an advanced payment which is a deduction The purchase of imported wheat from traders by flour miller shall also be
after the net VAT payable is determined. However, unutilized advance VAT subjected to advance VAT and shall be paid by the flour miller prior to
in the period may form part of the “input VAT carry-over” if opted by the delivery of the wheat by the trader.
taxpayer.
It must be noted that the importation of the wheat is not the object of taxation.
1. Advanced VAT on the Sale of Sugar The importation of wheat which is an agricultural product in original state is
• Sugar refers to sugar other than raw cane sugar or those sugar exempt from VAT.
content of sucrose by weight, in the dry state corresponds to a
polarimeter reading of 99.5 degrees and above and whose color Basis of the advanced VAT – 75% of the sum of:
is 800 ICU or less (RR8-2015) a. Invoice value multiplied by the currency exchange rate on the date of
• “Sugar owners” refers to a person who has legal title over the payment
sugar and may include sugar planters, traders, sugar millers b. Estimated customs duties and other charges prior to the release of
• Base price of advanced VAT: P1,400 per 50kg. bag the imported wheat from Custom’s custody, except for advanced
VAT, and
2. Advanced VAT on the Sale of Flour by Millers c. 5% of the sum of a and b
“Flour Miller” is a person who is engaged in the milling of imported wheat to
produce flour as finished product, where such wheat may be directly In short, the advanced VAT is computed as 12%x75%x105%x(a+b).
imported or purchased from an importer/trader.
3. Advanced VAT on the Transport of Naturally Grown and Planted
“Wheat Trader” is a person who is engaged in the importing/buying and Timber Products
selling of imported wheat. The VAT on the transport of naturally grown and planted timber products for
purposes of consummating a sale shall be paid in advance by the
Importation of wheat by a flour miller owner/seller to the BIR through authorized agent bank (AAB), revenue
The advanced VAT on the future sale of flour milled from imported wheat collection officer, or deputized municipal treasurers in places where there
shall be paid prior to the release from Custom’s custody of the wheat, which are no AABs.
is imported and declared for milling.
Basis of advanced VAT
Importation of wheat by wheat trader The 12% advanced VAT shall be based on per cubic meter (m3) of each
The importation of wheat by any trader shall be exempt from the payment of species of naturally grown timber as follows:
advanced VAT regardless of its intended use

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 TRANSFER TAX

Comparison of inter-vivos and mortis causa

Inter-vivos Mortis causa
Transferor Living donor Decedent
Nature Voluntary Involuntary
Reason Gratuity Death
Property given Gift Estate
Transferee Donee Heir
Transfer tax Donor's tax Estate tax
Valuation Date of donation Date of death
Tax nature Annual tax One-time tax
Taxpayer Donor Decedent
Executor, administrator or
Actually paid by Donor himself
heirs in behalf of the decedent

Classification of Transfer Taxpayers and their Extent of Taxation

1. Resident or Citizens – taxable on global transfers of property
2. Non-resident Aliens – taxable on Philippine transfers of property

Situs of Transfer
Transfers occur in the location of the property

The following properties are considered located in the Philippines:

1. Interest in a domestic business
2. Foreign securities, under certain conditions:
3. Franchise exercisable in the Philippines
4. Any personal property, whether tangible or intangible, located in the
Philippines

