Tax Module 01

TAX MODULE 01
Every year, millions of people in the Philippines face the

same annual task – staying on top of their taxes. After all,
only two things are certain in life: death and taxes.
Whether you’re an employee or running your own business,

missing tax deadlines can lead to detrimental consequences.
As we step into a new year (in a couple of months!), we’ll let

you in on some tax planning strategies to help you avoid any
potential issues with the Bureau of Internal Revenue.
The goal of this guide is to help you understand the basics of

taxation, provide practical advice to ensure compliance, and
help you minimize any tax-related headaches.
But before you start learning about the tax landscape in the
country, you must first be aware of the key republic acts
governing taxation policies in the Philippines. This includes:
 The Corporate Recovery and Tax Incentives for

Enterprises Act (CREATE Act)
 Tax Reform for Acceleration and Inclusion (TRAIN) Law
 Article VI, Section 28 of the Constitution
 The National Internal Revenue Code of 1997 (Republic
Act No. 8424), also known as the Tax Reform Act of
1997, as amended
 Republic Act No. 1937, the Tariff and Customs Code of
the Philippines (as amended)
 Republic Act 7160, also known as the Local Government
Code of 1991, as amended
These serve as the foundation of our tax system,

encompassing both national and local taxes.
National taxes are those we pay to the government through

the Bureau of Internal Revenue, while local government
taxation is based on the powers granted to local government
units under the Local Government Code of 1991.
Contents
 Tax Structure in the Philippines
o The Role of BIR
 What is Taxable Income?
 Types of Taxes in the Philippines
o Direct taxes
 Income tax
 Withholding tax
 Fringe Benefit Tax
 Capital Gains Tax
 Estate Tax
 Donor’s Tax
o Indirect taxes
 Value Added Tax
 Excise Tax
 Documentary Stamp Tax
o Local Taxes
 Real Property Tax
 Business Tax
 Tax on Transfer of Real Property Ownership
 Tax on Business of Printing and Publication
 Franchise Tax
 Tax on Sand, Gravel, and Quarry Resources
 Professional Tax
 Amusement Tax
 Annual Fixed Tax for Delivery Vehicles
 Tax on Business
 Fees for Sealing and Licensing of Weights and
Measures
 Fishery Rentals, Fees, and Charges
 Community Tax
 Barangay Taxes on Stores or Retailers
 Service Fees or Charges
 Barangay Clearance
 Tax Incentives and Exemptions in the Philippines
o 1. Special Economic Zones and their tax benefits
o 2. Tax holidays and other incentives for businesses
o 3. Exemptions for certain individuals and entities
 Tips for Effective Tax Planning in the Philippines
o 1. Income Splitting
o 2. Timing of income and expenses
o 3. Utilizing tax credits and deductions
o 4. Investing in Tax-Advantages accounts
o 5. Tax incentives and exemptions
o 6. Considerations for Business Owners
o 7. Real estate and capital gains
o 8. Estate Planning and Donor’s Tax
o 9. Seeking professional advice
o 10. Using digital tools and software
Tax Structure in the Philippines

The Philippines follows a territorial tax system. This means
that only income generated within the Philippines or from
Philippine sources is subject to taxes.
Income earned from foreign sources is generally not taxed in

the Philippines, with some exceptions for certain types of
income.
The Role of BIR
The Bureau of Internal Revenue or BIR is the primary agency

responsible for the assessment, collection, and enforcement
of internal revenue taxes and other related charges within
the Philippines.
Here’s a more detailed breakdown of the BIR’s key functions:
Tax Assessment
The BIR has the power to assess taxes on individuals and

businesses based on their income, transactions, financial
activities, or other taxable transactions.
The assessment process involves reviewing the taxpayer’s

records and financial statements to determine the amount of
tax owed.
Tax collection
This involves sending notices to taxpayers informing them of
their tax obligations.
The BIR also has the authority to impose penalties for late or
non-payment of taxes, as well as to seize assets or initiate
legal action against delinquent taxpayers.
Assistance and education
To help ensure everyone is in the loop about taxes, BIR offers

information on tax filing procedures and tax regulations. The
agency also provides guidance on how to avoid common tax-
related issues.
Auditing and investigation
If there are suspicions of tax evasion, fraud, or non-

compliance, the BIR may conduct an audit or investigation
into the taxpayer’s financial activities.
This includes reviewing their accounts and gathering

evidence to determine if any violations have been
committed.
If violations are found, the BIR may impose penalties, fines,

or even criminal charges.
Tax clearance and certificate issuance
The BIR also provides tax clearance and certificate

issuance services to individuals and businesses. A tax
clearance certificate is a document that certifies that a
taxpayer has no outstanding tax liabilities or has paid all
taxes due and is up to date with their tax obligations.
This certificate is required for various transactions such

as registering a new business, renewing business permits,
applying for travel visas, and more.
Policy and regulation
The agency has a key role in developing tax policies and

regulations. They also work with other government agencies
to make sure that tax laws and regulations are clear,
consistent, and fair.
Enforcement and legal action
When necessary, the BIR has the power to enforce tax laws
and regulations by taking legal action against individuals and
businesses who do not comply with tax requirements.
This can include imposing fines, penalties, and even

imprisonment in extreme cases of tax evasion or fraud.
What is Taxable Income?

