Philippine Income Taxation: Atty. Janine Crystal C. Sayo-Villavicencio, RPM

PHILIPPINE INCOME TAXATION ATTY. JANINE CRYSTAL C.
SAYO-
VILLAVICENCIO, RPm
INCOME
Income: all wealth which flows into the taxpayer other than as a mere return of
capital
Taxable income: the pertinent items of gross income specified in the Tax Code as
amended, less the deductions, if any, authorized for such types of income, by the Tax
Code or other special laws
Gross income: all income derived from whatever source.
1. Compensation for services, in whatever form paid, including but not limited to fees,
salaries, wages, commissions and similar items
2. Gross income derived from the conduct of trade or business or the exercise of profession
3. Gains derived from dealings in property
4. Interest
5. Rents
6. Royalties
7. Dividends
8. Annuities
9. Prizes and winnings
10. Pensions
11. Partner's distributive share from the net income of the general professional partnerships
EXCLUSIONS
Life insurance
Amount received by insured as return of premium
Gifts, bequests and devises
Compensation for injuries or sickness
Income exempt under treaty
Retirement benefits, pensions, gratuities, etc.
Income derived by foreign government
Income derived by the government or its political subdivision
Prizes and awards in sport competition
Prizes and awards which met the conditions set in the Tax Code
13th month pay and other benefits not exceeding P90,000
GSIS, SSS, Medicare and other contributions
Gains from the sale of bonds, debentures or other certificate of indebtedness with a
maturity of more than five (5) years
Gains from redemption of shares in mutual fund
ALLOWABLE DEDUCTIONS
Optional Standard Deduction - an amount not exceeding 40% of the gross
sales/receipts for individuals and gross income for corporations
Itemized Deductions which include the following:
- Expenses
- Interest
- Taxes
- Losses
- Bad Debts
- Depreciation
- Depletion of Oil and Gas Wells and Mines
- Charitable Contributions and Other Contributions- Research and Development
- Pension Trusts
* Not allowed to non-resident alien individual
* A General Professional Partnership (GPP) may avail of the OSD only once, either by the
GPP or the partners comprising the partnership
GR: ALL MUST FILE ETR:
a. An individual earning purely compensation income whose taxable income does not
exceed P250,000.00
b. An individual whose income tax has been withheld correctly by his employer,
provided that such individual has only one employer for the taxable year
c. An individual whose sole income has been subjected to final withholding tax or who
is exempt from income tax pursuant to the Tax Code and other special laws.
d. An individual who is a minimum wage earner
e. Those who are qualified under “substituted filing”. However, substituted
filing applies only if all of the following requirements are present:
- the employee received purely compensation income (regardless of amount)
during the taxable year;
- the employee received the income from only one employer in the Philippines
during the taxable year;
- the amount of tax due from the employee at the end of the year equals the
amount of tax withheld by the employer;
- the employee’s spouse also complies with all 3 conditions stated above;
- the employer files the annual information return (BIR Form No. 1604-CF); and
- the employer issues BIR Form No. 2316 (Oct 2002 ENCS version) to each
employee.
EXEMPTION TO INCOME TAX
a. Income from abroad of a non-resident citizen who is:
i. A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of
his physical presence abroad with a definite intention to reside therein
ii. A citizen of the Philippines who leaves the Philippines during the taxable year to reside
abroad, either as an immigrant or for employment on a permanent basis
iii. A citizen of the Philippines who works and derives income from abroad and whose
employment thereat requires him to be physically present abroad most of the time during the
taxable year
iv. A citizen who has been previously considered as a non-resident citizen and who arrives in
the Philippines at any time during the year to reside permanently in the Philippines will
likewise be treated as a non-resident citizen during the taxable year in which he arrives in the
Philippines, with respect to his income derived from sources abroad until the date of his arrival
in the Philippines.
b. Overseas Filipino Worker, including overseas seaman
An individual citizen of the Philippines who is working and deriving income from
abroad as an overseas Filipino worker is taxable only on income from sources within
the Philippines; provided, that a seaman who is a citizen of the Philippines and who
receives compensation for services rendered abroad as a member of the complement
of a vessel engaged exclusively in international trade will be treated as an overseas
Filipino worker.
NOTE: A Filipino employed as Philippine Embassy/Consulate service personnel of the

Philippine Embassy/consulate is not treated as a non-resident citizen; hence, his
income is taxable.
c. General Professional Partnership
d. Government Service Insurance System (GSIS)
e. Social Security System (SSS)
f. Philippine Health Insurance Corporation (PHIC)
g. Local Water Districts (LWD)
INCOME TAX BASED ON CITIZENSHIP AND
RESIDENCY
IN/OUT CITIZENSHIP RESIDENCY
YES/YES C R
YES/NO C NR
YES/NO A R
YES/NO A NR
YES/YES RDC R
YES/NO RFC R
YES/NO NRDC NR
YES/NO NRFC NR
SITUS OF TAXATION
OBJECT SITUS OF TAX
Business, occupation, transaction Place of business, occupation or transaction
Real and tangible property Location
Intangible personal property Domicile of the owner ETR has acquired business
status in another jurisdiction
Gratuitous transfer of property RC of TP or location of property
INCOME TAX RATES
For Individual Citizens and Resident Aliens Earning Purely Compensation Income and
Individuals Engaged in Business and Practice of Profession
For Purely Self-Employed Individuals and/or Professionals Whose Gross
Sales/Receipts and Other Non-Operating Income Do Not Exceed the VAT
Threshold of P3,000,000, the tax shall be, at the taxpayer’s option:
 8% Income Tax on Gross Sales or Gross Receipts in Excess of P250,000 in Lieu of the Graduated
Income Tax Rates and the Percentage Tax; Or
 Income Tax Based on the Graduated Income Tax Rates
For Individuals Earning Both Compensation Income
and Income from Business and/or Practice of
Profession, their income taxes shall be:
For Income from Compensation: Based on Graduated Income Tax
Rates; and
For Income from Business and/or Practice of Profession:
 If the total Gross Sales/Receipts Do Not Exceed VAT Threshold of P3,000,000, the
Individual Taxpayer May Opt to Avail:
 8% Income Tax on Gross Sales/Receipts and Other Non-Operating Income in Lieu of the
Graduated Income Tax Rates and the Percentage Tax; Or
 Income Tax Based on Graduated Income Tax Rates
 If the total Gross Sales/Receipts Exceed VAT Threshold of P3,000,000
 Income Tax Based on Graduated Income Tax Rates
PASSIVE INCOME TAX RATES
NRA-ETB
NRA-NETB
DC
RFC

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PHILIPPINE INCOME TAXATION ATTY. JANINE CRYSTAL C.

NOTE: A Filipino employed as Philippine Embassy/Consulate service personnel of the

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