Reciprocity Rule on Non-Resident Aliens

The intangible personal properties of non-resident aliens are exempt from
Philippine transfer taxes provided that the country in which such alien is a
citizen also exempts the intangible personal properties of Filipino non-
resident therein from transfer taxes.
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 ESTATE TAX Transfer of Properties Not Owned by the Decedent
1. Merger of the usufruct in the owner of the naked title – ex. use of
usufructuary-decedent of property for definite years before
“Succession” is a mode of acquisition by virtue of which the property, rights transferring it to the owner.
and obligations to the extent of the value of the inheritance, of a person are 2. The transmission or delivery of the inheritance or legacy by the
transmitted through his death to another or others either by his will or by fiduciary heir or legatee to the fideicommissary – ex.
operation of law (Art.777, Civil Code). trustee-decedent of a property due to the minority of the owner to be.
3. The transmission from the heir, legatee, or donee in favor of another
Types of Succession
beneficiary, in accordance with the desire of the predecessor – ex.
1. Testate of Testamentary Succession – with a will
transfer of property from first heir-decedent in favor of second
2. Legal or Intestate Succession – without a will
heir-beneficiary
3. Mixed Succession – partly with a written will and partly without
4. Proceeds of irrevocable life insurance policy payable to beneficiary
other than the estate, executor or administrator
Note that in intestate succession, the heirs shall be the following in
5. Properties held in trust by the decedent
descending order of priority:
1. Compulsory heirs – primary heirs, secondary heirs and concurring 6. Separate properties of the surviving spouse of the decedent
heirs 7. Transfer by way of bona fide sales
2. Relatives up to 5th degree of consanguinity
3. Republic of the Philippines Properties Owned but Excluded by Law
1. Proceeds to group insurance taken out by a company for its
Note that the secondary heirs shall inherit only in default of primary heirs.
employees
In testamentary succession, the heirs shall be the following: 2. Proceed of GSIS policy or benefits from GSIS
1. Compulsory heirs 3. Accruals from SSS
2. Other persons, if any, specified by the decedent in his will 4. United States Veterans Administration (USVA) benefits – RA 136
5. War damage payments
Gross Estate Formula 6. All bequests, devises, legacies or transfers to social welfare, cultural
Inventory of properties at the point of death PXXX and charitable institutions, no part of net income of which inures to
Less: Exempt transfers the sad bequest, devises, legacies or transfers shall be used by
Properties not owned PXXX which institutions for administrative purposes
Properties owned but excluded by law XXX XXX 7. Acquisition and/or transfers expressly declared as non-taxable by
Inventory of taxable present properties PXXX
law
Add: Taxable transfers XXX
Gross Estate PXXX
Primary heirs: descendants
Secondary heirs: ascendants
Concurring heirs: illegitimate children and surviving spouse.

*The secondary compulsory heirs are those who succeed only in the absence of the primary heirs /jmm
*The concurring compulsory heirs are those who succeed together with the primary or the secondary compulsory heirs
 8. Bank deposits withdrawn from the decedent account during the 2. Shares of stocks
settlement of the estate • Preferred shares – par value
Note: • Unlisted common shares – book value using the financial
• Properties acquired using GSIS, SSS accruals, USVA benefits, statement method which ignores appraisal surplus
proceeds of group insurance and war damage payments are still • Listed shares – arithmetic mean of highest and lowest quotation
exempt so long as the heirs or administrators can prove that the at a date nearest the date of death
properties were acquired using these exempt properties. 3. Usufruct and annuities
• On bequest, device, or legacies to social welfare, cultural, and • Present value of annuities
charitable institutions, the conditional exclusion applies if the donee 4. Other properties
institution uses not more than 30% of the bequest, device, or legacies • For properties which the law or revenue regulations has not fixed
for administrative purposes. valuation rules, valuation shall take into consideration fair value
• Bank deposits withdrawn is subject to 6% final withholding tax and rules under GAAP
such must be excluded in gross estate. However, if such withdrawal 5. Taxable transfers
is not subjected to the 6% final tax, the amount of withdrawal must • Taxable transfers made without consideration are included in
be included in gross estate. gross estate at the fair value of the transferred property at the
date of death
• Taxable transfers made for a consideration are valued as fair
Types of Taxable Transfers value at the date of death less consideration paid at the date of
1. Transfer in contemplation of death
transfer
2. Revocable transfers, including conditional transfers
3. Property passing under general power of appointment
GROSS ESTATE OF MARRIED DECEDENTS

Valuation of the Gross Estate The gross estate of a married decedent is composed of:
Properties subject to estate tax shall be appraised at their fair value at the 1. The decedent’s exclusive properties
point of death. 2. The common properties of the spouses

Property Relations of the Spouses

Fair value rules for the following assets:
The property interest of the spouses shall be determined based on their
1. Real properties
agreed property regime. Upon the death of a spouse, the properties held by
• Under the NIRC, the appraisal value of real property shall be the spouses shall be classified as separate or common properties depending
whichever is higher of zonal value and fair value. on the agreed regime.