Taxable income refers to the portion of your total income that
is subject to taxation by the government. In simpler terms,
it’s the money you earn on which you have to pay taxes.
This income can come from various sources, such as

your job, business, investments, or any other financial
activities.
Types of Taxes in the Philippines

To understand taxation, it’s essential to know the different
types of taxes imposed by the government.
Direct taxes
This type of tax is directly levied on an individual or business,
and the burden of paying it falls on the same person or
entity. Here are the different types of direct taxes.
Income tax
Income tax is imposed on the yearly profits or earnings that

individuals and businesses generate from various sources,
such as property, professions, trades, or offices.
Individual or personal income tax rates
Individual income tax follows a progressive tax rate structure,

where the tax rate increases as income levels rise.
Income Tax rate
0 – PHP 250,000 0%
PHP 250,001 to PHP 400,000 15%
PHP 400,001 to PHP 800,000 20%
PHP 800,001 to PHP 2,000,000 25%
PHP 2,000,001 to PHP 8,000,000 30%
Above PHP 8,000,000 35%
Corporate income tax
Corporate income tax is a tax imposed on the net income or

profits of corporations, partnerships, and other entities
engaged in trade or business within the Philippines. It is
based on a fixed rate.
Philippine corporations are taxed on their total global income.

However, non-resident corporations are only taxed on income
they generate in the Philippines.
Meanwhile, a foreign corporation with a branch in the
Philippines is subject to taxation on the income generated in
the country. Branch taxable income is calculated in the same
way as subsidiary taxable income.
Effective from July 1, 2020, Philippine corporations are taxed

at a rate of 25% (from 30%). This doesn’t include
corporations who have a net taxable revenue of less than
PHP5 million and total assets of less than PHP100 million,
which is taxed at a rate of 20%.
CIT Rate
Corporate income
20% to 25%
tax
25%, plus additional 15% tax on after-taxation profits remitted to foreign

Branch office tax
headquarters
Withholding tax
The following are the different withholding taxes you should

know.
Dividends
When a resident company distributes dividends, they are

liable to the following taxes.
For individuals:

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TAX MODULE 01

Every year, millions of people in the Philippines face the

Whether you’re an employee or running your own business,

As we step into a new year (in a couple of months!), we’ll let

The goal of this guide is to help you understand the basics of

 The Corporate Recovery and Tax Incentives for

These serve as the foundation of our tax system,

National taxes are those we pay to the government through

Tax Structure in the Philippines

Income earned from foreign sources is generally not taxed in

The Role of BIR

The Bureau of Internal Revenue or BIR is the primary agency

Here’s a more detailed breakdown of the BIR’s key functions:

The BIR has the power to assess taxes on individuals and

The assessment process involves reviewing the taxpayer’s

Assistance and education

To help ensure everyone is in the loop about taxes, BIR offers

Auditing and investigation

If there are suspicions of tax evasion, fraud, or non-

This includes reviewing their accounts and gathering

If violations are found, the BIR may impose penalties, fines,

Tax clearance and certificate issuance

The BIR also provides tax clearance and certificate

This certificate is required for various transactions such

The agency has a key role in developing tax policies and

Enforcement and legal action

This can include imposing fines, penalties, and even

What is Taxable Income?

This income can come from various sources, such as

Types of Taxes in the Philippines

Income tax is imposed on the yearly profits or earnings that

Individual or personal income tax rates

Individual income tax follows a progressive tax rate structure,

Income Tax rate

PHP 250,001 to PHP 400,000 15%

PHP 400,001 to PHP 800,000 20%

PHP 800,001 to PHP 2,000,000 25%

PHP 2,000,001 to PHP 8,000,000 30%

Above PHP 8,000,000 35%

Corporate income tax

Corporate income tax is a tax imposed on the net income or

Philippine corporations are taxed on their total global income.

Effective from July 1, 2020, Philippine corporations are taxed

25%, plus additional 15% tax on after-taxation profits remitted to foreign

The following are the different withholding taxes you should

When a resident company distributes dividends, they are

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