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Common types of property regimes: Absolute Separation of Property (ASP)
1. Absolute separation of property (ASP) – technically, all properties of • All properties of the spouses are separate properties, except
the spouses are separate properties, except those properties which those properties which they may acquire jointly.
they may acquire jointly.
2. Conjugal partnership of gains (CPG) – all properties that accrue as Conjugal Partnership of Gains (CPG)
fruit of their individual or joint labor or fruits of their properties during • All properties of the spouses before the marriage are their
the marriage will be common properties of the spouses. exclusive properties because there is no partnership yet
3. Absolute community of property (ACP) – all present properties owned • Fruits, income and gains derived by either or both spouses from
by the spouses at the date of celebration of the marriage shall their industry or property during the marriage are common
become common properties of the spouses including future fruit of properties
their separate or joint industry of fruits of their common properties. • Gratuitous acquisitions like donations or inheritance received by
either spouse during the marriage are exclusive properties except
Note that in the absence of an agreement or when the regime agreed by the if donations or inheritance designated to both of the spouses, the
spouses is void, marriages celebrated before August 3, 1988 shall be govern same shall be a common property
by the conjugal property of gains. Marriages celebrated starting August 3,
1988 shall be govern by the absolute community of property. Absolute community of property (ACP)
1. Retrospective feature – all properties which the spouses owned
Basic Rules in the Determination of Property Interest before the marriage which they brought into the marriage will become
1. Common property presumption rule
common properties. Exception:
• In the inventory taking of the properties of the estate, the a. Properties of a spouse with descendants in a prior marriage
properties of the spouses are presumed common properties b. Properties for exclusive use of either spouse, except jewelry
unless proven to be exclusive properties of either of the spouses. 2. Prospective feature – all properties which the spouses may acquire
Such presumption does not apply to ASP which properties during the marriage from their separate or joint labor or industry are
presumed separate of either spouse unless proven to be joint common properties. Exception:
properties of the spouses. a. Gratuitous acquisition received by either spouse
2. Consistent classification rule b. Fruits of exclusive property “Fruits follow principal”
• Properties acquired using separate properties are separate c. Properties acquired for exclusive use of either spouse, except
properties and properties acquired using common properties are jewelry
common properties. The sale or exchange of properties do not
alter their classification.
3. Accruals in value or gain on sale of properties
• The increase in value or gains on the sale of properties are fruits
subject to the rules of the property regime agreed upon by the
spouses.

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 Property Regime Properties before marriage Properties during marriage Ordinary Deductions
Absolute Separation of Property (ASP) 1. Claims against the estate
Conjugal Partnership of Gains (CPG) ---Prospective---> • The word “claims” as used in the statute is generally construed to
mean debts or demands of a pecuniary nature which could have
Absolute Community of Property (ACP) <---Retrospective--- ---Prospective--->
been enforced against the deceased in his lifetime and could
Absolute Separation of Property (ASP) All properties here are exclusive, except properties acquired jointly
have been reduced to simple money judgments
All properties here are common (RAMO 1-80).
Exception: • The liability represents a personal obligation of the deceased
Conjugal Partnership of Gains (CPG) All properties here are exclusive -Gratuitous acquisitions received by existing at the time of his death except unpaid medical expenses.
either spouse except if gift is Special rules on certain claims against the estate:
designated to both spouses a. Unpaid mortgage
All properties here are common All properties here are common ▪ This includes mortgage upon, or any indebtedness, with
Exception: Exception: respect to property where the value of the decedent’s
-Gratuitous acquisitions received by interest therein, undiminished by such mortgage or
Absolute Community of Property (ACP) -Properties of spouse with either spouse except if gift is indebtedness, is included in gross estate.
descendants in a prior marriage designated to both spouses b. Unpaid taxes
▪ This includes taxes such as income tax, business tax, and
-Fruits of exclusive property
property tax which have accrued as of the death of the
-Properties of personal exclusive use of either spouse, except jewely
decedent and which were unpaid as of the time of death.
▪ Although taxes are claims against the estate, taxes
should be reported under a separate category, but since
there is no separate category for taxes in the estate tax
DEDUCTIONS FROM GROSS ESTATE
return, the same shall properly be included under the
category “others”.
Classification of Deductions
A. Ordinary Deductions c. Accommodation loan
B. Special Deductions ▪ An accommodation loan is one contracted by a person in
C. Share of the Surviving Spouse behalf of another person with the contracting person
merely representing in behalf of the other person who will
be the beneficiary of the loan proceeds.
▪ Accommodation loan are presented as a receivable in the
gross estate and is presented as a deduction

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2. Claims against insolvent persons 5. Transfer for public use
• Claims against insolvent persons is a form of loss but is • This includes the amount of all bequest, legacies, devises or
presented as a separate item of deduction in the tax return transfer to or for the use of the Government of the Philippines, or
• The deductible amount of claim against insolvent persons is the any political subdivision thereof, for the exclusive public
unrecoverable amount of claim purposes. These must be indicated in the decedent’s last will and
3. Unpaid mortgages testament.
• This pertains to unpaid mortgages included to the gross estate 6. Others:
which are deductible as a separate category Losses
4. Property previously taxed (Vanishing Deduction) • These pertains to losses of properties of the estate during the
• There are instances where properties are transferred between settlement of the estate or 1 year from the date of death to the
persons in short periods of time causing a series of transfer deadline of the return
taxation. Example is a death of decedent is preceded by a • Points to remember:
donation inter-vivos or donation mortis causa. a. Loss must be sustained casualty loss and not compensated
• Requisites of vanishing deduction: by insurance
a. The present decedent must have died within 5 years from the b. The loss must occur during the settlement of the estate up to
date of death of the prior decedent or date of gift. the deadline of the estate tax return
b. The property with respect to which the deduction is claimed c. The loss must not be concurrently claimed in the income tax
must have been part of the gross estate situated in the return
Philippines of the prior decedent or taxable gift of the donor. Taxes
c. The property must be identified as the same property • This includes taxes such as income tax, business tax, and
received from prior decedent or donor or the one received in property tax which have accrued as of the death of the decedent
exchange thereof. and which were unpaid as of the time of death.
d. The estate taxes on the transmission of the prior estate or the • Although taxes are claims against the estate, taxes should be
donor’s tax on the gift must have been finally determined paid. reported under a separate category, but since there is no
e. No vanishing deduction on the property or the property given separate category for taxes in the estate tax return, the same
in exchange thereof was allowed to the prior estate. This rule shall properly be included under the category “others”.
applies in the case of series of deaths. If the prior estate
claimed vanishing deduction, the second estate can no longer
claim vanishing deduction.
• To avoid double deduction, it is prohibited to claim vanishing
deduction if the entire value of the property is already claimed
under casualty loss, transfer for public purpose or family home.

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Special Deductions private firms is not subject to attachment, levy, execution, or any
1. Family home tax whatsoever.
• For purposes of availing of a family home deduction to the extend • Pursuant to the NIRC which took effect on January 1, 1998, any
allowable, a person may constitute only one family home amount received by the heirs from the decedent’s employer as a
(Art. 161, Family Code). consequence of the death of the decedent-employee in
• Requisites for deduction of family home: accordance with RA 4917 is allowed as a deduction provided that
a. The family home must be the actual resident home of the the amount of the separation benefit is included as part of the
decedent and his family at the time of his death, as certified gross estate of the decedent.
by the Barangay Captain of the locality where the family home • Note that this benefit may be indicated as an ordinary deduction
is situated or a special deduction under the category “others” in either
b. The value of the family home must be included as part of the classification. If the decedent is a single, there is no tax issue on
gross estate of the decedent. which classification to use. In the case of married decedents,
c. The allowable deduction must not exceed the lowest of fair however, the following approach must be followed:
market value of the family home as declared or included in a. If RA 4917 death benefit is classified as an ordinary
gross estate, the extend of the decedent’s interest therein, or deduction: the amount of benefits must be included in
P10,000,000. conjugal or communal properties of the spouses but is
• Note that not only married decedents can claim family home. A removed in full under ordinary deduction.
single decedent who is a head of a family can also claim b. If RA 4917 death benefit is classified as a special deduction:
deduction for family home. the amount of the benefits must be included in conjugal or
2. Standard deductions community properties of the spouses. However, the
• A deduction in the amount of P5,000,000 for decedents other deduction for Benefits under RA 4917 shall only be one-half
than non-residents alien or P500,000 for non-resident alien shall of its value. This is because the other half is deducted through
be allowed as an additional deduction without the need of the deduction category, “share of the surviving spouse”.
substantiation.
• The P5 Million standard deduction is in lieu of the funeral
expense, judicial expense and medical expense which were
previously deductible in the old law.
• Note that unpaid funeral, judicial and medical expenses cannot
qualify as indebtedness because they are incurred after, rather
than before, death.
3. Benefits under RA 4917
• Pursuant to RA 4917 which took effect on June 17, 1967, the
retirement benefit or termination received by employees of

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 Deduction Resident or Citizen* Non-resident alien Determination of foreign tax credit
Ordinary deduction p p 1. If there is only one foreign country:
Special deduction p None** Whichever is lower of actual foreign estate tax paid and the prorated tax of
Share of surviving spouse p p that country
*Includes resident citizen, non-resident citizen and resident alien
**except P500,000 standard deduction
Deduction Resident or Citizen* Non-resident alien
Ordinary deduction
Losses p
p

Pr
Claims against the estate

or
ate
Indebtedness p

da
Taxes p

m
ou
p

nt
Transfer for public use
Vanishing deductions p
Special deduction
Family home p x
Standard deductions p P500,000
Benefits under RA 4917 p x
Share of surviving spouse p p

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 2. If there are multiple foreign countries: Documentary Requirements
Whichever is lower of the sum of all foreign countries limit and the prorated Mandatory Requirements:
limit of all countries • Certified true copy of the Death Certificate;
• TIN of decedent and heir/s;
• Any of the following:
a) Affidavit of Self Adjudication;
b) Deed of Extra-Judicial Settlement of the Estate, if the estate has
been settled extra judicially;
c) Court order if settled judicially;
d) Sworn Declaration of all properties of the Estate;
• A certified copy of the schedule of partition and the order of the court
approving the same within thirty (30) days after the promulgation of
such order, in case of judicial settlement.
• Proof of Claimed Tax Credit, if applicable;
• CPA Statement on the itemized assets of the decedent, itemized
deductions from gross estate and the amount due if the gross value
of the estate exceeds five million pesos (P5,000,000) for decedent’s
death on or after January 1, 2018 or two million pesos (P2,000,000)
for decedent’s death from January 1, 1998 to December 31, 2017.
• Certification of the Barangay Captain for the claimed Family Home (If
the family home is conjugal property and does not exceed Php10
Million, the allowable deduction is one-half (1/2) of the amount only);
• Duly notarized Promissory Note for "Claims Against the Estate"
arising from Contract of Loan;
• Accounting of the proceeds of loan contracted within three (3) years
prior to death of the decedent;
• Proof of the claimed "Property Previously Taxed";
• Proof of the claimed "Transfer for Public Use";
• Copy of Tax Debit Memo used as payment, if applicable.
For Real Properties:
• Certified true copy/ies of the Transfer/Original/ Condominium
Certificate/s of Title of real property/ies (front and back pages), if
applicable;

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 • Certified true copy of the Tax Declaration of real properties at the DONOR’S TAX
time of death, if applicable;
• Certificate of No Improvement issued by the Assessor's Office where
declared properties have no improvement. Formal requisites of Donation
For Personal Properties: Property Required formality
• Certificate of Deposit/ Investment/ Indebtedness owned by the
Real property Public instrument
decedent and the surviving spouse, if applicable;
• Photocopy of Certificate of Registration of vehicles and other proofs
Tangible personal property
showing the correct value of the same, if applicable; -amount exceeding P5,000 Written
• Proof of valuation of shares of stock at the time of death, if applicable: -amount not exceeding P5,000 Oral
a. For shares of stocks not listed/not traded - Latest Audited Financial Intangible personal property Public instrument
Statement of the issuing corporation with computation of the book value per
share; Types of Donors
b. For shares of stocks listed/traded - Price index from the PSE/latest 1. Resident citizen, non-resident citizen and resident alien – taxable on
FMV published in the newspaper at the time of transaction; global donations
c. For club shares - Price published in newspapers on the transaction 2. Non-resident alien – taxable only on Philippine donations, except
date or nearest to the transaction date. intangible personal property subject to reciprocity conditions
• Photocopy of certificate of stocks, if applicable;
• Proof of valuation of other types of personal property, if applicable. Exempt gifts
Other Additional Requirements, if applicable: A. Donation to exempt donees under the NIRC and special laws
• Special Power of Attorney (SPA), if the person including, but not limited to the following:
transacting/processing the transfer is not a party to the transaction 1. Rural Farm School (Sec. 14, R.A. No. 10618)
and/or Sworn Statement if one of the heirs is designated as 2. People’s Television Network, Incorporated (Sec. 15, R.A. No.
executor/administrator; 10390)
• Certification from the Philippine Consulate or Hague Apostille 3. People’s Survival Fund (Sec. 13, R.A. No. 10174)
Convention (if executed abroad); 4. Aurora Pacific Economic Zone and Freeport Authority (Sec. 7,
• Location Plan/Vicinity map if zonal value cannot be readily R.A. No. 10083)
determined from the documents submitted; 5. Girl Scouts of the Philippines (Sec. 11, R.A. No. 10073)
• Certificate of Exemption/BIR Ruling issued by the Commissioner of 6. Philippine Red Cross (Sec. 5, R.A. No. 10072)
Internal Revenue or his authorized representative, if tax exempt; 7. Tubbataha Reefs Natural Park (Sec. 17, R.A. No. 10067)
• BIR-approved request for installment payment of Estate tax due; 8. National Commission for Culture and the Arts (Sec. 35, R.A. No.
• BIR-approved request for partial disposition of Estate; 10066)
• Such other documents as may be required by 9. Philippine Normal University (Sec. 7, R.A. No. 9647)
law/rulings/regulations/etc. 10. University of the Philippines (Sec. 25, R.A. No. 9500)
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 11. National Water Quality Management Fund (Sec. 9, R.A. No. D. General renunciation of inheritance
9275) • A general renunciation of inheritance occurs when an heir or the
12. Philippine Investors Commission (Sec. 9, R.A. No. 3850) surviving spouse renounces his or her share in the hereditary
13. Ramon Magsaysay Award Foundation (Sec. 2, R.A. 3676) estate of a decedent in favor of no particular coheir.
14. Philippine-American Cultural Foundation (Sec. 4, P.D. 3062) • To be exempt, the renunciation of inheritance must not be done
15. International Rice Research Institute (Art. 5(2), PD 1620) categorically in favor of an identified heir to the exclusion of other
16. Task Force on Human Settlements (Sec. 3(b)(8), E.O. 419) heirs (RR2-2013).
17. National Social Action Council (Sec. 4, P.D. 294) • However, the renunciation by the surviving spouse of his/her
18. Aquaculture Department of the Southeast Asian Fisheries share in the net conjugal or communal properties upon
Development Center (Sec. 2, P.D. 292) dissolution of the marriage is a taxable donation regardless of
19. Development Academy of the Philippines (Sec. 12, PD 205) whether it is specific or general.
20. Integrated Bar of the Philippines (Sec. 3, PD 181) Summary of rules on renunciation
Typre of renunciation General Specific
B. Donation for election campaign
• Sec. 28 (B) of RA No. 10963 (TRAIN Law) states that any Renunciation with more than 2 heirs Exempt Taxable
contribution in cash or in kind to any candidate, political party or Renunciation with only 2 heirs Exempt Exempt
coalition of parties for campaign purposes shall be governed by Renunciation by the surviving spouse
Taxable Taxable
the Election Code, as amended.” of his share in the common

C. Transfer for insufficient consideration involving real property E. Donations with reserved powers such as Conditional donation and
classified as capital assets Revocable transfers
• Note that exemption applies only to real properties subject to the • A gift that is incomplete because of reserved powers becomes
6% capital gains tax. Hence, the exemption does not extend for complete when either:
sale of real properties classified as ordinary asset and sale of a. the donor renounces the power; or
personal or movable properties b. his right to exercise the reserve power ceases because of the
happening of some event or contingency or the fulfillment of
some condition, other than because of the donor’s death.

F. Donation to the government for public use

• Donations to GOCCs are not exempt from donor’s tax unless
stated specifically by laws.

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G. Donation to accredited non-profit institution H. Quasi-transfers
• Gifts in favor of an educational and/or charitable, religious, • These involve delivery of property to another person but will
cultural or social welfare corporation, institution, accredited never results in transfer of ownership thereto.
nongovernment organization, trust or philanthropic organization
or research institution or organization: I. Void donations
• Provided, however, that not more than thirty percent (30%) of Prohibited donation under the Civil Code:
said gifts shall be used by such donee for administration a. Donation between spouses, except minor gifts
purposes. For the purpose of this exemption, a ‘non-profit b. Donation between persons who were guilty of adultery or
educational and/or charitable corporation, institution, accredited concubinage at the time of donation
nongovernment organization, trust or philanthropic organization c. Donations between persons found guilty of the same criminal
and/or research institution or organization’ is a school, college or offense, in consideration thereof
university and/or charitable corporation, accredited d. Donations to a public officer or his family by reason of his
nongovernment organization, trust or philanthropic organization office
and/or research institution or organization, incorporated as a e. Donations to incapacitated persons
nonstock entity, paying no dividends, governed by trustees who f. Donations of future property
receive no compensation, and devoting all its income, whether
students’ fees or gifts, donation, subsidies or other forms of J. Foreign donations of non-resident alien donors
philanthropy, to the accomplishment and promotion of the • Donations of property situated in a foreign country by
purposes enumerated in its Articles of Incorporation. non-resident alien donors are not subjected to donor’s tax.
• Under Executive Order No. 671 accreditation of donee
institutions is handled by the following government entities: K. Donations of property exempt under reciprocity
a. Department of Social Welfare and Development (DSWD) –
Donor's Tax Rate
for charitable and or social welfare organizations, foundations
Up to P250,000 Exempt
and associations including but not limited to those engaged
Excess above P250,000 6%
in youth, child, women, family, disabled persons, older
persons, welfare and development.
Valuation of Net Gift
b. Department of Science and Technology – for research and The following are considerations in measuring net gift:
other scientific activities 1. Valuation rules
c. Philippine Sports Commission – for sports development 2. Timing of valuation
d. National Council for Culture and Arts – for cultural activities 3. Donation of common properties
e. Commission on Higher Education – for educational activities 4. Encumbrances on the property donated

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1. Valuation rules 4. Encumbrances on the property donated
A. Real property – the higher of zonal or fair value per assessor’s office • Obligations on the donated property which are assumed by the
B. Personal properties donee are diminutions to the gratuity accruing to the donee.
a. Share of stock These are onerous assignments of debt and are not gratuity;
i. If listed in the PSE – the average high and low price of the hence, these are deductible from the value of the donation.
stocks at the date of donation
ii. If not listed:
o Preferred stocks – par value
o Common stocks – the book value appearing in financial
statements publish nearest to the date of donation
b. Other properties
i. Newly purchased – purchase price
ii. Old items – second hand value
iii. Monetary claims – the amount fixed in the contract

2. Timing of valuation
• Donation is valued at the point of completion or perfection of the
donation
• Donation is perfected upon acceptance by the donee. In
conditional donations, the donation is completed and perfected
upon satisfaction by the donee of the terms of donation or upon
waiver by the donor of the conditions.

3. Donation of common properties

• Husband and wife are considered as separate and distinct
taxpayers for purposes of the donor’s tax. Donation of conjugal
or community property by the spouses is deemed ½ made by the
husband and ½ made by the wife. The husband and the wife shall
file separate donor’s tax returns for the donation.

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